Document:

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                                                                     EXHIBIT 4.1
                                                               EXECUTION VERSION
                                                               -----------------

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                     NOVASTAR MORTGAGE FUNDING CORPORATION,
                                   as Company

                            NOVASTAR MORTGAGE, INC.,
                            as Servicer and as Seller

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                  as Custodian

                                       and

                              JPMORGAN CHASE BANK,
                                   as Trustee

                         POOLING AND SERVICING AGREEMENT

                          Dated as of November 1, 2003

                                   ----------

                 NovaStar Mortgage Funding Trust, Series 2003-4

       NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-4

================================================================================

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                                TABLE OF CONTENTS
                                                                            Page
                                                                            ----
ARTICLE I DEFINITIONS..........................................................1
   Section 1.01   Defined Terms................................................1
   Section 1.02   Accounting...................................................1
   Section 1.03   Allocation of Certain Interest Shortfalls....................2
   Section 1.04   Calculation of Interest on Certificates......................2

ARTICLE II CONVEYANCE OF MORTGAGE LOANS; ORIGINAL ISSUANCE OF
               CERTIFICATES....................................................2

   Section 2.01   Conveyance of Mortgage Loans and Other Trust Assets..........2
   Section 2.02   Acceptance of Mortgage Loans by Custodian, on behalf
                  of the Trustee...............................................5
   Section 2.03   Repurchase or Substitution of Mortgage Loans by the
                  Seller.......................................................6
   Section 2.04   Acknowledgement of Trustee...................................9
   Section 2.05   Representations, Warranties and Covenants of the
                  Servicer.....................................................9
   Section 2.06   Representations and Warranties of the Company...............10
   Section 2.07   Issuance of Certificates....................................11
   Section 2.08   Conveyance of the Subsequent Mortgage Loans.................11
   Section 2.09   Designation Under REMIC Provisions..........................11

ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS................27

   Section 3.01   Servicer to Assure Servicing................................27
   Section 3.02   Subservicing Agreements Between Servicer and
                  Subservicers................................................28
   Section 3.03   Successor Subservicers......................................29
   Section 3.04   Liability of the Servicer...................................29
   Section 3.05   Assumption or Termination of Subservicing Agreements
                  by the Trustee..............................................30
   Section 3.06   Collection of Mortgage Loan Payments........................30
   Section 3.07   Withdrawals from the Collection Account.....................33
   Section 3.08   Collection of Taxes, Assessments and Similar Items;
                  Servicing Accounts..........................................34
   Section 3.09   Access to Certain Documentation and Information
                  Regarding the Mortgage Loans................................35
   Section 3.10   [Reserved]..................................................35
   Section 3.11   Maintenance of Hazard Insurance and Fidelity Coverage.......35
   Section 3.12   Due-on-Sale Clauses; Assumption Agreements..................37
   Section 3.13   Realization Upon Defaulted Mortgage Loans...................38
   Section 3.14   Custodian to Cooperate; Release of Mortgage Files...........39
   Section 3.15   Servicing Compensation......................................40

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   Section 3.16   Annual Statements of Compliance.............................41
   Section 3.17   Annual Independent Public Accountants' Servicing Report.....41
   Section 3.18   Optional Purchase of Defaulted Mortgage Loans...............42
   Section 3.19   Information Required by the Internal Revenue Service
                  Generally and Reports of Foreclosures and Abandonments
                  of Mortgaged Property.......................................42
   Section 3.20   Purchase of Converted Mortgage Loans........................42
   Section 3.21   [Reserved]..................................................42
   Section 3.22   Servicing and Administration of the MI Policies.............42
   Section 3.23   Determination Date Reports..................................43
   Section 3.24   Advances....................................................44
   Section 3.25   Compensating Interest Payments..............................45
   Section 3.26   Advance Facility............................................45

ARTICLE IV FLOW OF FUNDS......................................................47

   Section 4.01   Distributions...............................................47
   Section 4.02   Distribution Account........................................54
   Section 4.03   Statements..................................................55
   Section 4.04   Supplemental Interest Trusts; Excess Cashflow...............58
   Section 4.05   Pre-Funding Account.........................................61
   Section 4.06   [Reserved]..................................................63
   Section 4.07   Allocation of Realized Losses...............................63

ARTICLE V THE CERTIFICATES....................................................63

   Section 5.01   The Certificates............................................63
   Section 5.02   Registration of Transfer and Exchange of Certificates.......64
   Section 5.03   Mutilated, Destroyed, Lost or Stolen Certificates...........68
   Section 5.04   Persons Deemed Owners.......................................68
   Section 5.05   Appointment of Paying Agent.................................69

ARTICLE VI THE SERVICER AND THE COMPANY.......................................69

   Section 6.01   Liability of the Servicer and the Company...................69
   Section 6.02   Merger or Consolidation of, or Assumption of the
                  Obligations of, the Servicer or the Company.................69
   Section 6.03   Limitation on Liability of the Servicer and Others..........70
   Section 6.04   Servicer Not to Resign......................................70
   Section 6.05   Delegation of Duties........................................71
   Section 6.06   Servicer to Pay Trustee's Fees and Expenses;
                  Indemnification.............................................71

ARTICLE VII DEFAULT...........................................................72

   Section 7.01   Servicing Default...........................................72
   Section 7.02   Trustee to Act; Appointment of Successor....................74
   Section 7.03   Waiver of Defaults..........................................75
   Section 7.04   Notification to Certificateholders..........................76
   Section 7.05   Survivability of Servicer Liabilities.......................76

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ARTICLE VIII THE TRUSTEE......................................................76

   Section 8.01   Duties of the Trustee.......................................76
   Section 8.02   Rights of Trustee...........................................78
   Section 8.03   Individual Rights of Trustee................................79
   Section 8.04   Trustee's Disclaimer........................................79
   Section 8.05   Notice of Servicing Default.................................79
   Section 8.06   [Reserved]..................................................80
   Section 8.07   Compensation and Indemnity..................................80
   Section 8.08   Replacement of Trustee......................................80
   Section 8.09   Successor Trustee by Merger.................................80
   Section 8.10   Appointment of Co-Trustee or Separate Trustee...............81
   Section 8.11   Eligibility; Disqualification...............................82
   Section 8.12   [Reserved]..................................................82
   Section 8.13   Representations and Warranties..............................82
   Section 8.14   Directions to Trustee.......................................83
   Section 8.15   The Agents..................................................83
   Section 8.16   Reports by the Trustee; Trust Fiscal Year...................83
   Section 8.17   Execution of the Novation and Swap Agreements...............84

ARTICLE IX [RESERVED].........................................................84

ARTICLE X REMIC ADMINISTRATION................................................84

   Section 10.01  REMIC Administration........................................84
   Section 10.02  Prohibited Transactions and Activities......................86

ARTICLE XI TERMINATION........................................................87

   Section 11.01  Termination.................................................87
   Section 11.02  Additional Termination Requirements.........................89

ARTICLE XII MISCELLANEOUS PROVISIONS..........................................89

   Section 12.01  Amendment...................................................89
   Section 12.02  Recordation of Agreement; Counterparts......................90
   Section 12.03  Limitation on Rights of Certificateholders..................91
   Section 12.04  Governing Law; Jurisdiction.................................92
   Section 12.05  Notices.....................................................92
   Section 12.06  Severability of Provisions..................................94
   Section 12.07  Article and Section References..............................94
   Section 12.08  Further Assurances..........................................94
   Section 12.09  Benefits of Agreement.......................................94
   Section 12.10  Acts of Certificateholders..................................94
   Section 12.11  Confidentiality.............................................95

APPENDIX A

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EXHIBITS:

Exhibit A-1    Form of Class A-1 Certificates

Exhibit A-2    Form of Class A-2A Certificates

Exhibit A-3    Form of Class A-2B Certificates

Exhibit A-4    Form of Class A-2C Certificates

Exhibit A-5    Form of Class A-3 Certificates

Exhibit A-6    Form of Class M-1 Certificates

Exhibit A-7    Form of Class M-2 Certificates

Exhibit A-8    Form of Class M-3 Certificates

Exhibit A-9    Form of Class B-1 Certificates

Exhibit A-10   Form of Class B-2 Certificates

Exhibit A-11   Form of Class B-3 Certificates

Exhibit A-12   Form of Class I Certificates

Exhibit A-13   Form of Class X Certificates

Exhibit A-14   Form of Class P Certificates

Exhibit A-15   Form of Class O Certificates

Exhibit A-16   Form of Class R Certificates

Exhibit B      Mortgage Loan Schedule

Exhibit C      Form of Addition Notice

Exhibit D      Form of Subsequent Transfer Instrument

Exhibit E      Request for Release

Exhibit F-1    Form of Trustee's Initial Certification

Exhibit F-2    Form of Trustee's Final Certification

Exhibit G      Form of Investment Letter

Exhibit H      Form of Residual Certificate Transfer Affidavit

Exhibit I      Form of Transferor's Certificate

Exhibit J      Form of Notional Amount Test Event Notice

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          This Pooling and Servicing Agreement is dated as of November 1, 2003
(the "Agreement"), among NOVASTAR MORTGAGE FUNDING CORPORATION, as company (the
"Company"), NOVASTAR MORTGAGE, INC., as servicer (the "Servicer") and as seller
(the "Seller"), WACHOVIA BANK, NATIONAL ASSOCIATION, as custodian (the
"Custodian") and JPMORGAN CHASE BANK, as trustee (the "Trustee").

                                    ARTICLE I

                                   DEFINITIONS

          Section 1.01  Defined Terms.
                        --------------

          Whenever used in this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms and
phrases used herein shall have the meanings assigned to such terms and phrases
in the definitions attached hereto as Appendix A, which is incorporated herein
by reference. Unless the context otherwise requires:

          (a)  a term has the meaning assigned to it;

          (b)  an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles as in effect
from time to time;

          (c)  "or" is not exclusive;

          (d)  "including" means including without limitation;

          (e)  words in the singular include the plural and words in the plural
include the singular;

          (f)  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; and

          (g)  references to a Person are also to such Person's permitted
successors and assigns.

          Section 1.02  Accounting.
                        -----------

          Unless otherwise specified herein, for the purpose of any definition
or calculation, whenever amounts are required to be netted, subtracted or added
or any distributions are taken into account such definition or calculation and
any related definitions or calculations shall be determined without duplication
of such functions.

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          Section 1.03  Allocation of Certain Interest Shortfalls.
                        ------------------------------------------

          For purposes of calculating the amount of the Monthly Interest
Distributable Amount for the Class A Certificates, the Mezzanine Certificates
and the Class B Certificates, for any Distribution Date, (1) the aggregate
amount of any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls
incurred in respect of the Mortgage Loans for any Distribution Date shall be
allocated first to the Excess Cashflow, and second, on a pro rata basis based
on, and to the extent of, the gross Monthly Interest Distributable Amount for
each such Class, among the Class A Certificates, the Mezzanine Certificates and
the Class B Certificates and (2) the aggregate amount of any Available Funds Cap
Carryforward Amounts incurred for any Distribution Date shall be allocated to
the Class X Certificates to the extent of the gross Monthly Interest
Distributable Amount for that Class, after deduction of any Net Prepayment
Interest Shortfalls and any Relief Act Shortfalls.

          All Net Prepayment Interest Shortfalls and Relief Act Shortfalls shall
be allocated on each Distribution Date among the classes of each of REMIC I,
REMIC II, REMIC III and REMIC IV in the proportion that Net Prepayment Interest
Shortfalls and Relief Act Shortfalls are allocated to the related Master REMIC
Regular Interests.

          Section 1.04  Calculation of Interest on Certificates.
                        ----------------------------------------

          Unless otherwise specified, all calculations in respect of interest on
the Class A Certificates, the Class B Certificates and the Mezzanine
Certificates shall be made on the basis of the actual number of days elapsed in
the related Accrual Period on the basis of a 360-day year and all other
calculations of interest described herein shall be made on the basis of a
360-day year consisting of twelve 30-day months. The Class O Certificates and
the Class P Certificates are not entitled to distributions in respect of
interest and, accordingly, will not accrue interest.

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

          Section 2.01  Conveyance of Mortgage Loans and Other Trust Assets.
                        ----------------------------------------------------

          The Company, concurrently with the execution and delivery hereof, does
hereby transfer, assign, set over and otherwise convey in trust to the Trustee
without recourse for the benefit of the Certificateholders all the right, title
and interest of the Company, including any security interest therein for the
benefit of the Company, in and to (i) each Initial Mortgage Loan identified on
the Mortgage Loan Schedule, including the related Cut-off Date Principal
Balance, all interest accruing thereon on and after the Cut-off Date and all
collections in respect of interest and principal due after the Cut-off Date;
(ii) property which secured each such Mortgage Loan and which has been acquired
by foreclosure or deed in lieu of foreclosure; (iii) its interest in any
insurance policies in respect of the Mortgage Loans; (iv) its interest in the MI
Policies; (v) the rights of the Company under the Purchase Agreement; (vi) its
interest in the Swap Agreements and the Cap Agreements; (vii) all other assets
included or to be included in the Trust Fund; and (viii) all proceeds of any of
the foregoing. Such assignment includes all interest and principal

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due to the Company or the Servicer after the related Cut-off Date with respect
to the Mortgage Loans.

          In connection with such transfer and assignment, the Seller, on behalf
of the Company, does hereby deliver to, and deposit with the Custodian, as the
Trustee's designated agent, the following documents or instruments with respect
to each Initial Mortgage Loan so transferred and assigned and the Seller, on
behalf of the Company, shall, in accordance with Section 2.08, deliver or cause
to be delivered to the Custodian, as the Trustee's designated agent, with
respect to each Subsequent Mortgage Loan, the following documents or instruments
(with respect to each Mortgage Loan, a "Mortgage File"):

               (i)    the original Mortgage Note endorsed to "JPMorgan Chase
     Bank, as Trustee for the NovaStar Home Equity Loan Asset-Backed
     Certificates, Series 2003-4";

               (ii)   the original Mortgage with evidence of recording thereon,
     or, if the original Mortgage has not yet been returned from the public
     recording office, a copy of the original Mortgage certified by the Seller
     or the public recording office in which such original Mortgage has been
     recorded, and if the Mortgage Loan is registered on the MERS System, such
     Mortgage shall include thereon a statement that it is a MOM Loan and shall
     include the MIN for such Mortgage Loan;

               (iii)  unless the Mortgage Loan is registered on the MERS System,
     an original assignment (which may be included in one or more blanket
     assignments if permitted by applicable law) of the Mortgage endorsed to
     "JPMorgan Chase Bank, as Trustee for the NovaStar Home Equity Loan
     Asset-Backed Certificates, Series 2003-4", and otherwise in recordable
     form;

               (iv)   originals of any intervening assignments of the Mortgage
     showing an unbroken chain of title from the originator thereof to the
     Person assigning it to the Trustee (or to MERS, if the Mortgage Loan is
     registered on the MERS System), and noting the presence of a MIN (if the
     Mortgage Loan is registered on the MERS System), with evidence of recording
     thereon, or, if the original of any such intervening assignment has not yet
     been returned from the public recording office, a copy of such original
     intervening assignment certified by the Seller or the public recording
     office in which such original intervening assignment has been recorded;

               (v)    the original policy of title insurance (or a commitment
     for title insurance, if the policy is being held by the title insurance
     company pending recordation of the Mortgage); and

               (vi)   a true and correct copy of each assumption, modification,
     consolidation or substitution agreement, if any, relating to the Mortgage
     Loan.

          If a material defect in any Mortgage File is discovered which may
materially and adversely affect the value of the related Mortgage Loan, or the
interests of the Trustee or the Certificateholders in such Mortgage Loan,
including if any document required to be delivered to the Custodian has not been
delivered (provided that a Mortgage File will not be deemed to contain a defect
for an unrecorded assignment under clause (iii) above for 180 days following

                                       3

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submission of the assignment if the Seller has submitted such assignment for
recording pursuant to the terms of the following paragraph), the Seller shall
cure such defect or repurchase the related Mortgage Loan at the Repurchase Price
or substitute an Eligible Substitute Mortgage Loan for the related Mortgage Loan
upon the same terms and conditions set forth in Section 3.01 of the Purchase
Agreement as to the Initial Mortgage Loans and the Subsequent Mortgage Loans and
Section 2.02(c) of the Purchase Agreement as to the Subsequent Mortgage Loans
for breaches of representations and warranties.

          Promptly after the Closing Date in the case of a Initial Mortgage Loan
or, in the case of a Subsequent Mortgage Loan, promptly after the Subsequent
Transfer Date (or after the date of transfer of any Eligible Substitute Mortgage
Loan), the Seller at its own expense shall complete and submit for recording in
the appropriate public office for real property records each of the assignments
referred to in clause (iii) above, with such assignment completed in favor of
the Trustee, excluding any Mortgage Loan that is registered on the MERS System,
if MERS is identified on the Mortgage, or on a properly recorded assignment of
Mortgage as the mortgagee of record. While such assignment to be recorded is
being recorded, the Custodian shall retain a photocopy of such assignment. If
any assignment is lost or returned unrecorded to the Custodian because of any
defect therein, the Seller is required to prepare a substitute assignment or
cure such defect, as the case may be, and the Seller shall cause such substitute
assignment to be recorded in accordance with this paragraph.

          In instances where an original Mortgage or any original intervening
assignment of Mortgage is not, in accordance with clause (ii) or (iv) above,
delivered by the Seller to the Custodian, on behalf of the Trustee, prior to or
on the Closing Date in the case of a Initial Mortgage Loan or, in the case of a
Subsequent Mortgage Loan, promptly after the Subsequent Transfer Date, the
Seller will deliver or cause to be delivered the originals of such documents to
the Custodian, on behalf of the Trustee, promptly upon receipt thereof.

          In connection with the assignment of any Mortgage Loan registered on
the MERS System, promptly after the Closing Date in the case of a Initial
Mortgage Loan or, in the case of a Subsequent Mortgage Loan, promptly after the
Subsequent Transfer Date (or after the date of transfer of any Eligible
Substitute Mortgage Loan), the Seller further agrees that it will cause, at the
Seller's own expense, the MERS System to indicate that such Mortgage Loan has
been assigned by the Seller to the Trustee in accordance with this Agreement for
the benefit of the Certificateholders by including (or deleting, in the case of
Mortgage Loans which are repurchased in accordance with this Agreement) in its
computer files (a) the applicable Trustee code in the field "Trustee" which
identifies the Trustee and (b) the code "NovaStar 2003-4" (or its equivalent) in
the field "Pool Field" which identifies the series of the Certificates issued in
connection with such Mortgage Loans. The Seller further agrees that it will not,
and will not permit the Servicer to, and the Servicer agrees that it will not,
alter the codes referenced in this paragraph with respect to any such Mortgage
Loan during the term of this Agreement unless and until such Mortgage Loan is
repurchased in accordance with the terms of this Agreement.

          Effective on the Closing Date, the Trustee, on behalf of the
Certificateholders, hereby acknowledges its acceptance of all right, title and
interest to the Initial Mortgage Loans and other property, existing on the
Closing Date and thereafter created and conveyed to it pursuant to this Section
2.01.

                                       4

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          The Trustee, as assignee or transferee of the Company, shall be
entitled to all scheduled principal payments due after the Cut-off Date, all
other payments of principal due and collected after the Cut-off Date, and all
payments of interest on the Initial Mortgage Loans. No scheduled payments of
principal due on or before the Cut-off Date and collected after the Cut-off Date
shall belong to the Company pursuant to the terms of the Purchase Agreement. Any
late payment charges collected in connection with a Mortgage Loan shall be paid
to the Servicer as provided in Section 3.15(b) hereof.

          The parties hereto intend that the transactions set forth herein
constitute a sale by the Company to the Trust on the Closing Date of all the
Company's right, title and interest in and to the Initial Mortgage Loans and
other property as and to the extent described above. In the event the
transactions set forth herein shall be deemed not to be a sale, the Company
hereby grants to the Trustee, on behalf of the Certificateholders, as of the
Closing Date a security interest in all of the Company's right, title and
interest in, to and under the Initial Mortgage Loans and such other property, to
secure all of the Company's obligations hereunder and this Agreement shall
constitute a security agreement under applicable law and in such event, the
parties hereto acknowledge that the Custodian, in addition to holding the
Initial Mortgage Loans on behalf of the Trustee for the benefit of the
Certificateholders, holds the Initial Mortgage Loans as designee of the Company.
The Seller agrees to take or cause to be taken such actions and to execute such
documents, including without limitation the filing of all necessary UCC-1
financing statements in the State of Virginia (which shall have been submitted
for filing as of the Closing Date and each Subsequent Transfer Date, as
applicable), any continuation statements with respect thereto and any amendments
thereto required to reflect a change in the name or corporate structure of the
Seller or the filing of any additional UCC-1 financing statements due to the
change in the state of incorporation of the Seller, as are necessary to perfect
and protect the interests of the Trust and its assignees in each Initial
Mortgage Loan and the proceeds thereof and the interests of the Trust and its
assignees in each Subsequent Mortgage Loan and the proceeds thereof.

          Section 2.02  Acceptance of Mortgage Loans by Custodian, on behalf of
                        -------------------------------------------------------
the Trustee.
------------

          (a)  The Custodian, on behalf of the Trustee, acknowledges receipt of,
subject to the review described below and any exceptions it notes pursuant to
the procedures described below, the documents (or certified copies thereof)
referred to in Section 2.01 hereof and declares that it holds and will continue
to hold those documents and any amendments, replacements or supplements thereto
and all other assets of the Trust Fund in trust for the use and benefit of all
present and future Certificateholders. No later than 45 days after the Closing
Date and each Subsequent Transfer Date (or, with respect to any Eligible
Substitute Mortgage Loan, within 5 Business Days after the receipt by the
Custodian, on behalf of the Trustee, thereof and, with respect to any documents
received beyond 45 days after the Closing Date, promptly thereafter), the
Custodian, on behalf of the Trustee, agrees, for the benefit of the
Certificateholders, to review each Mortgage File delivered to it and to execute
and deliver, or cause to be executed and delivered, to the Seller an initial
certification in the form annexed hereto as Exhibit F-1. In conducting such
review, the Custodian, on behalf of the Trustee, will ascertain whether all
required documents described in Section 2.01 hereof have been executed and
received and whether those documents relate, determined on the basis of the
Mortgagor name, original

                                       5

<PAGE>

principal balance and loan number, to the Mortgage Loans it has received, as
identified in Exhibit B to this Agreement, as supplemented (provided, however,
that with respect to those documents described in subclause (vii) of such
section, the Custodian's obligations shall extend only to documents actually
delivered pursuant to such subclause). In performing any such review, the
Custodian, on behalf of the Trustee, may conclusively rely on the purported due
execution and genuineness of any such document and on the purported genuineness
of any signature thereon. If the Custodian, on behalf of the Trustee, finds that
any document constituting part of the Mortgage File not to have been executed or
received, or to be unrelated to the Mortgage Loans identified in Exhibit B or
Attachment B to Exhibit 2 of the Purchase Agreement or to appear to be defective
on its face, the Custodian, on behalf of the Trustee, shall promptly notify the
Seller of such finding and the Seller's obligation to cure such defect or
repurchase or substitute for the related Mortgage Loan.

          (b)  No later than 180 days after the Closing Date, the Custodian, on
behalf of the Trustee, will review, for the benefit of the Certificateholders,
the Mortgage Files and will execute and deliver or cause to be executed and
delivered to the Seller, a final certification in the form annexed hereto as
Exhibit F-2. In conducting such review, the Custodian, on behalf of the Trustee,
will ascertain whether an original of each document described in subclauses
(ii)-(iv) of Section 2.01 hereof required to be recorded has been returned from
the recording office with evidence of recording thereon or a certified copy has
been obtained from the recording office. If the Custodian, on behalf of the
Trustee, finds any document constituting part of the Mortgage File has not been
received, or to be unrelated, determined on the basis of the Mortgagor name,
original principal balance and loan number, to the Mortgage Loans identified in
Exhibit B or Attachment B to Exhibit 2 of the Purchase Agreement or to appear
defective on its face, the Custodian, on behalf of the Trustee, shall promptly
notify the Seller and the Trustee of such finding and the Seller's obligation to
cure such defect or repurchase or substitute for the related Mortgage Loan.

          (c)  Upon deposit of the Repurchase Price in the Collection Account
and notification of the Trustee, by a certification signed by a Servicing
Officer (which certification shall include a statement to the effect that the
Repurchase Price has been deposited in the Collection Account), the Trustee
shall cause the Custodian to release to the Seller the related Mortgage File and
shall cause to be executed and delivered all instruments of transfer or
assignment, without recourse, furnished to it by the Seller as are necessary to
vest in the Seller title to and rights under the related Mortgage Loan. Such
purchase shall be deemed to have occurred on the date on which certification of
the deposit of the Repurchase Price in the Distribution Account was received by
the Trustee. The Custodian, on behalf of the Trustee, shall amend the applicable
Mortgage Loan Schedule to reflect such repurchase and shall promptly notify the
Servicer, and the Rating Agencies of such amendment.

          Section 2.03  Repurchase or Substitution of Mortgage Loans by the
                        ---------------------------------------------------
Seller.
-------

          (a)  Upon discovery or receipt of written notice of any materially
defective document in, or that a document is missing from, a Mortgage File or of
the breach by the Seller of any representation, warranty or covenant under the
Purchase Agreement in respect of any Mortgage Loan which materially adversely
affects the value of such Mortgage Loan or the interest therein of the
Certificateholders, the Custodian shall promptly notify the Seller and the

                                       6

<PAGE>

Servicer of such defect, missing document or breach and request that the Seller
deliver such missing document or cure such defect or breach no later than 90
days from the date of the discovery or receipt of written notice of such missing
document, defect or breach, and if the Seller does not deliver such missing
document or cure such defect or breach in all material respects during such
period, the Custodian shall notify the Trustee and the Trustee shall enforce the
Seller's obligation under the Purchase Agreement and cause the Seller to
repurchase such Mortgage Loan from the Trust Fund at the Repurchase Price on or
prior to the Determination Date following the expiration of such 90 day period.

          (b)  The Repurchase Price for the repurchased Mortgage Loan shall be
deposited in the Collection Account, and the Trustee, upon receipt of written
certification from the Servicer of such deposit, shall cause the Custodian to
release to the Seller the related Mortgage File and the Trustee shall execute
and deliver such instruments of transfer or assignment, in each case without
recourse, as the Seller shall furnish to it and as shall be necessary to vest in
the Seller any Mortgage Loan released pursuant hereto and the Trustee and the
Custodian shall have no further responsibility with regard to such Mortgage File
(it being understood that the Custodian shall have no responsibility for
determining the sufficiency of such assignment for its intended purpose). In
lieu of repurchasing any such Mortgage Loan as provided above, the Seller may
cause such Mortgage Loan to be removed from the Trust Fund (in which case it
shall become a Deleted Mortgage Loan) and substitute one or more Eligible
Substitute Mortgage Loans in the manner and subject to the limitations set forth
in Section 2.03(d). It is understood and agreed that the obligation of the
Seller to cure or to repurchase (or to substitute for) any Mortgage Loan as to
which a document is missing, a material defect in a constituent document exists
or as to which such a breach has occurred and is continuing shall constitute the
sole remedy against the Seller respecting such omission, defect or breach
available to the Trustee on behalf of the Certificateholders.

          (c)  Within 90 days of the earlier of discovery by the Servicer or
receipt of notice by the Servicer of the breach of any representation, warranty
or covenant of the Servicer set forth in Section 2.05 which materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
the Servicer shall cure such breach in all material respects.

          (d)  Any substitution of Eligible Substitute Mortgage Loans for
Deleted Mortgage Loans made pursuant to Section 2.03(a) must be effected prior
to the last Business Day that is within two years after the Closing Date. As to
any Deleted Mortgage Loan for which the Seller substitutes an Eligible
Substitute Mortgage Loan or Loans, such substitution shall be effected by the
Seller delivering to the Custodian, for such Eligible Substitute Mortgage Loan
or Loans, the Mortgage Note, the Mortgage, the Assignment to the Trustee, and
such other documents and agreements, with all necessary endorsements thereon, as
are required by Section 2.01, together with an Officers' Certificate providing
that each such Eligible Substitute Mortgage Loan satisfies the definition
thereof and specifying the Substitution Adjustment Amount (as described below),
if any, in connection with such substitution. The Custodian shall acknowledge
receipt for such Eligible Substitute Mortgage Loan or Loans and, within ten
Business Days thereafter, shall review such documents as specified in Section
2.02 and deliver to the Servicer, with respect to such Eligible Substitute
Mortgage Loan or Loans, a certification substantially in the form attached
hereto as Exhibit F-1, with any applicable exceptions noted thereon. Within

                                       7

<PAGE>

one year of the date of substitution, the Custodian shall deliver to the
Servicer a certification substantially in the form of Exhibit F-2 hereto with
respect to such Eligible Substitute Mortgage Loan or Loans, with any applicable
exceptions noted thereon. Monthly Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution are not part of the Trust
Fund and will be retained by the Seller. For the month of substitution,
distributions to Certificateholders will reflect the collections and recoveries
in respect of such Deleted Mortgage Loan in the Due Period preceding the month
of substitution and the Seller shall thereafter be entitled to retain all
amounts subsequently received in respect of such Deleted Mortgage Loan. The
Seller shall give or cause to be given written notice to the Certificateholders
that such substitution has taken place, shall amend the Mortgage Loan Schedule
to reflect the removal of such Deleted Mortgage Loan from the terms of this
Agreement and the substitution of the Eligible Substitute Mortgage Loan or Loans
and shall deliver a copy of such amended Mortgage Loan Schedule to the
Custodian. Upon such substitution by the Seller, such Eligible Substitute
Mortgage Loan or Loans shall constitute part of the Mortgage Pool and shall be
subject in all respects to the terms of this Agreement and the Purchase
Agreement, including all applicable representations and warranties thereof
included in the Purchase Agreement as of the date of substitution.

          For any month in which the Seller substitutes one or more Eligible
Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the Servicer
will determine the amount (the "Substitution Adjustment Amount"), if any, by
which the aggregate Repurchase Price of all such Deleted Mortgage Loans exceeds
the aggregate, as to each such Eligible Substitute Mortgage Loan, of the
principal balance thereof as of the date of substitution, together with one
month's interest on such principal balance at the applicable Net Mortgage Rate.
On the date of such substitution, the Seller will deliver or cause to be
delivered to the Servicer for deposit in the Collection Account an amount equal
to the Substitution Adjustment Amount, if any, and the Custodian, upon receipt
of the related Eligible Substitute Mortgage Loan or Loans and certification by
the Servicer of such deposit, shall release to the Seller the related Mortgage
File or Files and the Custodian or the Trustee, as applicable, shall execute and
deliver such instruments of transfer or assignment, in each case without
recourse, as the Seller shall deliver to it and as shall be necessary to vest
therein any Deleted Mortgage Loan released pursuant hereto.

          In addition, the Seller shall obtain at its own expense and deliver to
the Trustee an Opinion of Counsel to the effect that such substitution will not
cause (a) any federal tax to be imposed on the Trust Fund, including without
limitation, any federal tax imposed on "prohibited transactions" under Section
860F(a)(l) of the Code or on "contributions after the startup date" under
Section 860G(d)(l) of the Code, or (b) any REMIC to fail to qualify as a REMIC
at any time that any Certificate is outstanding. If such Opinion of Counsel can
not be delivered, then such substitution may only be effected at such time as
the required Opinion of Counsel can be given.

          (e)  Upon discovery by the Seller, the Servicer, the Custodian or the
Trustee that any Mortgage Loan does not constitute a "qualified mortgage" within
the meaning of Section 860G(a)(3) of the Code, the party discovering such fact
shall within two Business Days give written notice thereof to the other parties.
In connection therewith, the Seller or the Company, as the case may be, shall
repurchase or, subject to the limitations set forth in Section 2.03(d),
substitute one or more Eligible Substitute Mortgage Loans for the affected
Mortgage

                                       8

<PAGE>

Loan within 90 days of the earlier of discovery or receipt of such notice with
respect to such affected Mortgage Loan. Such repurchase or substitution shall be
made by the Seller. Any such repurchase or substitution shall be made in the
same manner as set forth in Section 2.03(a). The Custodian, on behalf of the
Trustee, shall reconvey to the Seller, the Mortgage Loan to be released pursuant
hereto in the same manner, and on the same terms and conditions, as it would a
Mortgage Loan repurchased for breach of a representation or warranty.

          Section 2.04  Acknowledgement of Trustee.
                        ---------------------------

          The Trustee acknowledges that in the event that any of (i) the
transfer of the Initial Mortgage Loans and the MI Policies from the Seller to
the Company, or from the Company to the Trustee on behalf of the
Certificateholders, is determined to constitute a financing, or (ii) the
transfer of the Subsequent Mortgage Loans from the Seller to the Company or from
the Company to the Trustee on behalf of the Certificateholders, is determined to
constitute a financing, then in each case the Custodian, on behalf of the
Trustee, and the Trustee hold the Initial Mortgage Loans, the MI Policies and
the Subsequent Mortgage Loans as the designee and bailee of the Company subject,
however, in each case, to a prior lien in favor of the Certificateholders
pursuant to the terms of this Agreement.

          Section 2.05  Representations, Warranties and Covenants of the
                        ------------------------------------------------
Servicer.
---------

          The Servicer hereby represents, warrants and covenants to the Trustee,
for the benefit of each of the Trustee and the Certificateholders and to the
Company that as of the Closing Date or as of such date specifically provided
herein:

               (i)    The Servicer is a corporation duly organized, validly
     existing and in good standing under the laws of the State of Virginia and
     has the corporate power to own its assets and to transact the business in
     which it is currently engaged. The 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
     Servicer or the validity or enforceability of the Mortgage Loans;

               (ii)   The Servicer has the corporate power and authority to
     make, execute, deliver and perform this Agreement and all of the
     transactions contemplated under this Agreement, and has taken all necessary
     corporate action to authorize the execution, delivery and performance of
     this Agreement. When executed and delivered, this Agreement will constitute
     the legal, valid and binding obligation of the 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 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 Agreement, except for

                                       9

<PAGE>

     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 Agreement and the
     performance of the transactions contemplated hereby by the Servicer will
     not violate any provision of any existing law or regulation or any order or
     decree of any court applicable to the Servicer or any provision of the
     certificate of incorporation or bylaws of the Servicer, or constitute a
     material breach of any mortgage, indenture, contract or other agreement to
     which the Servicer is a party or by which the Servicer may be bound;

               (v)    No litigation or administrative proceeding of or before
     any court, tribunal or governmental body is currently pending, or to the
     knowledge of the Servicer threatened, against the Servicer or any of its
     properties or with respect to this Agreement or the Certificates which, to
     the knowledge of the Servicer, has a reasonable likelihood of resulting in
     a material adverse effect on the transactions contemplated by this
     Agreement;

               (vi)   The Servicer is a member of MERS in good standing, and
     will comply in all material respects with the rules and procedures of MERS
     in connection with the servicing of the Mortgage Loans that are registered
     with MERS; and

               (vii)  With respect to the Group I Mortgage Loans, the Servicer
     will accurately and fully report its borrower credit files to the three
     largest credit repositories in a timely manner.

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

          Section 2.06  Representations and Warranties of the Company.
                        ----------------------------------------------

          The Company represents and warrants to the Trust and the Trustee on
behalf of the Certificateholders as follows:

          (a)  The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted.

          (b)  The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications 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 Company and the
ability of the Company to perform hereunder.

          (c) The Company has the power and authority to execute and deliver
this Agreement and to carry out its terms; the Company has full power and
authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Agreement

                                       10

<PAGE>

have been duly authorized by the Company by all necessary corporate action. When
executed and delivered, this Agreement will constitute the legal, valid and
binding obligation of the Company 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.

          (d)  The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof do not conflict with, result
in any breach of any of the terms and provisions of, or constitute (with or
without notice or lapse of time) a default under, the articles of incorporation
or bylaws of the Company, or any indenture, agreement or other instrument to
which the Company is a party or by which it is bound; nor result in the creation
or imposition of any Lien upon any of its properties pursuant to the terms of
any such indenture, agreement or other instrument (other than pursuant to the
Basic Documents); nor violate any law or, to the best of the Company's
knowledge, any order, rule or regulation applicable to the Company of any court
or of any federal or state regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the Company or its
properties.

          Section 2.07 Issuance of Certificates.
                       -------------------------

          The Trustee acknowledges the assignment to the Trustee of the Mortgage
Loans and the delivery to the Custodian, on behalf of the Trustee of the
Mortgage Files, subject to the provisions of Sections 2.01 and 2.02, together
with the assignment to it of all other assets included in the Trust Fund,
receipt of which is hereby acknowledged. Concurrently with such assignment and
delivery and in exchange therefor, the Trustee, pursuant to the written request
of the Company executed by an officer of the Company, has executed, and
authenticated and delivered to or upon the order of the Company, the
Certificates in authorized denominations. The interests evidenced by the
Certificates, constitute the entire beneficial ownership interest in the Trust
Fund.

          Section 2.08 Conveyance of the Subsequent Mortgage Loans.
                       --------------------------------------------

          The Trustee, or the Custodian on behalf of the Trustee, shall purchase
the Subsequent Mortgage Loans as set forth in Section 2.02 of the Purchase
Agreement. The Seller shall deliver a Mortgage File (as described in Section
2.01) with respect to such Subsequent Mortgage Loans.

          Section 2.09 Designation Under REMIC Provisions.
                       -----------------------------------

          (a)  The Trustee shall elect that each of REMIC I, REMIC II,
REMIC III, REMIC IV and the Master REMIC be treated as a REMIC under Section
860D of the Code. Any inconsistencies or ambiguities in this Agreement or in the
administration of this Agreement shall be resolved in a manner that preserves
the validity of such REMIC elections.

          (b)  The designation of REMIC interests shall be as follows:

               (i)   REMIC I will consist of all of the assets of the Trust,
     including the Mortgage Loans, the Accounts (other than the Pre-Funding
     Account and the Supplemental Interest Trusts), any REO Property and any
     proceeds of the foregoing.

                                       11

<PAGE>

     REMIC I will be evidenced by the "REMIC I Regular Interests" as set forth
     in (c) below, which will be uncertificated and will represent the "regular
     interests" in REMIC I. The Class R-I Interest will represent the sole class
     of residual interest in REMIC I;

               (ii)  REMIC II will consist of the REMIC I Regular Interests and
     will be evidenced by the "REMIC II Regular Interests" as set forth in (d)
     below, which will be uncertificated and will represent the "regular
     interests" in REMIC II. The Class R-II Interest will represent the sole
     class of residual interest in REMIC II;

               (iii) REMIC III will consist of the REMIC II Regular Interests
     and will be evidenced by the "REMIC III Regular Interests" as set forth in
     (e) below, which will be uncertificated and will represent the "regular
     interests" in REMIC III. The Class R-III Interest will represent the sole
     class of residual interest in REMIC III;

               (iv)  REMIC IV will consist of the REMIC III Regular Interests
     and will be evidenced by the "REMIC IV Regular Interests" as set forth in
     (f) below, which will be uncertificated and will represent the "regular
     interests" in REMIC IV. The Class R-IV Interest will represent the sole
     class of residual interest in REMIC IV; and

               (v)   The Master REMIC will consist of the REMIC IV Regular
     Interests as set forth in (g) below and will be evidenced by (i) the
     following Certificates, in each case, other than its respective Cap
     Contract Rights: the Class A-1, the Class A-2A, the Class A-2B, the Class
     A-2C, the Class A-3, the Class M-1, the Class M-2, the Class M-3, the Class
     B-1, the Class B-2 and the Class B-3 Certificates and (ii) the following
     Certificates: the Class X, the Class I, the Class O and the Class P
     Certificates which, in the case of each Class referenced in (i) and (ii),
     will represent one or more "regular interests" in the Master REMIC. The
     Class R-V Interest will represent the sole class of residual interest in
     the Master REMIC.

               (vi)  The Class R Certificates will represent the beneficial
     ownership of the Class R-I, Class R-II, Class R-III, Class R-IV and Class
     R-V Interests. The Class R Certificates will not have a principal balance
     and will not bear interest.

               (vii) The Trustee will hold the REMIC I Regular Interests, REMIC
     II Regular Interests, REMIC III Regular Interests and REMIC IV Regular
     Interests.

          (c)  The REMIC I Regular Interests shall have the following principal
balances and REMIC I Pass-Through Rates as set forth in the table below:

--------------------------------------------------
                     Initial
                    Principal        REMIC I
REMIC I Interest     Balance     Pass-Through Rate
--------------------------------------------------
       I-J1       $ 969,150,424        (1)
--------------------------------------------------
       I-J2       $  50,771,523        (2)
--------------------------------------------------
       I-N             (3)             (4)
--------------------------------------------------
      I-PO1       $ 455,849,485        (5)
--------------------------------------------------
      I-PO2       $  24,228,568        (6)
--------------------------------------------------
       I-P        $         100        (7)
--------------------------------------------------

                                       12

<PAGE>

(1)  The pass-through rate for the Class I-J1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, Net WAC, computed solely with respect to
     the Initial Mortgage Loans relating to Group I and Group II and (ii) for
     all Distribution Dates thereafter, Net WAC of the Group I and Group II
     Mortgage Loans.

(2)  The pass-through rate for the Class I-J2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, Net WAC, computed solely with respect to
     the Initial Mortgage Loans relating to Group III and (ii) for all
     Distribution Dates thereafter, Net WAC of the Group III Mortgage Loans.

(3)  The Class I-N Interest will have a notional principal balance equal to
     $480,078,053.

(4)  The pass-through rate for the Class I-N Interest for each Distribution Date
     will be as follows: (i) commencing on the first Distribution Date through
     and including the Distribution Date in March 2004, all interest on the
     Subsequent Mortgage Loans for such Distribution Date divided by
     $480,078,053 and (ii) for all Distribution Dates thereafter, 0.00%.

(5)  The pass-through rate for the Class I-PO1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 0.00% and (ii) for all Distribution Dates
     thereafter, Net WAC of the Group I and Group II Mortgage Loans.

(6)  The pass-through rate for the Class I-PO2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 0.00% and (ii) for all Distribution Dates
     thereafter, Net WAC of the Group III Mortgage Loans.

(7)  The Class I-P Interest shall bear interest at the same rate as the Class
     I-J2 Interest. In addition, the Class I-P Interest is entitled to
     distributions of all Prepayment Charges.

          Commencing on the first Distribution Date through and including the
Distribution Date in March 2004, all Realized Losses, prepayments and payments
of scheduled principal generated with respect to the Initial Mortgage Loans
relating to Group I and Group II shall be allocated to the Class I-J1 Interest.
All Realized Losses, prepayments and payments of scheduled principal generated
with respect to the Initial Mortgage Loans relating to Group III shall be
allocated to the Class I-J2 Interest; provided, however, that on the Class P
Principal Distribution Date, $100 shall be paid to the Class I-P Interest. All
Realized Losses, prepayments and payments of scheduled principal generated with
respect to the Subsequent Mortgage Loans relating to Group I and Group II and
any related amounts transferred from the Pre-Funding Account to REMIC I shall be
allocated to the Class I-PO1 Interest. All Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Subsequent
Mortgage Loans relating to Group III and any related amounts transferred from
the Pre-Funding Account to REMIC I shall be allocated to the Class I-PO2
Interest.

                                       13

<PAGE>

          On each Distribution Date occurring after the Distribution Date in
March 2004, all Realized Losses, prepayments and payments of scheduled principal
generated with respect to the Group I and Group II Mortgage Loans shall be
allocated pro rata, to the Class I-J1 and I-PO1 Interests, until such classes
are paid in full or eliminated by such losses. All Realized Losses, prepayments
and payments of scheduled principal generated with respect to the Group III
Mortgage Loans shall be allocated pro rata, to the Class I-J2 and I-PO2
Interests, until such classes are paid in full or eliminated by such losses;
provided, however, that on the Class P Principal Distribution Date, $100 shall
be paid to the Class I-P Interest.

          (d)  The REMIC II Regular Interests shall have the following principal
balances and REMIC II Pass-Through Rates set forth in the table below:

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

                            Initial             REMIC II
REMIC II Interests (1)  Principal Balances  Pass-Through Rates
--------------------------------------------------------------
II-A1 through II-A35           (2)                (3)
--------------------------------------------------------------
II-B1 through II-B35           (2)                (3)
--------------------------------------------------------------
II-C1 through II-C35           (2)                (3)
--------------------------------------------------------------
II-D1 through II-D35           (2)                (3)
--------------------------------------------------------------
II-E1 through II-E35           (4)                (3)
--------------------------------------------------------------
II-F1 through II-F35           (5)                (3)
--------------------------------------------------------------
II-G1 through II-G35           (5)                (3)
--------------------------------------------------------------
II-H1 through II-H35           (5)                (3)
--------------------------------------------------------------
II-K1 through II-K35           (5)                (3)
--------------------------------------------------------------
II-L1 through II-L35           (6)                (3)
--------------------------------------------------------------
II-M1 through II-M35           (7)                (8)
--------------------------------------------------------------
II-O1 through II-O35           (7)                (8)
--------------------------------------------------------------
II-Q1 through II-Q35           (7)                (8)
--------------------------------------------------------------
II-Z1 through II-Z35           (7)                (8)
--------------------------------------------------------------
II-S1 through II-S35           (9)                (8)
--------------------------------------------------------------
II-T1 through II-T35          (10)                (8)
--------------------------------------------------------------
II-U1 through II-U35          (10)                (8)
--------------------------------------------------------------
II-V1 through II-V35          (10)                (8)
--------------------------------------------------------------
II-W1 through II-W35          (10)                (8)
--------------------------------------------------------------
II-Y1 through II-Y35          (11)                (8)
--------------------------------------------------------------
       II-J1            $  569,999,963            (3)
--------------------------------------------------------------
       II-J2            $   24,299,618            (8)
--------------------------------------------------------------
       II-N                   (12)               (13)
--------------------------------------------------------------
       II-P             $          100           (14)
--------------------------------------------------------------

(1)  The first 20 rows each encompass 35 regular interests in REMIC II.

(2)  The Class II-A1 through Class II-A35 Interests, the Class II-B1 through
     Class II-B35 Interests, the Class II-C1 through Class II-C35 Interests and
     the Class II-D1 through Class II-D35 Interests will have an initial
     principal balance equal to the product of (i) $125,000,000 and (ii) the
     applicable percentage shown on the Group I/Group II Schedule corresponding
     to the number following the letter A, B, C or D as applicable.

                                       14

<PAGE>

(3)  The pass-through rate for these REMIC II Regular Interests will be the
     weighted average of the pass-through rates on the Class I-J1 and Class
     I-PO1 Interests.

(4)  The Class II-E1 through Class II-E35 Interests will have an initial
     principal balance equal to the product of (i) $60,000,000 and (ii) the
     applicable percentage shown on the Group I/Group II Schedule corresponding
     to the number following the letter E.

(5)  The Class II-F1 through Class II-F35 Interests, the Class II-G1 through
     Class II-G35 Interests, the Class II-H1 through Class II-H35 Interests and
     the Class II-K1 through Class II-K35 Interests will have an initial
     principal balance equal to the product of (i) $75,000,000 and (ii) the
     applicable percentage shown on the Group I/Group II Schedule corresponding
     to the number following the letter F, G, H or K as applicable.

(6)  The Class II-L1 through Class II-L35 Interests will have an initial
     principal balance equal to the product of (i) $40,000,000 and (ii) the
     applicable percentage shown on the Group I/Group II Schedule corresponding
     to the number following the letter L.

(7)  The Class II-M1 through Class II-M35 Interests, the Class II-O1 through
     Class II-O35 Interests, the Class II-Q1 through Class II-Q35 Interests and
     the Class II-Z1 through Class II-Z35 Interests will have an initial
     principal balance equal to the product of (i) $125,000,000 and (ii) the
     applicable percentage shown on the Group III Schedule corresponding to the
     number following the letter M, O, Q or Z as applicable.

(8)  The pass-through rate for these REMIC II Regular Interests will be the
     weighted average of the pass-through rates on the Class I-J2 and Class
     I-PO2 Interests.

(9)  The Class II-S1 through Class II-S35 Interests will have an initial
     principal balance equal to the product of (i) $60,000,000 and (ii) the
     applicable percentage shown on the Group III Schedule corresponding to the
     number following the letter S.

(10) The Class II-T1 through Class II-T35 Interests, the Class II-U1 through
     Class II-U35 Interests, the Class II-V1 through Class II-V35 Interests and
     the Class II-W1 through Class II-W35 Interests will have an initial
     principal balance equal to the product of (i) $75,000,000 and (ii) the
     applicable percentage shown on the Group III Schedule corresponding to the
     number following the letter T, U, V or W as applicable.

(11) The Class II-Y1 through Class II-Y35 Interests will have an initial
     principal balance equal to the product of (i) $40,000,000 and (ii) the
     applicable percentage shown on the Group III Schedule corresponding to the
     number following the letter Y.

(12) The Class II-N Interest will have a notional principal balance equal to the
     notional principal balance of the Class I-N Interest.

(13) The Class II-N Interest is entitled to all distributions on the Class I-N
     Interest.

(14) The Class II-P Interest is entitled to all distributions on the Class I-P
     Interest.

                                       15

<PAGE>

          On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Group I and Group
II Mortgage Loans shall be allocated in the following order: (i) first, to the
Class II-J1 Interest until such class is paid in full or eliminated by such
losses; (ii) second, to the Class II-A1 through Class II-A35 Interests,
sequentially, until such classes are paid in full or eliminated by such losses;
(iii) third, to the Class II-B1 through Class II-B35 Interests, sequentially,
until such classes are paid in full or eliminated by such losses; (iv) fourth,
to the Class II-C1 through Class II-C35 Interests, sequentially, until such
classes are paid in full or eliminated by such losses; (v) fifth, to the Class
II-D1 through Class II-D35 Interests, sequentially, until such classes are paid
in full or eliminated by such losses; (vi) sixth, to the Class II-E1 through
Class II-E35 Interests, sequentially, until such classes are paid in full or
eliminated by such losses; (vii) seventh, to the Class II-F1 through Class
II-F35 Interests, sequentially, until such classes are paid in full or
eliminated by such losses; (viii) eighth, to the Class II-G1 through Class
II-G35 Interests, sequentially, until such classes are paid in full or
eliminated by such losses; (ix) ninth, to the Class II-H1 through Class II-H35
Interests, sequentially, until such classes are paid in full or eliminated by
such losses; (x) tenth, to the Class II-K1 through Class II-K35 Interests,
sequentially, until such classes are paid in full or eliminated by such losses
and (xi) eleventh, to the Class II-L1 through Class II-L35 Interests,
sequentially, until such classes are paid in full or eliminated by such losses.

          On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Group III Mortgage
Loans shall be allocated in the following order: (i) first, to the Class II-J2
Interest until such class is paid in full or eliminated by such losses; (ii)
second, to the Class II-M1 through Class II-M35 Interests, sequentially, until
such classes are paid in full or eliminated by such losses; (iii) third, to the
Class II-O1 through Class II-O35 Interests, sequentially, until such classes are
paid in full or eliminated by such losses; (iv) fourth, to the Class II-Q1
through Class II-Q35 Interests, sequentially, until such classes are paid in
full or eliminated by such losses; (v) fifth, to the Class II-Z1 through Class
II-Z35 Interests, sequentially, until such classes are paid in full or
eliminated by such losses; (vi) sixth, to the Class II-S1 through Class II-S35
Interests, sequentially, until such classes are paid in full or eliminated by
such losses; (vii) seventh, to the Class II-T1 through Class II-T35 Interests,
sequentially, until such classes are paid in full or eliminated by such losses;
(viii) eighth, to the Class II-U1 through Class II-U35 Interests, sequentially,
until such classes are paid in full or eliminated by such losses; (ix) ninth, to
the Class II-V1 through Class II-V35 Interests, sequentially, until such classes
are paid in full or eliminated by such losses; (x) tenth, to the Class II-W1
through Class II-W35 Interests, sequentially, until such classes are paid in
full or eliminated by such losses and (xi) eleventh, to the Class II-Y1 through
Class II-Y35 Interests, sequentially, until such classes are paid in full or
eliminated by such losses; provided, however, that on the Class P Principal
Distribution Date, $100 shall be paid to the Class II-P Interest.

          (e)  The REMIC III Regular Interests shall have the following
principal balances and REMIC III Pass-Through Rates set forth in the table
below:

                                       16

<PAGE>

-------------------------------------------------------------------------
 REMIC III Interests(1)   Corresponding REMIC II   Initial    REMIC III
                             Regular Interest     Principal  Pass-Through
                             (respectively)        Balances     Rates
-------------------------------------------------------------------------
III-A1a through III-A35a   II-A1 through II-A35      (2)           (3)
-------------------------------------------------------------------------
III-A1b through III-A35b   II-A1 through II-A35      (4)           (5)
-------------------------------------------------------------------------
III-A1c through III-A35c   II-A1 through II-A35      (6)           (7)
-------------------------------------------------------------------------
III-B1a through III-B35a   II-B1 through II-B35      (2)           (3)
-------------------------------------------------------------------------
III-B1b through III-B35b   II-B1 through II-B35      (4)           (5)
-------------------------------------------------------------------------
III-B1c through III-B35c   II-B1 through II-B35      (6)           (7)
-------------------------------------------------------------------------
III-C1a through III-C35a   II-C1 through II-C35      (2)           (3)
-------------------------------------------------------------------------
III-C1b through III-C35b   II-C1 through II-C35      (4)           (5)
-------------------------------------------------------------------------
III-C1c through III-C35c   II-C1 through II-C35      (6)           (7)
-------------------------------------------------------------------------
III-D1a through III-D35a   II-D1 through II-D35      (2)           (3)
-------------------------------------------------------------------------
III-D1b through III-D35b   II-D1 through II-D35      (4)           (5)
-------------------------------------------------------------------------
III-D1c through III-D35c   II-D1 through II-D35      (6)           (7)
-------------------------------------------------------------------------
III-E1a through III-E35a   II-E1 through II-E35      (2)           (3)
-------------------------------------------------------------------------
III-E1b through III-E35b   II-E1 through II-E35      (4)           (5)
-------------------------------------------------------------------------
III-E1c through III-E35c   II-E1 through II-E35      (6)           (7)
-------------------------------------------------------------------------
III-F1a through III-F35a   II-F1 through II-F35      (2)           (3)
-------------------------------------------------------------------------
III-F1b through III-F35b   II-F1 through II-F35      (4)           (5)
-------------------------------------------------------------------------
III-F1c through III-F35c   II-F1 through II-F35      (6)           (7)
-------------------------------------------------------------------------
III-G1a through III-G35a   II-G1 through II-G35      (2)           (3)
-------------------------------------------------------------------------
III-G1b through III-G35b   II-G1 through II-G35      (4)           (5)
-------------------------------------------------------------------------
III-G1c through III-G35c   II-G1 through II-G35      (6)           (7)
-------------------------------------------------------------------------
III-H1a through III-H35a   II-H1 through II-H35      (2)           (3)
-------------------------------------------------------------------------
III-H1b through III-H35b   II-H1 through II-H35      (4)           (5)
-------------------------------------------------------------------------
III-H1c through III-H35c   II-H1 through II-H35      (6)           (7)
-------------------------------------------------------------------------
III-K1a through III-K35a   II-K1 through II-K35      (2)           (3)
-------------------------------------------------------------------------
III-K1b through III-K35b   II-K1 through II-K35      (4)           (5)
-------------------------------------------------------------------------
III-K1c through III-K35c   II-K1 through II-K35      (6)           (7)
-------------------------------------------------------------------------
III-L1a through III-L35a   II-L1 through II-L35      (2)           (3)
-------------------------------------------------------------------------
III-L1b through III-L35b   II-L1 through II-L35      (4)           (5)
-------------------------------------------------------------------------
III-L1c through III-L35c   II-L1 through II-L35      (6)           (7)
-------------------------------------------------------------------------
III-M1a through III-M35a   II-M1 through II-M35      (2)           (8)
-------------------------------------------------------------------------
III-M1b through III-M35b   II-M1 through II-M35      (4)           (9)
-------------------------------------------------------------------------
III-M1c through III-M35c   II-M1 through II-M35      (6)          (10)
-------------------------------------------------------------------------
III-O1a through III-O35a   II-O1 through II-O35      (2)           (8)
-------------------------------------------------------------------------
III-O1b through III-O35b   II-O1 through II-O35      (4)           (9)
-------------------------------------------------------------------------
III-O1c through III-O35c   II-O1 through II-O35      (6)          (10)
-------------------------------------------------------------------------
III-Q1a through III-Q35a   II-Q1 through II-Q35      (2)           (8)
-------------------------------------------------------------------------
III-Q1b through III-Q35b   II-Q1 through II-Q35      (4)           (9)
-------------------------------------------------------------------------
III-Q1c through III-Q35c   II-Q1 through II-Q35      (6)          (10)
-------------------------------------------------------------------------
III-Z1a through III-Z35a   II-Z1 through II-Z35      (2)           (8)
-------------------------------------------------------------------------
III-Z1b through III-Z35b   II-Z1 through II-Z35      (4)           (9)
-------------------------------------------------------------------------
III-Z1c through III-Z35c   II-Z1 through II-Z35      (6)          (10)
-------------------------------------------------------------------------

                                       17

<PAGE>

-------------------------------------------------------------------------
 REMIC III Interests(1)   Corresponding REMIC II   Initial    REMIC III
                             Regular Interest     Principal  Pass-Through
                             (respectively)        Balances     Rates
-------------------------------------------------------------------------
III-S1a through III-S35a   II-S1 through II-S35      (2)           (8)
-------------------------------------------------------------------------
III-S1b through III-S35b   II-S1 through II-S35      (4)           (9)
-------------------------------------------------------------------------
III-S1c through III-S35c   II-S1 through II-S35      (6)          (10)
-------------------------------------------------------------------------
III-T1a through III-T35a   II-T1 through II-T35      (2)           (8)
-------------------------------------------------------------------------
III-T1b through III-T35b   II-T1 through II-T35      (4)           (9)
-------------------------------------------------------------------------
III-T1c through III-T35c   II-T1 through II-T35      (6)          (10)
-------------------------------------------------------------------------
III-U1a through III-U35a   II-U1 through II-U35      (2)           (8)
-------------------------------------------------------------------------
III-U1b through III-U35b   II-U1 through II-U35      (4)           (9)
-------------------------------------------------------------------------
III-U1c through III-U35c   II-U1 through II-U35      (6)          (10)
-------------------------------------------------------------------------
III-V1a through III-V35a   II-V1 through II-V35      (2)           (8)
-------------------------------------------------------------------------
III-V1b through III-V35b   II-V1 through II-V35      (4)           (9)
-------------------------------------------------------------------------
III-V1c through III-V35c   II-V1 through II-V35      (6)          (10)
-------------------------------------------------------------------------
III-W1a through III-W35a   II-W1 through II-W35      (2)           (8)
-------------------------------------------------------------------------
III-W1b through III-W35b   II-W1 through II-W35      (4)           (9)
-------------------------------------------------------------------------
III-W1c through III-W35c   II-W1 through II-W35      (6)          (10)
-------------------------------------------------------------------------
III-Y1a through III-Y35a   II-Y1 through II-Y35      (2)           (8)
-------------------------------------------------------------------------
III-Y1b through III-Y35b   II-Y1 through II-Y35      (4)           (9)
-------------------------------------------------------------------------
III-Y1c through III-Y35c   II-Y1 through II-Y35      (6)          (10)
-------------------------------------------------------------------------
         III-J1                   II-J1             (11)          (12)
-------------------------------------------------------------------------
         III-J2                   II-J2             (11)          (13)
-------------------------------------------------------------------------
         III-S1                   II-J1             (14)        (12)(16)
-------------------------------------------------------------------------
         III-S2                   II-J2             (15)        (13)(16)
-------------------------------------------------------------------------
          III-N                   II-N              (17)          (18)
-------------------------------------------------------------------------
          III-P                   II-P              $100          (19)
-------------------------------------------------------------------------

(1)  The first 60 rows each encompass 35 regular interests in REMIC III.

(2)  These REMIC III Regular Interests will have an initial principal balance
     equal to the product of (i) the initial principal balance of the
     Corresponding REMIC II Regular Interest and (ii) two divided by three.

(3)  The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) commencing on the first Distribution Date through and
     including the Corresponding Distribution Date from the Swap Interest Rate
     Schedule, 1.5 multiplied by (Group I/Group II REMIC III Net WAC minus the
     Corresponding Interest Rate from the Swap Interest Rate Schedule); (ii) for
     all Distribution Dates thereafter, Group I/Group II REMIC III Net WAC.

(4)  These REMIC III Regular Interests will have an initial principal balance
     equal to the initial principal balance of the Corresponding REMIC II
     Regular Interest divided by three.

                                       18

<PAGE>

(5)  The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) commencing on the first Distribution Date through and
     including the Corresponding Distribution Date from the Swap Interest Rate
     Schedule, 3 multiplied by 1-month LIBOR, subject to a cap of 3 multiplied
     by the Corresponding Interest Rate from the Swap Interest Rate Schedule
     (ii) for all Distribution Dates thereafter, Group I/Group II REMIC III Net
     WAC.

(6)  These REMIC III Regular Interests will have a notional principal balance
     equal to the principal balance of the Corresponding REMIC II Regular
     Interest.

(7)  The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) commencing on the first Distribution Date through and
     including the Corresponding Distribution Date from the Swap Interest Rate
     Schedule, the Corresponding Interest Rate from the Swap Interest Rate
     Schedule minus 1-Month LIBOR, subject to a floor of zero; (ii) for all
     Distribution Dates thereafter, zero.

(8)  The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) for all Distribution Dates commencing on the Corresponding
     Distribution Date from the Swap Interest Rate Schedule through and
     including the Distribution Date in October 2006, 1.5 multiplied by (Group
     III REMIC III Net WAC minus the Corresponding Interest Rate from the Swap
     Interest Rate Schedule); (ii) for all other Distribution Dates, Group III
     REMIC III Net WAC.

(9)  The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) for all Distribution Dates commencing on the Corresponding
     Distribution Date from the Swap Interest Rate Schedule through and
     including the Distribution Date in October 2006, 3 multiplied by 1-month
     LIBOR, subject to a cap of 3 multiplied by the Corresponding Interest Rate
     from the Swap Interest Rate Schedule (ii) for all other Distribution Dates,
     Group III REMIC III Net WAC.

(10) The pass-through rate for these REMIC III Regular Interests will be as
     follows: (i) for all Distribution Dates commencing on the Corresponding
     Distribution Date from the Swap Interest Rate Schedule through and
     including the Distribution Date in October 2006, the Corresponding Interest
     Rate from the Swap Interest Rate Schedule minus 1-Month LIBOR, subject to a
     floor of zero; (ii) for all Distribution Dates thereafter, zero.

(11) These REMIC III Regular Interests will have an initial principal balance
     equal to the initial principal balance of the Corresponding REMIC II
     Regular Interest minus .01% of the Group I/Group II Subordinated Amount, in
     the case of the Class III-J1 Interest and .01% of the Group III
     Subordinated Amount, in the case of the Class III-J2 Interest..

(12) The pass-through rate for these REMIC III Regular Interests will be equal
     to the Group I/Group II REMIC III Net WAC.

(13) The pass-through rate for these REMIC III Regular Interests will be equal
     to the Group III REMIC III Net WAC.

                                       19

<PAGE>

(14) The Class III-S1 Interest will have an initial principal balance equal to
     .01% of the Group I/Group II Subordinated Amount.

(15) The Class III-S2 Interest will have an initial principal balance equal to
     .01% of the Group III Subordinated Amount.

(16) Interest on these REMIC III Regular Interests will accrue as principal to
     the extent needed to increase the principal balance for each of these
     classes to an amount equal to .01% of the Group I/Group II Subordinated
     Amount or Group III Subordinated Amount, as applicable.

(17) The Class III-N Interest will have a notional principal balance equal to
     the notional principal balance of the Class II-N Interest.

(18) The Class III-N Interest is entitled to all distributions on the Class II-N
     Interest.

(19) The Class III-P Interest is entitled to all distributions on the Class II-P
     Interest.

          On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Group I and Group
II Mortgage Loans shall be allocated in the following order: (i) first, (A) to
the Class III-S1 Interest until the principal balance of such Class is reduced
to .01% of the Group I/Group II Subordinated Amount and (B) if necessary, to the
Class III-S1 Interest until the ratio of the principal balance of the Class
III-S1 Interest to the principal balance of the Class III-S2 Interest equals the
ratio of the Group I/Group II Subordinate Amount to the Group III Subordinated
Amount; (ii) second, to the Class III-J1 Interest, until such class is paid in
full or eliminated by such losses; (iii) third, to the Class III-A1a through
Class III-A35a Interests and Class III-A1b through Class III-A35b Interests,
first, pro rata between the two sets of Interests, and second, sequentially
among the subsets of Interests, until such classes are paid in full or
eliminated by such losses; (iv) fourth, to the Class III-B1a through Class
III-B35a Interests and Class III-B1b through Class III-B35b Interests, first,
pro rata between the two sets of Interests, and second, sequentially among the
subsets of Interests, until such classes are paid in full or eliminated by such
losses; (v) fifth, to the Class III-C1a through Class III-C35a Interests and
Class III-C1b through Class III-C35b Interests, first, pro rata between the two
sets of Interests, and second, sequentially among the subsets of Interests,
until such classes are paid in full or eliminated by such losses; (vi) sixth, to
the Class III-D1a through Class III-D35a Interests and Class III-D1b through
Class III-D35b Interests, first, pro rata between the two sets of Interests, and
second, sequentially among the subsets of Interests, until such classes are paid
in full or eliminated by such losses; (vii) seventh, to the Class III-E1a
through Class III-E35a Interests and Class III-E1b through Class III-E35b
Interests, first, pro rata between the two sets of Interests, and second,
sequentially among the subsets of Interests, until such classes are paid in full
or eliminated by such losses; (viii) eighth, to the Class III-F1a through Class
III-F35a Interests and Class III-F1b through Class III-F35b Interests, first,
pro rata between the two sets of Interests, and second, sequentially among the
subsets of Interests, until such classes are paid in full or eliminated by such
losses; (ix) ninth, to the Class III-G1a through Class III-G35a Interests and
Class III-G1b through Class III-G35b Interests, first, pro rata between the two
sets of Interests, and second, sequentially among the subsets of Interests,
until such classes are paid in full or eliminated by such losses; (x) tenth, to

                                       20

<PAGE>

the Class III-H1a through Class III-H35a Interests and Class III-H1b through
Class III-H35b Interests, first, pro rata between the two sets of Interests, and
second, sequentially among the subsets of Interests, until such classes are paid
in full or eliminated by such losses; (xi) eleventh, to the Class III-K1a
through Class III-K35a Interests and Class III-K1b through Class III-K35b
Interests, first, pro rata between the two sets of Interests, and second,
sequentially among the subsets of Interests, until such classes are paid in full
or eliminated by such losses and (xii) twelfth, to the Class III-L1a through
Class III-L35a Interests and Class III-L1b through Class III-L35b Interests,
first, pro rata between the two sets of Interests, and second, sequentially
among the subsets of Interests, until such classes are paid in full or
eliminated by such losses.

          On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Group III Mortgage
Loans shall be allocated in the following order: (i) first, (A) to the Class
III-S2 Interest until the principal balance of such Class is reduced to .01% of
the Group III Subordinated Amount and (B) if necessary, to the Class III-S2
Interest until the ratio of the principal balance of the Class III-S1 Interest
to the principal balance of the Class III-S2 Interest equals the ratio of the
Group I/Group II Subordinated Amount to the Group III Subordinated Amount; (ii)
second, to the Class III-J2 Interest, until such class is paid in full or
eliminated by such losses; (iii) third, to the Class III-M1a through Class
III-M35a Interests and Class III-M1b through Class III-M35b Interests, first,
pro rata between the two sets of Interests, and second, sequentially among the
subsets of Interests, until such classes are paid in full or eliminated by such
losses; (iv) fourth, to the Class III-O1a through Class III-O35a Interests and
Class III-O1b through Class III-O35b Interests, first, pro rata between the two
sets of Interests, and second, sequentially among the subsets of Interests,
until such classes are paid in full or eliminated by such losses; (v) fifth, to
the Class III-Q1a through Class III-Q35a Interests and Class III-Q1b through
Class III-Q35b Interests, first, pro rata between the two sets of Interests, and
second, sequentially among the subsets of Interests, until such classes are paid
in full or eliminated by such losses; (vi) sixth, to the Class III-Z1a through
Class III-Z35a Interests and Class III-Z1b through Class III-Z35b Interests,
first, pro rata between the two sets of Interests, and second, sequentially
among the subsets of Interests, until such classes are paid in full or
eliminated by such losses; (vii) seventh, to the Class III-S1a through Class
III-S35a Interests and Class III-S1b through Class III-S35b Interests, first,
pro rata between the two sets of Interests, and second, sequentially among the
subsets of Interests, until such classes are paid in full or eliminated by such
losses; (viii) eighth, to the Class III-T1a through Class III-T35a Interests and
Class III-T1b through Class III-T35b Interests, first, pro rata between the two
sets of Interests, and second, sequentially among the subsets of Interests,
until such classes are paid in full or eliminated by such losses; (ix) ninth, to
the Class III-U1a through Class III-U35a Interests and Class III-U1b through
Class III-U35b Interests, first, pro rata between the two sets of Interests, and
second, sequentially among the subsets of Interests, until such classes are paid
in full or eliminated by such losses; (x) tenth, to the Class III-V1a through
Class III-V35a Interests and Class III-V1b through Class III-V35b Interests,
first, pro rata between the two sets of Interests, and second, sequentially
among the subsets of Interests, until such classes are paid in full or
eliminated by such losses; (xi) eleventh, to the Class III-W1a through Class
III-W35a Interests and Class III-W1b through Class III-W35b Interests, first,
pro rata between the two sets of Interests, and second, sequentially among the
subsets of Interests, until such classes are paid in full or eliminated by such
losses and (xii) twelfth, to the Class III-Y1a through Class III-Y35a Interests
and Class III-Y1b through Class III-Y35b Interests, first, pro rata between the
two sets of Interests, and second, sequentially

                                       21

<PAGE>

among the subsets of Interests, until such classes are paid in full or
eliminated by such losses; provided, however, that on the Class P Principal
Distribution Date, $100 shall be paid to the Class III-P Interest.

          (f)  The REMIC IV Regular Interests shall have the following principal
balances, REMIC IV Pass-Through Rates and Corresponding Classes of Master REMIC
Certificates, as set forth in the table below:

--------------------------------------------------------------------------------
                                                                  Corresponding
                                                                 Class of Master
  REMIC IV           Initial Principal         REMIC IV Pass-        REMIC
  Interest                Balance               Through Rate      Certificates
--------------------------------------------------------------------------------
IV-Accrual1     50% of the sum of the Group          (1)              N/A
                I/Group II Pool Balance and
                 related Pre-Funded Amount
--------------------------------------------------------------------------------
IV-Accrual2     50% of the sum of the Group          (2)              N/A
               III Pool Balance and related
                Pre-Funded Amount less $100
--------------------------------------------------------------------------------
   IV-A1         50% of the Corresponding            (1)              A-1
                       Class Balance
--------------------------------------------------------------------------------
  IV-A2A        50% of the Corresponding             (1)              A-2A
                      Class Balance
--------------------------------------------------------------------------------
  IV-A2B        50% of the Corresponding             (1)              A-2B
                      Class Balance
--------------------------------------------------------------------------------
  IV-A2C        50% of the Corresponding             (1)              A-2C
                      Class Balance
--------------------------------------------------------------------------------
  IV-A3         50% of the Corresponding             (2)              A-3
                      Class Balance
--------------------------------------------------------------------------------
  IV-M1         50% of the Corresponding             (3)              M-1
                      Class Balance
--------------------------------------------------------------------------------
  IV-M2         50% of the Corresponding             (3)              M-2
                      Class Balance
--------------------------------------------------------------------------------
  IV-M3         50% of the Corresponding             (3)              M-3
                      Class Balance
--------------------------------------------------------------------------------
  IV-B1         50% of the Corresponding             (3)              B-1
                      Class Balance
--------------------------------------------------------------------------------

                                       22

<PAGE>

--------------------------------------------------------------------------------
  IV-B2         50% of the Corresponding             (3)              B-2
                      Class Balance
--------------------------------------------------------------------------------
  IV-B3         50% of the Corresponding             (3)              B-3
                      Class Balance
--------------------------------------------------------------------------------
  IV-O          50% of the Corresponding             (3)              O
                      Class Balance
--------------------------------------------------------------------------------
  IV-N                     (4)                       (5)              N/A
--------------------------------------------------------------------------------
  IV-P                    $100                       (6)               P
--------------------------------------------------------------------------------
  IV-I                     (7)                       (7)               I
--------------------------------------------------------------------------------

(1)  The pass-through rate for these REMIC IV Regular Interests will be the
     weighted average of the pass-through rates of the Class III-A1a through
     Class III-A35a, Class III-A1b through Class III-A35b, Class III-B1a through
     Class III-B35a, Class III-B1b through Class III-B35b, Class III-C1a through
     Class III-C35a, Class III-C1b through Class III-C35b, Class III-D1a through
     Class III-D35a, Class III-D1b through Class III-D35b, Class III-E1a through
     Class III-E35a, Class III-E1b through Class III-E35b, Class III-F1a through
     Class III-F35a, Class III-F1b through Class III-F35b, Class III-G1a through
     Class III-G35a, Class III-G1b through Class III-G35b, Class III-H1a through
     Class III-H35a, Class III-H1b through Class III-H35b, Class III-K1a through
     Class III-K35a, Class III-K1b through Class III-K35b, Class III-L1a through
     Class III-L35a, Class III-L1b through Class III-L35b, Class III-J1 and
     Class III-S1 Interests.

(2)  The pass-through rate for these REMIC IV Regular Interests will be the
     weighted average of the pass-through rates of the Class III-M1a through
     Class III-M35a, Class III-M1b through Class III-M35b, Class III-O1a through
     Class III-O35a, Class III-O1b through Class III-O35b, Class III-Q1a through
     Class III-Q35a, Class III-Q1b through Class III-Q35b, Class III-Z1a through
     Class III-Z35a, Class III-Z1b through Class III-Z35b, Class III-S1a through
     Class III-S35a, Class III-S1b through Class III-S35b, Class III-T1a through
     Class III-T35a, Class III-T1b through Class III-T35b, Class III-U1a through
     Class III-U35a, Class III-U1b through Class III-U35b, Class III-V1a through
     Class III-V35a, Class III-V1b through Class III-V35b, Class III-W1a through
     Class III-W35a, Class III-W1b through Class III-W35b, Class III-Y1a through
     Class III-Y35a, Class III-Y1b through Class III-Y35b, Class III-J2 and
     Class III-S2 Interests.

(3)  The pass-through rate for these REMIC IV Regular Interests will be the
     weighted average of the pass-through rates of the Class III-S1 and Class
     III-S2 Interests.

(4)  The Class IV-N Interest will have a notional principal balance equal to the
     notional principal balance of the Class III-N Interest.

(5)  The Class IV-N Interest is entitled to all distributions on the Class III-N
     Interest.

(6)  The Class IV-P Interest is entitled to all distributions on the Class III-P
     Interest.

                                       23

<PAGE>

(7)  The Class IV-I Interest will be an interest only regular interest and will
     be entitled to receive on each Distribution Date the sum of the amounts
     distributable on the Class III-A1c through Class III-A35c, Class III-B1c
     through Class III-B35c, Class III-C1c through Class III-C35c, Class III-D1c
     through Class III-D35c, Class III-E1c through Class III-E35c, Class III-F1c
     through Class III-F35c, Class III-G1c through Class III-G35c, Class III-H1c
     through Class III-H35c, Class III-K1c through Class III-K35c, Class III-L1c
     through Class III-L35c, Class III-M1c through Class III-M35c, Class III-O1c
     through Class III-O35c, Class III-Q1c through Class III-Q35c, Class III-Z1c
     through Class III-Z35c, Class III-S1c through Class III-S35c, Class III-T1c
     through Class III-T35c, Class III-U1c through Class III-U35c, Class III-V1c
     through Class III-V35c, Class III-W1c through Class III-W35c and Class
     III-Y1c through Class III-Y35c Interests on such Distribution Date.

          On each Distribution Date, 50% of the increase in the
Over-collateralization Amount will be payable as a reduction of the principal
balances of the Class IV-A1, Class IV-A2A, Class IV-A2B, Class IV-A2C, Class
IV-M1, Class IV-M2, Class IV-M3, Class IV-B1, Class IV-B2, Class IV-B3 and Class
IV-O Interests (in the order and relative amount of such reduction to the
principal balance of each class's Corresponding Class of Master REMIC
Certificates) and will be accrued and added to the principal balances of the
Class IV-Accrual1 and Class IV-Accrual2 Interests (in the relative amount that
such increase in the Overcollateralization Amount relates to the Group I/Group
II Mortgage Loans and the Group III Mortgage Loans, respectively). On each
Distribution Date, the increase in the principal balance of the Class
IV-Accrual1 and Class IV-Accrual2 Interests may not exceed interest accruals for
such Distribution Date for the respective Class IV-Accrual Interests. In the
event that (i) 50% of the increase in the related Overcollateralization Amount
exceeds (ii) interest accruals on the related Class IV-Accrual Interest for such
Distribution Date, the excess for such Distribution Date (accumulated with all
such excesses for all prior Distribution Dates) will be added to any increase in
the Overcollateralization Amount for purposes of determining the amount of
interest accrual on the related Class IV-Accrual Interest payable as principal
on the related Class IV-Accrual Interest on the next Distribution Date pursuant
to the first sentence of this paragraph.

          All payments of scheduled principal and prepayments of principal with
respect to the Group I and Group II Mortgage Loans shall be allocated 50% to the
Class IV-Accrual1 Interest and 50% to the Class IV-A1, Class IV-A2A, Class
IV-A2B, Class IV-A2C, Class IV-M1, Class IV-M2, Class IV-M3, Class IV-B1, Class
IV-B2, Class IV-B3 and Class IV-O Interests (to each such Class in an amount
equal to 1/2 of the principal paid in reduction of the principal balance of the
Corresponding Class of Master REMIC Certificates) until paid in full.
Notwithstanding the above, principal payments allocated to the Class X
Certificates that result in the reduction of the Overcollateralization Amount
shall be allocated to the Class IV-Accrual1 Interest until paid in full.
Realized Losses shall be applied so that after all distributions have been made
on each Distribution Date the principal balances of the Class IV-A1, Class
IV-A2A, Class IV-A2B, Class IV-A2C, Class IV-M1, Class IV-M2, Class IV-M3, Class
IV-B1, Class IV-B2 and Class IV-B3 Interests are each equal to 50% of the
principal balance of its Corresponding Class of Master REMIC Certificates and
the Class IV-Accrual1 Interest is equal to 50% of the sum of the Group I/Group
II Pool Balance and the related Pre-Funded Amount.

                                       24

<PAGE>

          All payments of scheduled principal and prepayments of principal with
respect to the Group III Mortgage Loans shall be allocated 50% to the Class
IV-Accrual2 Interest and 50% to the Class IV-A3, Class IV-M1, Class IV-M2, Class
IV-M3, Class IV-B1, Class IV-B2, Class IV-B3 and Class IV-O Interests (to each
such Class in an amount equal to 1/2 of the principal paid in reduction of the
principal balance of the Corresponding Class of Master REMIC Certificates) until
paid in full. Notwithstanding the above, principal payments allocated to the
Class X Certificates that result in the reduction of the Overcollateralization
Amount shall be allocated to the Class IV-Accrual2 Interest until paid in full.
Realized Losses shall be applied so that after all distributions have been made
on each Distribution Date the principal balances of the Class IV-A3, Class
IV-M1, Class IV-M2, Class IV-M3, Class IV-B1, Class IV-B2 and Class IV-B3
Interests are each equal to 50% of the principal balance of its Corresponding
Class of Master REMIC Certificates and the Class IV-Accrual2 Interest is equal
to 50% of the sum of the Group III Pool Balance and the related Pre-Funded
Amount.

          (g)  The following table sets forth characteristics of the
Certificates, each of which (other than the Class R Certificates and, with
respect to the Class A Certificates, Class M Certificates and Class B
Certificates, other than its Cap Contract Rights) is hereby designated as a
"regular interest" in the Master REMIC:

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
                     Initial
                   Certificate
  Class of          Principal
Certificates         Balance                       REMIC Pass-Through Rate
------------------------------------------------------------------------------------------------
<S>              <C>               <C>
 Class A-1       $ 1,074,859,000   the lesser of (i) 11% and (ii) LIBOR + Certificate Margin (1)
------------------------------------------------------------------------------------------------
 Class A-2A      $    52,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (1)
------------------------------------------------------------------------------------------------
 Class A-2B      $    25,101,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (1)
------------------------------------------------------------------------------------------------
 Class A-2C      $    77,102,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (1)
------------------------------------------------------------------------------------------------
 Class A-3       $    64,688,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (2)
------------------------------------------------------------------------------------------------
 Class M-1       $    75,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
 Class M-2       $    60,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
 Class M-3       $    15,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
 Class B-1       $    15,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
 Class B-2       $    15,000,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
 Class B-3       $     8,250,000   the lesser of (i) 11% and (ii)LIBOR + Certificate Margin (3)
------------------------------------------------------------------------------------------------
Class X-1 (4)          (5)                                    (5)
------------------------------------------------------------------------------------------------
Class X-2 (4)          (6)                                    (7)
------------------------------------------------------------------------------------------------
  Class I              (8)                                    (9)
------------------------------------------------------------------------------------------------
  Class O        $    17,999,900                              (10)
------------------------------------------------------------------------------------------------
  Class P        $           100                              (11)
------------------------------------------------------------------------------------------------
  Class R              (12)                                   (12)
------------------------------------------------------------------------------------------------
</TABLE>

(1)  Subject to the Group I/Group II REMIC Available Funds Cap.

(2)  Subject to the Group III REMIC Available Funds Cap.

(3)  Subject to the Subordinate REMIC Available Funds Cap.

                                       25

<PAGE>

(4)  The Class X Certificates will represent two regular interests in the Master
     REMIC, the Class X-1 and the Class X-2 Interest.

(5)  The Class X-1 Interest will have a notional principal balance equal to the
     aggregate principal balance of the Mortgage Loans plus any outstanding
     Pre-Funded Amount. The REMIC Pass-Through Rate for the Class X-1 Interest
     will be the excess of: (I) the weighted average of the pass-through rates
     on the REMIC IV Regular Interests (other than the Class IV-I and Class IV-N
     Interests) over (II) the product of: (A) two and (B) the weighted average
     pass-through rate of the REMIC IV Regular Interests (other than the Class
     IV-I and Class IV-N Interests) where the Class IV Accrual Interests are
     subject to a cap equal to zero, and the remaining classes are subject to a
     cap equal to the REMIC Pass-Through Rates on their respective Corresponding
     Classes of Master REMIC Regular Interests.

(6)  The Class X-2 Interest will have a notional principal balance equal to the
     notional principal balance of the Class IV-N Interest.

(7)  The Class X-2 Interest is entitled to all distributions on the Class IV-N
     Interest.

(8)  The Class I Certificates will have a notional principal balance equal to
     the Class IV-I notional principal balance.

(9)  The REMIC Pass-Through Rate for the Class I Certificate shall be 100% of
     the pass-through rate on the Class IV-I Interest.

(10) The Class O Certificate will not be entitled to any distributions of
     interest.

(11) The Class P Certificates are entitled to distributions of all Prepayment
     Charges. Otherwise, the REMIC Pass-Through Rate is zero.

(12) The Class R Certificates will represent the beneficial ownership of the
     R-I, R-II, R-III, R-IV and R-V Interests. On each Distribution Date,
     available funds, if any, remaining in any of the REMICs after payments of
     interest and principal, as designated above, will be distributed to the
     Class R Certificate. It is expected that there shall not be any
     distributions on the Class R Certificate.

          (h)  For federal income tax purposes, the "latest possible maturity
date" for each of the REMIC I Regular Interests, REMIC II Regular Interests,
REMIC III Regular Interests, REMIC IV Regular Interests and Master REMIC Regular
Interests is hereby set to be the Distribution Date of February 2034.

                                       26

<PAGE>

                                   ARTICLE III

                          ADMINISTRATION AND SERVICING
                              OF THE MORTGAGE LOANS

          Section 3.01 Servicer to Assure Servicing.
                       -----------------------------

          (a)  The Servicer shall supervise, or take such actions as are
necessary to ensure, the servicing and administration of the Mortgage Loans and
any REO Property in accordance with this Agreement and its normal servicing
practices, which generally shall conform to the standards of an institution
prudently servicing mortgage loans for its own account and shall have full
authority to do anything it reasonably deems appropriate or desirable in
connection with such servicing and administration. The Servicer may perform its
responsibilities relating to servicing through other agents or independent
contractors, but shall not thereby be released from any of its responsibilities
as hereinafter set forth. Subject to Section 3.06(b), the authority of the
Servicer, in its capacity as Servicer, and any Subservicer acting on its behalf,
shall include, without limitation, the power to (i) consult with and advise any
Subservicer regarding administration of a related Mortgage Loan, (ii) approve
any recommendation by a Subservicer to foreclose on a related Mortgage Loan,
(iii) supervise the filing and collection of insurance claims and take or cause
to be taken such actions on behalf of the insured Person thereunder as shall be
reasonably necessary to prevent the denial of coverage thereunder, and (iv)
effectuate foreclosure or other conversion of the ownership of the Mortgaged
Property securing a related Mortgage Loan, including the employment of
attorneys, the institution of legal proceedings, the collection of deficiency
judgments, the acceptance of compromise proposals and any other matter
pertaining to a delinquent Mortgage Loan. The authority of the Servicer shall
include, in addition, the power on behalf of the Certificateholders, the
Trustee, or any of them to (i) execute and deliver customary consents or waivers
and other instruments and documents, (ii) consent to transfer of any related
Mortgaged Property and assumptions of the related Mortgage Notes and Mortgages
(in the manner provided in this Agreement) and (iii) collect any Insurance
Proceeds and Liquidation Proceeds. Without limiting the generality of the
foregoing, the Servicer and any Subservicer acting on its behalf may, and is
hereby authorized, and empowered by the Trustee when the Servicer believes it is
reasonably necessary in its best judgment in order to comply with its servicing
duties hereunder, to execute and deliver, on behalf of itself, the
Certificateholders, the Trustee, or any of them, any instruments of
satisfaction, cancellation, partial or full release, discharge and all other
comparable instruments, with respect to the related Mortgage Loans, the
insurance policies and the accounts related thereto, and the Mortgaged
Properties. The Servicer may exercise this power in its own name or in the name
of a Subservicer.

          The Servicer, in such capacity, may not consent to the placing of a
lien senior to that of the Mortgage on the related Mortgaged Property.

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

                                       27

<PAGE>

          (b)  Notwithstanding the provisions of Subsection 3.01(a), the
Servicer shall not take any action inconsistent with the interests of the
Trustee, or the Certificateholders or with the rights and interests of the
Trustee, or the Certificateholders under this Agreement.

          (c)  The Trustee shall furnish the Servicer with any powers of
attorney and other documents in form as provided to it necessary or appropriate
to enable the Servicer to service and administer the related Mortgage Loans and
REO Property and the Trustee shall not be liable for the actions of the Servicer
or any Subservicers under such powers of attorney.

          (d)  The Servicer further is authorized and empowered by the Trustee,
on behalf of the Certificateholders and the Trustee, when the Servicer believes
it is appropriate in its best judgment to register any Mortgage Loan on the MERS
System, or cause the removal from the registration of any Mortgage Loan on the
MERS System, to execute and deliver, on behalf of the Trustee and the
Certificateholders or any of them, any and all instruments of assignment and
other comparable instruments with respect to such assignment or re-recording of
a Mortgage in the name of MERS, solely as nominee for the Trustee and its
successors and assigns. Any expenses incurred in connection with the actions
described in the preceding sentence shall be borne by the Servicer with no right
of reimbursement; provided, that if, as a result of MERS discontinuing or
becoming unable to continue operations in connection with the MERS System, it
becomes necessary to remove any Mortgage Loan from registration on the MERS
System and to arrange for the assignment of the related Mortgages to the
Trustee, then any related expenses shall be reimbursable to the Servicer by the
Trust.

          Section 3.02 Subservicing Agreements Between Servicer and
                       ---------------------------------------------
Subservicers.
-------------

          (a)  The Servicer may enter into Subservicing Agreements with
Subservicers for the servicing and administration of the Mortgage Loans and for
the performance of any and all other activities of the Servicer hereunder. Each
Subservicer shall be either (i) an institution the accounts of which are insured
by the FDIC or (ii) another entity that engages in the business of originating
or servicing mortgage loans comparable to the Mortgage Loans, and in either case
shall be authorized to transact business in the state or states in which the
related Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement. Any Subservicing Agreement
entered into by the Servicer shall include the provision that such Agreement may
be immediately terminated (i) (x) with cause and without any termination fee by
the Servicer hereunder and/or (y) without cause, in which case the Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom and (ii) at the option of the Trustee upon the termination or
resignation of the Servicer hereunder, in which case the Servicer shall be
solely responsible for any termination fee or penalty resulting therefrom. In
addition, each Subservicing Agreement shall provide for servicing of the
Mortgage Loans consistent with the terms of this Agreement. The Servicer and the
Subservicers may enter into Subservicing Agreements and make amendments to the
Subservicing Agreements or enter into different forms of Subservicing Agreements
providing for, among other things, the delegation by the Servicer to a
Subservicer of additional duties regarding the administration of the Mortgage
Loans; provided, however, that any such amendments or different forms shall be
consistent with and not violate the provisions of this Agreement, and that no
such amendment or different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of the

                                       28

<PAGE>

Certificateholders, without the consent of the Certificateholders holding at
least 51% of the aggregate Voting Rights.

          (b)  As part of its servicing activities hereunder, the Servicer, for
the benefit of the Trustee, and the Certificateholders, shall enforce the
obligations of each Subservicer under the related Subservicing Agreement. 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 Servicer, in its good faith business judgment, would require were it
the owner of the related Mortgage Loans. The Servicer shall pay the costs of
such enforcement at its own expense, but shall be reimbursed therefor only (i)
from a general recovery resulting from such enforcement only to the extent, if
any, that such recovery exceeds all amounts due in respect of the related
Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys'
fees against the party against whom such enforcement is directed.

          Section 3.03 Successor Subservicers.
                       -----------------------

          The Servicer shall be entitled to terminate any Subservicing Agreement
that may exist in accordance with the terms and conditions of such Subservicing
Agreement and without any limitation by virtue of this Agreement; provided,
however, that upon termination, the Servicer shall either act as servicer of the
related Mortgage Loans or enter into an appropriate contract with a successor
Subservicer reasonably acceptable to the Trustee, pursuant to which such
successor Subservicer will be bound by all relevant terms of the related
Subservicing Agreement pertaining to the servicing of such Mortgage Loans.

          Section 3.04 Liability of the Servicer.
                       --------------------------

          (a)  Notwithstanding any Subservicing Agreement, any of the provisions
of this Agreement relating to agreements or arrangements between the Servicer
and a Subservicer or reference to actions taken through a Subservicer or
otherwise, the Servicer shall under all circumstances remain obligated and
primarily liable to the Trustee and the Certificateholders for the servicing and
administering of the Mortgage Loans and any REO Property in accordance with this
Agreement. The obligations and liability of the Servicer shall not be diminished
by virtue of Subservicing Agreements or by virtue of indemnification of the
Servicer by any Subservicer, or any other Person. The obligations and liability
of the Servicer shall remain of the same nature and under the same terms and
conditions as if the Servicer alone were servicing and administering the related
Mortgage Loans. The Servicer shall, however, be entitled to enter into
indemnification agreements with any Subservicer or other Person and nothing in
this Agreement shall be deemed to limit or modify such indemnification. For the
purposes of this Agreement, the Servicer shall be deemed to have received any
payment on a Mortgage Loan on the date the Subservicer received such payment.

          (b)  Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Custodian, the Trustee and the
Certificateholders shall not be deemed parties

                                       29

<PAGE>

thereto and shall have no claims, rights, obligations, duties or liabilities
with respect to the Subservicer, except as set forth in Section 3.05.

          Section 3.05 Assumption or Termination of Subservicing Agreements by
                       --------------------------------------------------------
the Trustee.
------------

          (a)  If the Trustee or its designee as the successor Servicer, shall
assume the servicing obligations of the Servicer in accordance with Section 7.02
below, the Trustee or its designee as the successor Servicer, to the extent
necessary to carry out the provisions of Section 7.02 with respect to the
Mortgage Loans, shall succeed to all of the rights and obligations of the
Servicer under each of the Subservicing Agreements. In such event, the Trustee
or its designee as the successor Servicer shall be deemed to have assumed all of
the Servicer's rights and obligations therein and to have replaced the Servicer
as a party to such Subservicing Agreements to the same extent as if such
Subservicing Agreements had been assigned to the Trustee or its designee as a
successor Servicer, except that the Trustee or its designee as a successor
Servicer shall not be deemed to have assumed any obligations or liabilities of
the Servicer arising prior to such assumption or as a result of the Trustee's or
its designee's terminating any Subservicer upon the Trustee or its designee
becoming successor Servicer and the Servicer shall not thereby be relieved of
any liability or obligations under such Subservicing Agreements arising prior to
such assumption or as a result of the Trustee's or its designee's terminating
any Subservicer upon the Trustee or its designee becoming successor Servicer.

          (b)  The Trustee or its designee as the successor Servicer may
terminate any Subservicer upon becoming successor Servicer.

          (c)  In the event that the Trustee or its designee as successor
Servicer assumes the servicing obligations of the Servicer under Section 7.02,
upon the request of the Trustee or such designee as successor Servicer, the
Servicer shall at its own expense deliver to the Trustee, or at its written
request to such designee, originals or, if originals are not available,
photocopies of all documents, files and records, electronic or otherwise,
relating to the Subservicing Agreements and the related Mortgage Loans or REO
Property then being serviced and an accounting of amounts collected and held by
it, if any, and will otherwise cooperate and use its reasonable efforts to
effect the orderly and efficient transfer of the Subservicing Agreements, or
responsibilities hereunder to the Trustee, or at its written request to such
designee as successor Servicer.

          Section 3.06 Collection of Mortgage Loan Payments.
                       -------------------------------------

          (a)  The Servicer will coordinate and monitor remittances by
Subservicers to it with respect to the Mortgage Loans in accordance with this
Agreement.

          (b)  The Servicer shall make its best reasonable efforts to collect or
cause to be collected all payments required under the terms and provisions of
the Mortgage Loans and shall follow, and use its best reasonable efforts to
cause Subservicers to follow, collection procedures comparable to the collection
procedures of prudent mortgage lenders servicing mortgage loans for their own
account to the extent such procedures shall be consistent with this Agreement.
Consistent with the foregoing, the Servicer or the related Subservicer may in
its discretion (i)

                                       30

<PAGE>

waive or permit to be waived any late payment charge, prepayment charge,
assumption fee, or any penalty interest in connection with the prepayment of a
Mortgage Loan and (ii) suspend or reduce or permit to be suspended or reduced
regular monthly payments for a period of up to six months, or arrange or permit
an arrangement with a Mortgagor for a scheduled liquidation of delinquencies;
provided, however, that the Servicer or the related Subservicer may permit the
foregoing only if it believes, in good faith, that recoveries of Monthly
Payments will be maximized; provided further, however, with respect to Mortgage
Loans insured by an MI Policy, that the Servicer may not without the prior
written consent of the MI Insurer permit any waiver, modification or variance
which would (a) change the loan rate, (b) forgive any payment of principal or
interest, (c) lessen the lien priority or (d) extend the final maturity date of
a Mortgage Loan past 12 months after the original maturity date on such Mortgage
Loan. In the event the Servicer or related Subservicer shall consent to the
deferment of the due dates for payments due on a Mortgage Note, the Servicer
shall nonetheless make an Advance or shall cause the related Subservicer to make
an advance to the same extent as if such installment were due, owing and
delinquent and had not been deferred through liquidation of the Mortgaged
Property; provided, however, that the obligation of the Servicer or the related
Subservicer to make an Advance shall apply only to the extent that the Servicer
believes, in good faith, that such advances are not Nonrecoverable Advances.

          (c)  Within five Business Days after the Servicer has determined that
all amounts which it expects to recover from or on account of a Liquidated
Mortgage Loan have been recovered and that no further Liquidation Proceeds will
be received in connection therewith, the Servicer shall provide to the Trustee a
certificate of a Servicing Officer that such Mortgage Loan became a Liquidated
Mortgage Loan as of the date of such determination.

          (d)  The Servicer shall establish a segregated account (the
"Collection Account"), which shall be an Eligible Account, which shall be titled
"Collection Account, JPMorgan Chase Bank, as Trustee for the registered holders
of NovaStar Mortgage Funding Trust 2003-4, Home Equity Loan Asset-Backed
Certificates, Series 2003-4", in which the Servicer shall deposit or cause to be
deposited any amounts representing payments on and any collections in respect of
the Mortgage Loans received by it after the Cut-Off Date or, with respect to the
Subsequent Mortgage Loans, the Subsequent Cut-Off Date (other than in respect of
the payments referred to in the following paragraph) within two Business Days
following receipt thereof, including the following payments and collections
received or made by it (without duplication):

               (i)    all payments of principal or interest on the Mortgage
     Loans received by the Servicer directly from Mortgagors or from the
     respective Subservicer;

               (ii)   the aggregate Repurchase Price of the Mortgage Loans
     purchased by the Servicer pursuant to Section 3.18 or by the Converted Loan
     Purchaser, pursuant to Section 3.20;

               (iii)  Net Liquidation Proceeds;

               (iv)   all proceeds of any Mortgage Loans repurchased by the
     Seller pursuant to the Purchase Agreement, and all Substitution Adjustment
     Amounts required

                                       31

<PAGE>

     to be deposited in connection with the substitution of an Eligible
     Substitute Mortgage Loan pursuant to the Purchase Agreement;

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

               (vi)   any Advance and any Compensating Interest payments; and

               (vii)  any other amounts received by the Servicer, including all
     Foreclosure Profits, assumption fees, prepayment penalties and any other
     fees that are required to be deposited in the Collection Account pursuant
     to this Agreement;

provided, however, that with respect to each Due Period, the Servicer shall be
     permitted to retain from payments in respect of interest on the Mortgage
     Loans, the Servicing Fee for such Due Period. The foregoing requirements
     respecting deposits to the Collection Account are exclusive, it being
     understood that, without limiting the generality of the foregoing, the
     Servicer need not deposit in the Collection Account late payment charges
     payable by Mortgagors, as further described in Section 3.15, or amounts
     received by the Subservicer 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
     Collection Account is so deposited, the Servicer may at any time (prior to
     being terminated under this Agreement) withdraw such amount from the
     Collection Account, any provision herein to the contrary notwithstanding.
     The Servicer shall keep records that accurately reflect the funds on
     deposit in the Collection Account that have been identified by it as being
     attributable to the Mortgage Loans and shall hold all collections in the
     Collection Account for the benefit of the Trustee, and the
     Certificateholders, as their interests may appear.

          Funds in the Collection Account may be invested in Eligible
Investments with a maturity date no later than the Business Day immediately
preceding the Servicer Remittance Date, but shall not be commingled with the
Servicer's own funds or general assets or with funds respecting payments on
mortgage loans or with any other funds not related to the Certificates. Income
earned on such Eligible Investments shall be for the account of the Servicer.
The Servicer shall be obligated to cover losses on such Eligible Investments.

          (e)  The Servicer will require each Subservicer to hold all funds
constituting collections on the Mortgage Loans, pending remittance thereof to
the Servicer, in one or more accounts in the name of the Trustee meeting the
requirements of an Eligible Account, and such funds shall not be invested. The
Subservicer shall segregate and hold all funds collected and received pursuant
to each Mortgage Loan separate and apart from any of its own funds and general
assets and any other funds. Each Subservicer shall make remittances to the
Servicer no later than one Business Day following receipt thereof and the
Servicer shall deposit into the Collection Account any such remittances received
from any Subservicer within one Business Day following receipt by the Servicer.

                                       32

<PAGE>

          Section 3.07 Withdrawals from the Collection Account.
                       ----------------------------------------

          (a)  The Servicer shall, from time to time as provided herein, make
withdrawals from the Collection Account of amounts on deposit therein pursuant
to Section 3.06 that are attributable to the Mortgage Loans for the following
purposes (without duplication):

               (i)    to deposit in the Distribution Account, by the Servicer
     Remittance Date prior to each Distribution Date, all collections on the
     Mortgage Loans required to be distributed from the Distribution Account on
     a Distribution Date;

               (ii)   to the extent deposited to the Collection Account, to
     reimburse itself or the related Subservicer for previously unreimbursed
     expenses incurred in maintaining individual insurance policies pursuant to
     Section 3.11, or Liquidation Expenses, paid pursuant to Section 3.13, such
     withdrawal right being limited to amounts received on particular Mortgage
     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;

               (iii)  to pay to itself out of each payment received on account
     of interest on a Mortgage Loan as contemplated by Section 3.15, an amount
     equal to the related Servicing Fee (to the extent not retained pursuant to
     Section 3.06);

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

               (v)    to reimburse the Servicer or any Subservicer for any
     unreimbursed Advance of its own funds or any unreimbursed advance of such
     Subservicer's own funds, the right of the Servicer or a Subservicer to
     reimbursement pursuant to this subclause (v) being limited to amounts
     received on a particular Mortgage Loan (including, for this purpose, the
     Repurchase Price therefor, Insurance Proceeds and Liquidation Proceeds)
     which represent late payments or recoveries of the principal of or interest
     on such Mortgage Loan respecting which such Advance or advance was made;

               (vi)   to reimburse the Servicer or any Subservicer from
     Insurance Proceeds or Liquidation Proceeds relating to a particular
     Mortgage Loan for amounts expended by the Servicer or such Subservicer
     pursuant to Section 3.13 in good faith in connection with the restoration
     of the related Mortgaged Property which was damaged by the uninsured cause
     or in connection with the liquidation of such Mortgage Loan;

               (vii)  to reimburse the Servicer or any Subservicer for any
     unreimbursed Nonrecoverable Advance previously made, and otherwise not
     reimbursed pursuant to this Subsection 3.07(a);

               (viii) to withdraw any other amount deposited in the Collection
     Account that was not required to be deposited therein pursuant to Section
     3.06;

                                       33

<PAGE>

               (ix)   to reimburse the Servicer for costs associated with the
     environmental report specified in Section 3.13(c);

               (x)    to clear and terminate the Collection Account upon a
     termination pursuant to Section 7.08;

               (xi)   to pay to the Servicer income earned on Eligible
     Investments in the Collection Account;

               (xii)  to pay to the MI Insurer the monthly MI Premiums due under
     each MI Policy from payments received (or Advances made) on account of
     interest due on the related Mortgage Loan; and

               (xiii) to make an Advance with respect to a delinquent Mortgage
     Loan from funds held in the Collection Account as contemplated by Section
     3.24, provided that the amount withdrawn for such an Advance is immediately
     deposited into the Distribution Account.

Withdrawals made pursuant to clause (xii) shall be made on a first priority
     basis. In connection with withdrawals pursuant to clauses (ii), (iii),
     (iv), (v) and (vi), the Servicer's entitlement thereto is limited to
     collections or other recoveries on the related Mortgage Loan, and the
     Servicer shall keep and maintain separate accounting, on a Mortgage Loan by
     Mortgage Loan basis, for the purpose of justifying any withdrawal from the
     Collection Account pursuant to such clauses.

          (b)  Notwithstanding the provisions of this Section 3.07, the Servicer
may, but is not required to, allow the Subservicers to deduct from amounts
received by them or from the related account maintained by a Subservicer, prior
to deposit in the Collection Account, any portion to which such Subservicers are
entitled as reimbursement of any reimbursable Advances made by such
Subservicers.

          Section 3.08 Collection of Taxes, Assessments and Similar Items;
                       ---------------------------------------------------
Servicing Accounts.
-------------------

          (a)  The Servicer shall establish and maintain or cause the related
Subservicer to establish and maintain, one or more Servicing Accounts. The
Servicer or a Subservicer will deposit and retain therein all collections from
the Mortgagors for the payment of taxes, assessments, insurance premiums, or
comparable items as agent of the Mortgagors.

          (b)  The deposits in the Servicing Accounts shall be held in trust by
the Servicer or a Subservicer (and its successors and assigns) in the name of
the Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any

                                       34

<PAGE>

Mortgagors any sums as may be determined to be overages, to pay interest, if
required, to Mortgagors on balances in the Servicing Accounts or to clear and
terminate the Servicing Accounts at or any time after the termination of this
Agreement. Amounts received from Mortgagors for deposit into the Servicing
Accounts shall be deposited in the Servicing Accounts by the Servicer within two
days of receipt. The Servicer shall advance from its own funds amounts needed to
pay items payable from the Servicing Accounts if the Servicer reasonably
believes that such amounts are recoverable from the related Mortgagor. The
Servicer shall comply with all laws relating to the Servicing Accounts,
including laws relating to payment of interest on the Servicing Accounts. If
interest earned by the Servicer on the Servicing Accounts is not sufficient to
pay required interest on the Servicing Accounts, the Servicer shall pay the
difference from its own funds. The Servicing Accounts shall not be the property
of the Trust.

          Section 3.09 Access to Certain Documentation and Information Regarding
                       ---------------------------------------------------------
the Mortgage Loans.
-------------------

          The Servicer shall provide, and shall cause any Subservicer to
provide, to the Trustee, access to the documentation regarding the related
Mortgage Loans and REO Property and to the Certificateholders, the FDIC, and the
supervisory agents and examiners of the FDIC (to which the Custodian and Trustee
shall also provide) access to the documentation regarding the related Mortgage
Loans required by applicable regulations, such access being afforded without
charge but only upon reasonable request and during normal business hours at the
offices of the Servicer or the Subservicers that are designated by these
entities; provided, however, that, unless otherwise required by law, the
Servicer and any Subservicer shall not be required to provide access to such
documentation if the provision thereof would violate the legal right to privacy
of any Mortgagor; provided, further, however, that the Trustee shall coordinate
its request for such access so as not to impose an unreasonable burden on, or
cause an unreasonable interruption of, the business of the Servicer or any
Subservicer. The Servicer, the Subservicers, the Trustee and the Custodian shall
allow representatives of the above entities to photocopy any of the
documentation and shall provide equipment for that purpose at a charge that
covers their own actual out-of-pocket costs.

          Section 3.10 [Reserved].
                       -----------

          Section 3.11 Maintenance of Hazard Insurance and Fidelity Coverage.
                       ------------------------------------------------------

          (a)  The Servicer shall maintain and keep, or cause each Subservicer
to maintain and keep, with respect to each Mortgage Loan and each REO Property,
in full force and effect hazard insurance (fire insurance with extended
coverage) equal to at least the lesser of the Principal Balance of the Mortgage
Loan or the current replacement cost of the Mortgaged Property, and containing a
standard mortgagee clause, provided, however, that the amount of hazard
insurance may not be less than the amount necessary to prevent loss due to the
application of any co-insurance provision of the related policy. Unless
applicable state law requires a higher deductible, the deductible on such hazard
insurance policy may be no more than $1,500 or 1% of the applicable amount of
coverage, whichever is less. In the case of a condominium unit or a unit in a
planned unit development, the required hazard insurance shall take the form of a
multi-peril policy covering the entire condominium project or planned unit
development, in an amount equal to at least 100% of the insurable value based on
replacement cost. If the Servicer shall obtain

                                       35

<PAGE>

and maintain a blanket policy consistent with its general mortgage servicing
activities insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in this
Section 3.11(a), it being understood and agreed that such policy may contain a
deductible clause, in which case the Servicer shall, in the event that there
shall not have been maintained on the related Mortgaged Property a policy
complying with this Section 3.11(a) and there shall have been a loss which would
have been covered by such policy, deposit in the Collection Account the amount
not otherwise payable under the blanket policy because of such deductible clause
without any right of reimbursement. Any such deposit by the Servicer shall be
made on the last Business Day of the Due Period in the month in which payments
under any such policy would have been deposited in the Collection Account. In
connection with its activities as servicer of the Mortgage Loans, the Servicer
agrees to present, on behalf of itself, the Trust, and the Trustee, claims under
any such blanket policy.

          (b)  Any amounts collected by the Servicer or a Subservicer under any
such hazard insurance policy (other than amounts to be applied to the
restoration or repair of the Mortgaged Property or amounts released to the
Mortgagor in accordance with the Servicer's or a Subservicer's normal servicing
procedures, the Mortgage Note, the Mortgage or applicable law) shall be
deposited in the Collection Account.

          (c)  Any cost incurred by a Servicer or a Subservicer in maintaining
any such individual hazard insurance policies shall not be added to the amount
owing under the Mortgage Loan for the purpose of calculating monthly
distributions to Certificateholders, notwithstanding that the terms of the
Mortgage Loan so permit. Such costs of maintaining individual hazard insurance
policies shall be recoverable by the Servicer or a Subservicer out of related
late payments by the Mortgagor or out of Insurance Proceeds or Liquidation
Proceeds or by the Servicer from the Repurchase Price, to the extent permitted
by Section 3.07.

          (d)  No earthquake or other additional insurance is to be required of
any Mortgagor or maintained on property acquired with respect to a Mortgage
other than pursuant to such applicable laws and regulations as shall at any time
be in force and shall require such additional insurance. When, at the time of
origination of the Mortgage Loan or at any subsequent time, the Mortgaged
Property is located in a federally designated special flood hazard area, the
Servicer shall ensure that, with respect to such Mortgage Loan or such REO
Property, flood insurance is acquired (to the extent available and in accordance
with mortgage servicing industry practice). Such flood insurance shall cover the
Mortgaged Property, including all items taken into account in arriving at the
Appraised Value on which the Mortgage Loan was based, and shall be in an amount
equal to the lesser of (i) the Principal Balance of the related Mortgage Loan
and (ii) the minimum amount required under the terms of coverage to compensate
for any damage or loss on a replacement cost basis, but not more than the
maximum amount of such insurance available for the related Mortgaged Property
under either the regular or emergency programs of the National Flood Insurance
Program (assuming that the area in which such Mortgaged Property is located is
participating in such program). Unless applicable state law requires a higher
deductible, the deductible on such flood insurance may not exceed $1,500 or 1%
of the applicable amount of coverage, whichever is less.

          (e)  If insurance has not been maintained complying with Subsections
3.11 (a) and (d) and there shall have been a loss which would have been covered
by such insurance had it

                                       36

<PAGE>

been maintained, the Servicer shall pay, or cause the related Subservicer to
pay, for any necessary repairs without any right of reimbursement.

          (f)  The Servicer shall present, or cause the related Subservicer to
present, claims under any related hazard insurance or flood insurance policy.

          (g)  The Servicer shall obtain and maintain at its own expense, and
shall cause each Subservicer to obtain and maintain at its own expense, and for
the duration of this Agreement, a blanket fidelity bond and an errors and
omissions insurance policy covering the Servicer's and such Subservicer's
officers, employees and other persons acting on its behalf in connection with
its activities under this Agreement. The amount of coverage shall correspond
with the FNMA/FHMLC levels presently maintained by the Servicer. The Servicer
shall promptly notify the Trustee of any material change in the terms of such
bond or policy. The Servicer shall provide annually to the Trustee a certificate
of insurance that such bond and policy are in effect. If any such bond or policy
ceases to be in effect, the Servicer shall, to the extent possible, give the
Trustee ten days' notice prior to any such cessation and shall use its
reasonable best efforts to obtain a comparable replacement bond or policy, as
the case may be. Any amounts relating to the Mortgage Loans collected under such
bond or policy shall be deposited in the Collection Account.

          Section 3.12  Due-on-Sale Clauses; Assumption Agreements.
                        -------------------------------------------

          (a)  In any case in which the Servicer is notified by any Mortgagor or
Subservicer that a Mortgaged Property relating to a Mortgage Loan has been or is
about to be conveyed by the Mortgagor, the Servicer shall enforce, or shall
instruct such Subservicer to enforce, any due-on-sale clause contained in the
related Mortgage to the extent permitted under the terms of the related Mortgage
Note and by applicable law. The Servicer or the related Subservicer may
repurchase a Mortgage Loan at the Repurchase Price when the Servicer requires
acceleration of the Mortgage Loan, but only if the Servicer is satisfied, as
evidenced by an Officer's Certificate delivered to the Trustee, that such
Mortgage Loan is in default or default is reasonably foreseeable. If the
Servicer reasonably believes that such due-on-sale clause cannot be enforced
under applicable law or if the Mortgage Loan does not contain a due-on-sale
clause, the Servicer is authorized, and may authorize any Subservicer, to
consent to a conveyance subject to the lien of the Mortgage, and, with the
consent of the MI Insurer, if applicable, to take or enter into an assumption
agreement from or with the Person to whom such property has been or is about to
be conveyed, pursuant to which such Person becomes liable under the related
Mortgage Note and unless prohibited by applicable state law, on condition,
however, that the related Mortgage Loan shall continue to be covered by a hazard
policy. In connection with any such assumption, no material term of the related
Mortgage Note may be changed. The Servicer shall notify the Custodian and
Trustee, whenever possible, before the completion of such assumption agreement,
and shall forward to the Custodian the original copy of such assumption
agreement, which copy shall be added by the Custodian to the related Mortgage
File and which shall, for all purposes, be considered a part of such Mortgage
File to the same extent as all other documents and instruments constituting a
part thereof.

          (b)  Notwithstanding the foregoing paragraph or any other provision of
this Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its

                                       37

<PAGE>

obligations hereunder by reason of any assumption of a Mortgage Loan by
operation of law or any conveyance by the Mortgagor of the related Mortgaged
Property or assumption of a Mortgage Loan which the Servicer reasonably believes
it may be restricted by law from preventing, for any reason whatsoever or if the
exercise of such right would impair or threaten to impair any recovery under any
applicable insurance policy.

          Section 3.13  Realization Upon Defaulted Mortgage Loans.
                        ------------------------------------------

          (a)  The Servicer shall, or shall direct the related Subservicer to,
foreclose upon or otherwise comparably convert the ownership of properties
securing any Mortgage Loans that come into and continue in default and as to
which no satisfactory arrangements can be made for collection of delinquent
payments pursuant to Section 3.06, except that the Servicer shall not, and shall
not direct the related Subservicer to, foreclose upon or otherwise comparably
convert a Mortgaged Property if there is evidence of toxic waste or other
environmental hazards thereon unless the Servicer follows the procedures in
Subsection (c) below. In connection with such foreclosure or other conversion,
the Servicer in conjunction with the related Subservicer, if any, shall use its
best reasonable efforts to preserve REO Property and to realize upon defaulted
Mortgage Loans in such manner as to maximize the receipt of principal and
interest by the Certificateholders, taking into account, among other things, the
timing of foreclosure and the considerations set forth in Subsection 3.13(b).
The foregoing is subject to the proviso that the Servicer shall not be required
to expend its own funds in connection with any foreclosure or towards the
restoration of any property unless it determines in good faith (i) that such
restoration or foreclosure will increase the proceeds of liquidation of the
Mortgage Loan to Certificateholders after reimbursement to itself for such
expenses and (ii) that such expenses will be recoverable to it either through
Liquidation Proceeds (respecting which it shall have priority for purposes of
reimbursements from the Collection Account pursuant to Section 3.07) or through
Insurance Proceeds (respecting which it shall have similar priority). The
Servicer shall be responsible for all costs and expenses constituting
Liquidation Expenses incurred by it in any such proceedings; provided, however,
that it shall be entitled to reimbursement thereof (as well as its normal
servicing compensation) as set forth in Section 3.07. Any income from or other
funds (net of any income taxes) generated by REO Property shall be deemed for
purposes of this Agreement to be Liquidation Proceeds.

          Any subsequent collections with respect to any Liquidated Mortgage
Loan shall be deposited to the Collection Account. For purposes of determining
the amount of any Liquidation Proceeds or Insurance Proceeds, or other
unscheduled collections, the Servicer may take into account any estimated
additional Liquidation Expenses expected to be incurred in connection with the
related defaulted Mortgage 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 Trustee and held by the Custodian, who shall hold the
same on behalf of Trustee and the Trust in accordance with the Agreement.
Notwithstanding any such acquisition of title and cancellation of the related
Mortgage Loan, such Mortgaged Property shall (except as otherwise expressly
provided herein) be considered to be an outstanding Mortgage Loan held as an
asset of the Trust until such time as such property shall be sold.

                                       38

<PAGE>

          (b)  The Servicer shall not acquire any real property (or any personal
property incident to such real property) on behalf of the Trust Fund except in
connection with a default or reasonably foreseeable default of a Mortgage Loan.
In the event that the Servicer acquires any real property (or personal property
incident to such real property) on behalf of the Trust Fund in connection with a
default or imminent default of a Mortgage Loan, such property shall be disposed
of by the Servicer on behalf of the Trust Fund as soon as reasonably
practicable, but in no event later than three years after its acquisition on
behalf of the Trust Fund.

          (c)  With respect to any Mortgage Loan as to which the Servicer or a
Subservicer has received notice of, or has actual knowledge of, the presence of
any toxic or hazardous substance on the Mortgaged Property, the Servicer shall
promptly notify the Trustee, and shall act in accordance with any such
directions and instructions provided by the Trustee. If the Trustee has not
provided directions and instructions to the Servicer in connection with any such
Mortgage Loan within 5 days of a request by the Servicer for such directions and
instructions, then the Servicer shall take such action as it deems to be in the
best economic interest of the Trust Fund (other than proceeding against the
Mortgaged Property) and is hereby authorized at such time as it deems
appropriate to release such Mortgaged Property from the lien of the related
Mortgage. The parties hereto acknowledge that the Servicer shall not obtain on
behalf of the Trust a deed as a result or in lieu of foreclosure, and shall not
otherwise acquire possession of or title to, or commence any proceedings to
acquire possession of or title to, or take any other action with respect to, any
Mortgaged Property, if the Trust could reasonably be considered to be a
responsible party for any liability arising from the presence of any toxic or
hazardous substance on the Mortgaged Property.

          Section 3.14  Custodian to Cooperate; Release of Mortgage Files.
                        --------------------------------------------------

          (a)  Upon payment in full of any Mortgage Loan, the Servicer will
immediately notify the Custodian and the Trustee by a certification signed by a
Servicing Officer (which certification shall include a statement to the effect
that all amounts received in connection with such payment which are required to
be deposited in the Collection Account have been so deposited) and shall request
delivery to the Servicer or Subservicer, as the case may be, of the Mortgage
File. Upon receipt of such certification and request, the Custodian, on behalf
of the Trustee, shall promptly cause to be released the related Mortgage File to
the Servicer or Subservicer and the Trustee shall execute and deliver to the
Servicer, without recourse, the request for reconveyance, deed of reconveyance
or release or satisfaction of mortgage or such instrument releasing the lien of
the Mortgage (furnished by the Servicer), together with the Mortgage Note with
written evidence of cancellation thereon.

          (b)  From time to time as is appropriate, for the servicing or
foreclosure of any Mortgage Loan or collection under an insurance policy, the
Servicer may deliver to the Trustee and the Custodian a Request for Release
signed by a Servicing Officer on behalf of the Servicer in substantially the
form attached as Exhibit E hereto. Upon receipt of the Request for Release, the
Custodian, on behalf of the Trustee, shall deliver the Mortgage File or any
document therein to the Servicer or Subservicer, as the case may be, as bailee
for the Trustee.

          (c)  The Servicer shall cause each Mortgage File or any document
therein released pursuant to Subsection 3.14(b) to be returned to the Custodian
when the need therefor

                                       39

<PAGE>

no longer exists, and in any event within 21 days of the Servicer's receipt
thereof, unless the Mortgage Loan has become a Liquidated Mortgage Loan and the
Liquidation Proceeds relating to the Mortgage Loan have been deposited in the
Collection Account or such Mortgage File is being used to pursue foreclosure or
other legal proceedings. Prior to return of a Mortgage File or any document to
the Custodian, the Servicer, the related insurer or Subservicer to whom such
file or document was delivered shall retain such file or document in its
respective control as bailee for the Custodian, on behalf of the Trustee, unless
the Mortgage File or such document has been delivered to an attorney, or to a
public trustee or other public official as required by law, to initiate or
pursue legal action or other proceedings for the foreclosure of the Mortgaged
Property either judicially or non-judicially, and the Servicer has delivered to
the Custodian and the Trustee, a certificate of a Servicing Officer certifying
as to the name and address of the Person to which such Mortgage File or such
document was delivered and the purpose or purposes of such delivery. If a
Mortgage Loan becomes a Liquidated Mortgage Loan, the Custodian, on behalf of
the Trustee, shall deliver the Request for Release with respect thereto to the
Servicer upon deposit of the related Liquidation Proceeds in the Collection
Account.

          (d)  The Trustee shall execute and deliver or cause to be executed and
delivered to the Servicer any court pleadings, requests for trustee's sale or
other documents necessary to (i) the foreclosure or trustee's sale with respect
to a Mortgaged Property; (ii) any legal action brought to obtain judgment
against any Mortgagor on the Mortgage Note or Mortgage; (iii) obtain a
deficiency judgment against the Mortgagor; or (iv) enforce any other rights or
remedies provided by the Mortgage Note or Mortgage or otherwise available at law
or equity. Together with such documents or pleadings the Servicer shall deliver
to the Trustee a certificate of a Servicing Officer in which it requests the
Trustee to execute or cause to be executed the pleadings or documents. The
certificate shall certify and explain the reasons for which the pleadings or
documents are required. It shall further certify that the Trustee's execution
and delivery of the pleadings or documents will not invalidate any insurance
coverage under the insurance policies or invalidate or otherwise affect the lien
of the Mortgage, except for the termination of such a lien upon completion of
the foreclosure or trustee's sale.

          Section 3.15  Servicing Compensation.
                        -----------------------

          (a)  As compensation for its activities hereunder, the Servicer shall
be entitled to receive the Servicing Fee from full payments of accrued interest
on each Mortgage Loan. The Servicer shall be solely responsible for paying any
and all fees with respect to a Subservicer, and the Trustee and the Trust Fund
shall not bear any fees, expenses or other costs directly associated with any
Subservicer.

          (b)  The Servicer may retain additional servicing compensation in the
form of late payment charges, to the extent such charges are collected from the
related Mortgagors and investment earnings on the Collection Account. The
Servicer shall be required to pay all expenses it incurs in connection with
servicing activities under this Agreement and shall not be entitled in
connection with servicing activities under this Agreement to reimbursement
except as provided in this Agreement. Expenses to be paid by the Servicer
without reimbursement under this Subsection 3.15(b) shall include payment of the
expenses of the accountants retained pursuant to Section 3.17.

                                       40

<PAGE>

          Section 3.16  Annual Statements of Compliance.
                        --------------------------------

          Within 90 days after December 31 of each year, the Servicer at its own
expense shall deliver to the Trustee and the Rating Agencies, an Officer's
Certificate stating, as to the signer thereof, that (i) a review of the
activities of the Servicer during the preceding calendar year and of performance
under this Agreement has been made under such officer's supervision, (ii) to the
best of such officer's knowledge, based on such review, the Servicer has
fulfilled its obligations under this Agreement in all material respects for such
year, or, if there has been a default in the fulfillment of any such obligation,
specifying each such default known to such officer and the nature and status
thereof including the steps being taken by the Servicer to remedy such default;
(iii) a review of the activities of each Subservicer during the Subservicer's
most recently ended calendar year and its performance under its Subservicing
Agreement has been made under such officer's supervision; and (iv) to the best
of the Servicing Officer's knowledge, based on his review and the certification
of an officer of the Subservicer (unless the Servicing Officer has reason to
believe that reliance on such certification is not justified), either each
Subservicer has performed and fulfilled its duties, responsibilities and
obligations under this Agreement and its Subservicing Agreement in all material
respects throughout the year, or, if there has been a default in performance or
fulfillment of any such duties, responsibilities or obligations, specifying the
nature and status of each such default known to the Servicing Officer. Copies of
such statements shall be provided by the Servicer to the Certificateholders upon
request or by the Trustee at the expense of the Servicer should the Servicer
fail to provide such copies.

          Section 3.17  Annual Independent Public Accountants' Servicing Report.
                        --------------------------------------------------------

          (a)  Within 90 days after December 31 of each year, the Servicer, at
its expense, shall cause a firm of independent public accountants who are
members of the American Institute of Certified Public Accountants to furnish a
statement to the Servicer, which will be provided to the Trustee, and the Rating
Agencies, to the effect that, in connection with the firm's examination of the
Servicer's financial statements as of the end of such calendar year, nothing
came to their attention that indicated that the Servicer was not in compliance
with Sections 3.06, 3.07 and 3.08 except for (i) such exceptions as such firm
believes to be immaterial and (ii) such other exceptions as are set forth in
such statement.

          (b)  Within 90 days after December 31 of each year, the Servicer, at
its expense, shall, and shall cause each Subservicer to cause, a nationally
recognized firm of independent certified public accountants to furnish to the
Servicer or such Subservicer, as the case may be, a report stating that (i) it
has obtained a letter of representation regarding certain matters from the
management of the Servicer or such Subservicer, as the case may be, which
includes an assertion that the Servicer or such Subservicer, as the case may be,
has complied with certain minimum mortgage loan servicing standards identified
in the Uniform Single Attestation Program for Mortgage Bankers established by
the Mortgage Bankers Association of America with respect to the servicing of
first lien conventional single family mortgage loans during the most recently
completed calendar year and (ii) on the basis of an examination conducted by
such firm in accordance with standards established by the American Institute of
Certified Public Accountants, such representation is fairly stated in all
material respects, subject to such exceptions and other qualifications that may
be appropriate. Immediately upon receipt of

                                       41

<PAGE>

such report, the Servicer shall or shall cause each Subservicer to furnish a
copy of such report to the Trustee and the Rating Agencies.

          Section 3.18  Optional Purchase of Defaulted Mortgage Loans.
                        ----------------------------------------------

          Subject to the limitations set forth in Section 10.02 hereof, the
Servicer shall have the right, but not the obligation; to purchase any Mortgage
Loan which becomes 90 days or more delinquent at a purchase price equal to the
Repurchase Price (a) within 29 days after the date the Mortgage Loan becomes 90
days delinquent or (b) on the date the Servicer liquidates the related Mortgaged
Property. The procedure for such purchase shall be the same as for a repurchase
made by the Seller under the Purchase Agreement. The Servicer shall purchase the
most delinquent Mortgage Loans before purchasing other less delinquent Mortgage
Loans.

          Section 3.19  Information Required by the Internal Revenue Service
                        ----------------------------------------------------
Generally and Reports of Foreclosures and Abandonments of Mortgaged Property.
----------------------------------------------------------------------------

          The 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 Servicer or Subservicer shall make
reports of foreclosures and abandonments of any mortgaged property, the Servicer
or Subservicer shall file reports relating to each instance occurring during the
previous calendar year in which the Servicer (i) acquires an interest in any
Mortgaged Property through foreclosure or other comparable conversion in full or
partial satisfaction of a Mortgage Loan, or (ii) knows or has reason to know
that any Mortgaged Property has been abandoned. The reports from the Servicer or
Subservicer shall be in form and substance sufficient to meet the reporting
requirements imposed by Section 6050J, Section 6050H (reports relating to
mortgage interest received) and Section 6050P of the Code (reports relating to
cancellation of indebtedness).

          Section 3.20  Purchase of Converted Mortgage Loans.
                        -------------------------------------

          Pursuant to the Converted Loan Purchase Agreement, the Converted Loan
Purchaser shall be obligated to purchase from the Trust any Converted Mortgage
Loans at the Repurchase Price. The Servicer shall promptly notify the Trustee
and the Converted Loan Purchaser of each Mortgage Loan which becomes a Converted
Mortgage Loan. If the Converted Loan Purchaser fails to purchase any Converted
Loan, the Servicer shall be terminated and the Trustee shall be the Servicer and
is obligated to make such purchase under the Converted Loan Purchase Agreement.

          Section 3.21  [Reserved].
                        -----------

          Section 3.22  Servicing and Administration of the MI Policies.
                        ------------------------------------------------

          (a)  The Servicer shall take all such actions on behalf of the Trustee
as are necessary to service, maintain and administer the MI Policies and to
perform the Trustee's obligations and enforce the Trustee's rights under the MI
Policies, which actions shall conform to the standards of an institution
prudently administering MI Policies for its own account. Except as expressly set
forth herein, the Servicer shall have full authority on behalf of the Trust to
do anything it reasonably deems appropriate or desirable in connection with the
servicing,

                                       42

<PAGE>

maintenance and administration of the MI Policies. The Servicer shall make its
best reasonable efforts to file all insured claims under the MI Policies and
collect from the MI Insurer all Insurance Proceeds due to the Trustee under the
MI Policies. The Servicer shall not take, or permit any subservicer to take, any
action which would result in non-coverage under any applicable MI Policy of any
loss which, but for the actions of the Servicer or Subservicer, would have been
covered thereunder. To the extent coverage is available, the Servicer shall keep
or cause to be kept in full force and effect each such MI Policy for the life of
the Mortgage Loan; provided, however, that if a MI Insurer Insolvency Event has
occurred and is continuing, the Servicer may terminate the MI Policy on any
Mortgage Loan that is not then past due. The Servicer shall cooperate with the
MI Insurer and shall use its best efforts to furnish all reasonable aid,
evidence and information in the possession of the Servicer or to which the
Servicer has access with respect to any Mortgage Loan.

          (b)  The Servicer shall deposit into the Collection Account pursuant
to Section 3.06(d)(v) hereof all MI Insurance Proceeds received from the MI
Insurer under the terms of the MI Policies. The Servicer shall withdraw from the
Collection Account and pay to the MI Insurer pursuant to Section 3.07(a)(xii)
hereof, the monthly MI Premiums due to the MI Insurer in accordance with the
terms of the MI Insurance Agreements.

          (c)  Notwithstanding the provisions of Subsection 3.22(a) and (b), the
Servicer shall not take any action in regard to the MI Policies inconsistent
with the interests of the Trustee or the Certificateholders or with the rights
and interests of the Trustee or the Certificateholders under this Agreement;
provided, however, that payments of the monthly MI Premiums to the MI Insurer
pursuant to Subsection 3.22(b) above and Section 3.07(a)(xii) hereof shall be
deemed not to be inconsistent with such interests.

          (d)  The Trustee shall furnish the Servicer with any powers of
attorney and other documents in form as provided to it necessary or appropriate
to enable the Servicer to service and administer the MI Policies; provided,
however, that the Trustee shall not be liable for the actions of the Servicer
under such powers of attorney.

          (e)  If at any time during the term of this Agreement, a MI Insurer
Insolvency Event has occurred and is continuing, the Servicer agrees to review,
not less often than monthly, the financial condition of the related MI Insurer
with a view towards determining whether recoveries under the MI Policy are
jeopardized for reasons related to the financial condition of the related MI
Insurer. In such event, the Servicer may obtain an additional MI Policy or a
replacement MI Policy, the MI Premiums on which would be paid by the Servicer
from the Collection Account pursuant to Section 3.07(a)(xii) hereof.

          (f)  The Servicer shall comply with all other terms, conditions and
obligations set forth in the MI Policies.

          Section 3.23  Determination Date Reports.
                        ---------------------------

          On the second Business Day following each Determination Date, the
Servicer shall deliver to the Trustee a report, prepared as of the close of
business on the Determination Date (the "Determination Date Report"), and shall
forward to the Trustee in the form of

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<PAGE>

computer readable electromagnetic tape or disk a copy of such report in a format
acceptable to the Trustee. The Determination Date Report and any written
information supplemental thereto shall include such information with respect to
the Mortgage Loans that is reasonably available to the Servicer and that is
required by the Trustee for purposes of making the calculations and providing
the reports referred to in this Agreement, as set forth in written
specifications or guidelines issued by the Trustee from time to time. Such
information shall include the aggregate amounts required to be withdrawn from
the Collection Account and deposited into the Distribution Account pursuant to
Section 3.07. Such information shall also include (a) the number of Mortgage
Loans that prepaid in the previous month; (b) the loan balance of each such
Mortgage Loan; (c) whether a prepayment penalty was applied to such Mortgage
Loan; and (d) the amount of prepayment penalty with respect to each such
Mortgage Loan. The Servicer agrees to cooperate with the Trustee in providing
all information as is reasonably requested by the Trustee to prepare the reports
required under the Agreement.

          The determination by the Servicer of such amounts shall, in the
absence of obvious error, be presumptively deemed to be correct for all purposes
hereunder and the Trustee shall be fully protected in relying upon the same
without any independent check or verification.

          Section 3.24  Advances.
                        ---------

          If any Monthly Payment (together with any advances from the
Subservicers) on a Mortgage Loan that was due on the immediately preceding Due
Date and delinquent on the Determination Date is delinquent other than as a
result of application of the Relief Act, the Servicer will deposit in the
Collection Account not later than the Servicer Remittance Date immediately
preceding the related Distribution Date an amount equal to such deficiency net
of the related Servicing Fee for such Mortgage Loan, except to the extent the
Servicer determines any such advance to be nonrecoverable from Liquidation
Proceeds, Insurance Proceeds or future payments on such Mortgage Loan. Subject
to the foregoing and in the absence of such a determination, the Servicer shall
continue to make such advances through the date that the related Mortgaged
Property has, in the judgment of the Servicer, been completely liquidated.

          The Servicer may fund an Advance from its own corporate funds,
advances made by any subservicer or funds held in the Collection Account for
future payment or withdrawal.

          Advances made from funds held in the Collection Account may be made by
the Servicer from subsequent collections of principal and interest received on
other Mortgage Loans and deposited into the Collection Account. Advances made
from the Collection Account are not limited to subsequent collections of
principal and interest received on the delinquent Mortgage Loan with respect to
which an Advance is made. If on the Servicer Remittance Date prior to any
Distribution Date funds in the Collection Account are less than the amount
required to be paid to the Certificateholders on such Distribution Date, then
the Servicer shall deposit its own funds into the Distribution Account in the
amount of the lesser of (i) any unreimbursed Advances previously made by the
Servicer with funds held in the Collection Account or (ii) the shortfall in the
Collection Account, provided, however, that in no event shall the Servicer
deposit into the Collection Account an amount that is less than any shortfall in
the Collection Account attributable to delinquent payments on Mortgage Loans
which the Servicer deems to be recoverable and which has not been covered by an
Advance from the Servicer's own corporate

                                       44

<PAGE>

funds or any subservicer's funds. If applicable, on the Servicer Remittance Date
preceding each Distribution Date, the Servicer shall present an Officer's
Certificate to the Trustee (i) stating that the Servicer elects not to make an
Advance in a stated amount and (ii) detailing the reason it deems the advance to
be nonrecoverable.

          Section 3.25  Compensating Interest Payments.
                        -------------------------------

          The Servicer shall deposit in the Collection Account not later than
the Servicer Remittance Date preceding the Distribution Date an amount equal to
the Compensating Interest related to the related Determination Date. The
Servicer shall not be entitled to any reimbursement of any Compensating Interest
payment.

          Section 3.26  Advance Facility.
                        -----------------

          (a)  The Servicer on behalf of the Trust Fund, is hereby authorized to
enter into a facility (such an arrangement, an "Advance Facility") with any
Person which provides that such Person (an "Advancing Person") may fund Advances
and/or Servicing Advances under this Agreement, although no such facility shall
reduce or otherwise affect the Servicer's obligation to fund such Advances
and/or Servicing Advances. No consent of the Trustee, Certificateholders or any
other party shall be required before the Servicer may enter into an Advance
Facility nor shall the Trustee or the Certificateholders be a third party
beneficiary of any obligation of an Advancing Person to the Servicer. If the
Servicer enters into an Advance Facility, the Servicer and the related Advancing
Person shall deliver to the Trustee at the address set forth in Section 12.05
hereof a written notice (an "Advance Facility Notice"), stating (a) the identity
of the Advancing Person and (b) the identity of the Person (the "Servicer's
Assignee") that will, subject to Section 3.26(b) hereof, have the right to make
withdrawals from the Collection Account pursuant to Section 3.07 hereof to
reimburse previously unreimbursed Advances and/or Servicing Advances ("Advance
Reimbursement Amounts"). If the Servicer enters into such an Advance Facility
pursuant to this Section 3.26, upon reasonable request of the Advancing Person,
the Trustee shall execute a letter of acknowledgment, as prepared by the
Servicer confirming its receipt of written notice of the existence of such
Advance Facility. To the extent that an Advancing Person purchases or funds any
Advance or any Servicing Advance and provides the Trustee with written notice
acknowledged by the Servicer that such Advancing Person is entitled to
reimbursement directly from the Trustee pursuant to the terms of the Advance
Facility, such Advancing Person shall be entitled to receive reimbursement
pursuant to this Agreement for such amount to the extent provided in Section
3.26(b). Such notice from the Advancing Person must specify the amount of the
reimbursement, the Section of this Agreement that permits the applicable Advance
or Servicing Advance to be reimbursed and the section(s) of the Advance Facility
that entitle the Advancing Person to request reimbursement from the Trustee,
rather than the Servicer, and include the Servicer's acknowledgment thereto or
proof of an Event of Default under the Advance Facility. The Trustee shall have
no duty or liability with respect to any calculation of any reimbursement to be
paid to an Advancing Person and shall be entitled to rely without independent
investigation on the Advancing Person's notice provided pursuant to this Section
3.26. An Advancing Person whose obligations hereunder are limited to the funding
of Advances and/or Servicing Advances shall not be required to meet the
qualifications of a Sub-Servicer pursuant to Section 6.06 hereof.

                                       45

<PAGE>

          (b)  Notwithstanding the foregoing, and for the avoidance of doubt,
(i) the Servicer and/or the Servicer's Assignee shall only be entitled to
reimbursement of Advance reimbursement amounts hereunder from withdrawals from
the Collection Account pursuant to Section 3.07 of this Agreement and shall not
otherwise be entitled to make withdrawals or receive amounts that shall be
deposited in the Distribution Account, and (ii) none of the Trustee or the
Certificateholders shall have any right to, or otherwise be entitled to, receive
any Advance reimbursement amounts to which the Servicer or Servicer's Assignee,
as applicable, shall be entitled pursuant to Section 3.07 hereof. An Advance
Facility may be terminated by the joint written direction of the Servicer and
the related Advancing Person. Written notice of such termination shall be
delivered to the Trustee in the manner set forth in Section 12.05 hereof. None
of the Company or the Trustee shall, as a result of the existence of any Advance
Facility, have any additional duty or liability with respect to the calculation
or payment of any Advance reimbursement amount, nor, as a result of the
existence of any Advance Facility, shall the Company or the Trustee have any
additional responsibility to track or monitor the administration of the Advance
Facility or the payment of Advance reimbursement amounts to the Servicer's
Assignee. The Servicer shall indemnify the Company, the Trustee, any successor
Servicer and the Trust Fund for any claim, loss, liability or damage resulting
from any claim by the related Advancing Person, except to the extent that such
claim, loss, liability or damage resulted from or arose out of negligence,
recklessness or willful misconduct on the part of the Company, the Trustee or
any successor Servicer, as the case may be, or failure by the successor Servicer
or the Trustee, as the case may be, to remit funds as required by this Agreement
or the commission of an act or omission to act by the successor Servicer or the
Trustee, as the case may be, and the passage of any applicable cure or grace
period, such that an Event of Default under this Agreement occurs or such entity
is subject to termination for cause under this Agreement. The Servicer shall
maintain and provide to any successor Servicer and, upon request, the Trustee a
detailed accounting on a loan-by-loan basis as to amounts advanced by, pledged
or assigned to, and reimbursed to any Advancing Person. The successor Servicer
shall be entitled to rely on any such information provided by the predecessor
Servicer, and the successor Servicer shall not be liable for any errors in such
information.

          (c)  If an Advancing Person is entitled to reimbursement for any
particular Advance or Servicing Advance as set forth in Section 3.26(a), then
the Servicer shall not be permitted to reimburse itself therefor under Section
3.07, but instead the Servicer shall include such amounts in the applicable
remittance to the Trustee made pursuant to Section 3.06(d) to the extent of
amounts on deposit in the Collection Account on the related Servicer Remittance
Date. The Trustee is hereby authorized to pay to an Advancing Person
reimbursements for Advances and Servicing Advances from the Distribution Account
to the same extent the Servicer would have been permitted to reimburse itself
for such Advances and/or Servicing Advances in accordance with Section 3.07, had
the Servicer made such Advance or Servicing Advance.

          (d)  All Advances and Servicing Advances made pursuant to the terms of
this Agreement shall be deemed made and shall be reimbursed on a "first in first
out" (FIFO) basis. In the event the Servicer's Assignee shall have received some
or all of an Advance reimbursement amount related to Advances and/or Servicing
Advances that were made by a Person other than such predecessor Servicer or its
related Advancing Person in error, then such Servicer's Assignee shall be
required to remit any portion of such Advance reimbursement amount to each
Person entitled to such portion of such Advance reimbursement amount.

                                       46

<PAGE>

Without limiting the generality of the foregoing, the Servicer shall remain
entitled to be reimbursed pursuant to Section 3.07 for all Advances and/or
Servicing Advances funded by the Servicer to the extent the related Advance
reimbursement amounts have not been assigned, sold or pledged to such Advancing
Person or Servicer's Assignee.

          (e)  In the event the Servicer is terminated pursuant to Section 7.01,
the Advancing Person shall succeed to the terminated Servicer's right of
reimbursement set forth in Section 7.02 to the extent of such Advancing Person's
financing of Advances or Servicing Advances hereunder then remaining
unreimbursed.

          (f)  Any amendment to this Section 3.26 or to any other provision of
this Agreement that may be necessary or appropriate to effect the terms of an
Advance Facility as described generally in this Section 3.26, including
amendments to add provisions relating to a successor Servicer, may be entered
into by the Trustee, the Company and the Servicer without the consent of any
Certificateholder, provided such amendment complies with Section 12.01 hereof.
All reasonable costs and expenses (including attorneys' fees) of each party
hereto of any such amendment shall be borne solely by the Servicer. The parties
hereto hereby acknowledge and agree that: (a) the Advances and/or Servicing
Advances financed by, sold and/or pledged to an Advancing Person under any
Advance Facility are obligations owed to the Servicer payable only from the cash
flows and proceeds received under this Agreement for reimbursement of Advances
and/or Servicing Advances only to the extent provided herein, and the Trustee
and the Trust Fund are not, as a result of the existence of any Advance
Facility, obligated or liable to repay any Advances and/or Servicing Advances
financed by the Advancing Person; (b) the Servicer will be responsible for
remitting to the Advancing Person the applicable amounts collected by it as
reimbursement for Advances and/or Servicing Advances purchased or funded by the
Advancing Person, subject to the provisions of this Agreement; and (c) the
Trustee shall not have any responsibility to track or monitor the administration
of the financing arrangement between the Servicer and any Advancing Person.

                                   ARTICLE IV

                                  FLOW OF FUNDS

          Section 4.01  Distributions.
                        --------------

          (a)  On each Distribution Date, the Trustee, will first distribute the
Prepayment Charges collected on the Group I Mortgage Loans, on the Group II
Mortgage Loans and on the Group III Mortgage Loans during the prior Prepayment
Period to the Holders of the Class P Certificates. After making that
distribution, the Trustee, shall (based solely on the information provided to
the Trustee by the Servicer pursuant to Section 4.03 hereof) withdraw from the
Distribution Account that portion of Available Funds for such Distribution Date
consisting of the Interest Remittance Amount for such Distribution Date, and
make the following disbursements and transfers in the order of priority
described below, in each case to the extent of the Interest Remittance Amount
remaining for such Distribution Date:

               (i)    On each Distribution Date, the Trustee, will distribute,
     pro rata from the Group I Interest Remittance Amount, the Group II Interest
     Remittance Amount

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<PAGE>

     and the Group III Interest Remittance Amount, the Trustee Fee and the
     Custodian Fee which is due on that Distribution Date to the Trustee and
     Custodian respectively. After making that distribution, the Trustee will
     then apply the remaining Interest Remittance Amount to the payment of
     interest then due on the certificates in the following order of priority:

          (A)  first, on each Distribution Date on or prior to the Class I
Termination Date, payable from the Group I Interest Remittance Amount, the Group
II Interest Remittance Amount and the Group III Interest Remittance Amount, to
the Holders of the Class I Certificates, the Class I Monthly Interest
Distributable Amount;

          (B)  second, concurrently, with equal priority of payment:

               (I)    payable solely from the Group I Interest Remittance Amount
          for that Distribution Date or, to the extent that the Group I Interest
          Remittance Amount is less than the related Monthly Interest
          Distributable Amount for the Class A-1 Certificates, also from the
          Group II Cross Collateralization Amount and Group III Cross
          Collateralization Amount, pro rata for that Distribution Date, to the
          Holders of the Class A-1 Certificates, the Monthly Interest
          Distributable Amount for the Class A-1 Certificates;

               (II)   payable solely from the Group II Interest Remittance
          Amount for that Distribution Date or, to the extent that the Group II
          Interest Remittance Amount is less than the related aggregate Monthly
          Interest Distributable Amount for the Class A-2A, Class A-2B and Class
          A-2C Certificates, also from the Group I Cross Collateralization
          Amount and the Group III Cross Collateralization Amount, pro rata for
          that Distribution Date, to the Holders of the Class A-2A, Class A-2B
          and Class A-2C Certificates, the aggregate Monthly Interest
          Distributable Amount for the Class A-2A, Class A-2B and Class A-2C
          Certificates, pro rata based on the amount of such interest each such
          Class is otherwise entitled to on that Distribution Date;

               (III)  payable solely from the Group III Interest Remittance
          Amount for that Distribution Date or, to the extent that the Group III
          Interest Remittance Amount is less than the related Monthly Interest
          Distributable Amount for the Class A-3 Certificates, also from the
          Group I Cross Collateralization Amount and the Group II Cross
          Collateralization Amount, pro rata for that Distribution Date, to the
          Holders of the Class A-3 Certificates, the Monthly Interest
          Distributable Amount for the Class A-3 Certificates; and

          (C)  third, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class M-1 Certificates, the Monthly Interest
Distributable Amount for the Class M-1 Certificates;

          (D)  fourth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of

                                       48

<PAGE>

the Class M-2 Certificates, the Monthly Interest Distributable Amount for the
Class M-2 Certificates;

          (E)  fifth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class M-3 Certificates, the Monthly Interest
Distributable Amount for the Class M-3 Certificates;

          (F)  sixth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class B-1 Certificates, the Monthly Interest
Distributable Amount for the Class B-1 Certificates;

          (G)  seventh, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class B-2 Certificates, the Monthly Interest
Distributable Amount for the Class B-2 Certificates;

          (H)  eighth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class B-3 Certificates, the Monthly Interest
Distributable Amount for the Class B-3 Certificates;

          (I)  ninth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class X Certificates for the benefit of
Supplemental Interest Trust I, the Excess Cashflow (net of any amounts
distributed pursuant to Section 4.04(d)(i)), to be distributed pursuant to
Sections 4.04 (d)(ii); and

          (J)  tenth, payable from the Group I Interest Remittance Amount, the
Group II Interest Remittance Amount and the Group III Interest Remittance
Amount, to the Holders of the Class R Certificates, any remainder.

               (ii)   On each Distribution Date (a) prior to the Crossover Date
     or (b) on which a Trigger Event is in effect, the Trustee, shall (based
     solely on the information provided to the Trustee by the Servicer pursuant
     to Section 4.03 hereof) withdraw from the Distribution Account that portion
     of the Available Funds for such Distribution Date consisting of the Group I
     Principal Distribution Amount, Group II Principal Distribution Amount and
     Group III Principal Distribution Amount and make the following
     disbursements and transfers in the order of priority described below:

          (A)  first, concurrently, with equal priority of payment:

               (I)    payable solely from the Group I Principal Distribution
          Amount, to the Holders of the Class A-1 Certificates, the entire
          amount of the Group I Principal Distribution Amount, until the
          Certificate Principal Balance of the Class A-1 Certificates has been
          reduced to zero;

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<PAGE>

               (II)   payable solely from the Group II Principal Distribution
          Amount, to the Holders of the Class A-2 Certificates (distributed to
          the Class A-2A, Class A-2B and Class A-2C Certificates pursuant to
          Section 4.01(d)), the entire amount of the Group II Principal
          Distribution Amount, until the aggregate Certificate Principal Balance
          of the Class A-2 Certificates has been reduced to zero; and

               (III)  payable solely from the Group III Principal Distribution
          Amount, to the Holders of the Class A-3 Certificates, the entire
          amount of the Group III Principal Distribution Amount, until the
          Certificate Principal Balance of the Class A-3 Certificates has been
          reduced to zero (except that on the Class P Principal Distribution
          Date, the Certificate Principal Balance of the Class P Certificates
          shall first be paid from the Group III Principal Distribution Amount
          to the Holders of the Class P Certificates);

          (B)  second,

               (I)    if the Certificate Principal Balance of the Class A-1
          Certificates has been reduced to zero, then to the Holders of the
          Class A-2 Certificates, and the Class A-3 Certificates, pro rata based
          on their respective Certificate Principal Balances, the amount of any
          remaining Group I Principal Distribution Amount, until the Certificate
          Principal Balances of the Class A-2 Certificates and the Class A-3
          Certificates have been reduced to zero; or

               (II)   if the aggregate Certificate Principal Balance of the
          Class A-2 Certificates has been reduced to zero, then to the Holders
          of the Class A-1 Certificates and the Class A-3 Certificates, pro rata
          based on their respective Certificate Principal Balances, the amount
          of any remaining Group II Principal Distribution Amount, until the
          Certificate Principal Balances of the Class A-1 Certificates and the
          Class A-3 Certificates have been reduced to zero; or

               (III)  if the Certificate Principal Balance of the Class A-3
          Certificates has been reduced to zero, then to the Holders of the
          Class A-1 Certificates and the Class A-2 Certificates, pro rata based
          on their respective Certificate Principal Balances, the amount of any
          remaining Group III Principal Distribution Amount, until the
          Certificate Principal Balances of the Class A-1 Certificates and the
          Class A-2 Certificates have been reduced to zero;

          (C)  third, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-1 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class M-1 Certificates has been reduced to zero;

          (D)  fourth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-2 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class M-2 Certificates has been reduced to zero;

                                       50

<PAGE>

          (E)  fifth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-3 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class M-3 Certificates has been reduced to zero;

          (F)  sixth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-1 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class B-1 Certificates has been reduced to zero;

          (G)  seventh, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-2 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class B-2 Certificates has been reduced to zero;

          (H)  eighth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-3 Certificates, the entire
remaining Principal Distribution Amount until the Certificate Principal Balance
of the Class B-3 Certificates has been reduced to zero;

          (I)  ninth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Trustee and the Custodian, pro rata, any amounts
owed to them under the Basic Documents remaining unpaid;

          (J)  tenth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Servicer, the amount of any reimbursement of
indemnification owed to it by the Trust pursuant to Section 6.03 hereof;

          (K)  eleventh, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount and any remaining Available Funds relating to principal, to
the Holders of the Class O Certificates, for the benefit of Supplemental
Interest Trust I, the entire remaining Principal Distribution Amount plus any
remaining Overcollateralization Release Amount until the Certificate Principal
Balance of the Class O Certificates has been paid; and

          (L)  twelfth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount, the Group III Principal Distribution
Amount and any remaining Available Funds relating to principal, to the Holders
of the Class X Certificates, for the benefit of Supplemental Interest Trust I,
any remaining Overcollateralization Release Amount; and

          (M)  thirteenth, payable from the Group I Principal Distribution
Amount, the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class R Certificates, for the benefit
of Supplemental Interest Trust I, any remainder.

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<PAGE>

               (iii)  On each Distribution Date (a) on or after the Crossover
Date and (b) on which a Trigger Event is not in effect, the Trustee, shall
(based solely on the information provided to the Trustee by the Servicer
pursuant to Section 4.03 hereof) withdraw from the Distribution Account that
portion of the Available Funds for such Distribution Date consisting of the
Group I Principal Distribution Amount, the Group II Principal Distribution
Amount and Group III Principal Distribution Amount and make the following
disbursements and transfers in the order of priority described below:

          (A)  first, concurrently, with equal priority of payment:

               (I)    payable solely from the Group I Principal Distribution
          Amount, to the holders of the Class A-1 Certificates, the Class A-1
          Principal Distribution Amount, until the Certificate Principal Balance
          of the Class A-1 Certificates has been reduced to zero;

               (II)   payable solely from the Group II Principal Distribution
          Amount, to the holders of the Class A-2 Certificates (distributed to
          the Class A-2A, Class A-2B and Class A-2C Certificates pursuant to
          Section 4.01(d)), the Class A-2 Principal Distribution Amount, until
          the aggregate Certificate Principal Balance of the Class A-2
          Certificates has been reduced to zero; and

               (III)  payable solely from the Group III Principal Distribution
          Amount, to the Holders of the Class A-3 Certificates, the Class A-3
          Principal Distribution Amount, until the Certificate Principal Balance
          of the Class A-3 Certificates has been reduced to zero (except that on
          the Class P Principal Distribution Date, the Certificate Principal
          Balance of the Class P Certificates shall first be paid from the Group
          III Principal Distribution Amount to the Holders of the Class P
          Certificates);

          (B)  second, concurrently, with equal priority of payment:

               (I)    if the Group I Principal Distribution Amount was
          insufficient to pay the Class A-1 Principal Distribution Amount, then
          payable from the remaining Group II Principal Distribution Amount and
          the Group III Principal Distribution Amount, to the holders of the
          Class A-1 Certificates, the unpaid portion of the Class A-1 Principal
          Distribution Amount; or

               (II)   if the Group II Principal Distribution Amount was
          insufficient to pay the Class A-2 Principal Distribution Amount, then
          payable from the remaining Group I Principal Distribution Amount and
          the Group III Principal Distribution Amount, to the Holders of the
          Class A-2 Certificates, the unpaid portion of the Class A-2 Principal
          Distribution Amount;

               (III)  if the Group III Principal Distribution Amount was
          insufficient to pay the Class A-3 Principal Distribution Amount, then
          payable from the remaining Group I Principal Distribution Amount and
          the Group II Principal Distribution Amount, to the Holders of the
          Class A-3 Certificates, the unpaid portion of the Class A-3 Principal
          Distribution Amount;

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<PAGE>

          (C)  third, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-1 Certificates, the Class M-1
Principal Distribution Amount, until the Certificate Principal Balance of the
Class M-1 Certificates has been reduced to zero;

          (D)  fourth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-2 Certificates, the Class M-2
Principal Distribution Amount, until the Certificate Principal Balance of the
Class M-2 Certificates has been reduced to zero;

          (E)  fifth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class M-3 Certificates, the Class M-3
Principal Distribution Amount, until the Certificate Principal Balance of the
Class M-3 Certificates has been reduced to zero;

          (F)  sixth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-1 Certificates, the Class B-1
Principal Distribution Amount, until the Certificate Principal Balance of the
Class B-1 Certificates has been reduced to zero;

          (G)  seventh, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-2 Certificates, the Class B-2
Principal Distribution Amount, until the Certificate Principal Balance of the
Class B-2 Certificates has been reduced to zero;

          (H)  eighth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class B-3 Certificates, the Class B-3
Principal Distribution Amount, until the Certificate Principal Balance of the
Class B-3 Certificates has been reduced to zero;

          (I)  ninth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Trustee and the Custodian, pro rata, any amounts
owed to them under the Basic Documents remaining unpaid;

          (J)  tenth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Servicer, the amount of any reimbursement of
indemnification owed to it by the Trust pursuant to Section 6.03 hereof;

          (K)  eleventh, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount and any remaining Available Funds relating to principal, to
the Holders of the Class O Certificates, for the benefit of Supplemental
Interest Trust I, the entire remaining Principal Distribution Amount plus any
remaining Overcollateralization Release Amount until the Certificate Principal
Balance of the Class O Certificates has been paid;

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<PAGE>

          (L)  twelfth, payable from the Group I Principal Distribution Amount,
the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount and any remaining Available Funds relating to principal, to
the Holders of the Class X Certificates, for the benefit of Supplemental
Interest Trust I, any remaining Overcollateralization Release Amount; and

          (M)  thirteenth, payable from the Group I Principal Distribution
Amount, the Group II Principal Distribution Amount and the Group III Principal
Distribution Amount, to the Holders of the Class R Certificates, any remainder.

          (b)  Method of Distribution. The Trustee shall make distributions in
respect of a Distribution Date to each Certificateholder of record on the
related Record Date (other than as provided in Section 11.01 respecting the
final distribution), in the case of Certificateholders of the Regular
Certificates, by check or money order mailed to such Certificateholder at the
address appearing in the Certificate Register, or by wire transfer.
Distributions among Certificateholders shall be made in proportion to the
Percentage Interests evidenced by the Certificates held by such
Certificateholders.

          (c)  Distributions on Book-Entry Certificates. Each distribution with
respect to a Book-Entry Certificate shall be paid to the Depository, which shall
credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a "brokerage firm" or "indirect participating firm") for which
it acts as agent. Each brokerage firm shall be responsible for disbursing funds
to the Certificate Owners that it represents. All such credits and disbursements
with respect to a Book-Entry Certificate are to be made by the Depository and
the Depository Participants in accordance with the provisions of the
Certificates. None of the Custodian, the Trustee, the Company, the Servicer or
the Seller shall have any responsibility therefor except as otherwise provided
by applicable law.

          (d)  All principal amounts distributed to the Class A-2 Certificates
shall be distributed concurrently to (a) the Class A-2A and Class A-2B
Certificates, in the aggregate, and (b) the Class A-2C Certificates, pro rata,
based on the aggregate Certificate Principal Balance of the Class A-2A and Class
A-2B Certificates and the Certificate Principal Balance of the Class A-2C
Certificates, respectively. The pro rata share of principal allocable to the
Class A-2A and Class A-2B Certificates will be distributed as follows:

               (i)    first, to the Class A-2A Certificates, until its
     Certificate Principal Balance has been reduced to zero; and

               (ii)   second, after the Certificate Principal Balance of the
     Class A-2A Certificates has been reduced to zero, any remaining amounts to
     the Class A-2B Certificates until its Certificate Principal Balance has
     been reduced to zero.

          Section 4.02  Distribution Account.
                        ---------------------

          (a)  No later than the Closing Date, the Trustee, shall establish and
maintain a segregated trust account that is an Eligible Account, which shall be
titled "Distribution Account,

                                       54

<PAGE>

JPMorgan Chase Bank, as Trustee for the registered holders of NovaStar Mortgage
Funding Trust 2003-4, Home Equity Loan Asset-Backed Certificates, Series 2003-4"
(the "Distribution Account"). The Trustee shall, promptly upon receipt, deposit
in the Distribution Account and retain therein the Interest Remittance Amount
and the Principal Remittance Amount remitted on each Servicer Remittance Date to
the Trustee by the Servicer. Funds deposited in the Distribution Account shall
be held in trust by the Trustee for the Certificateholders for the uses and
purposes set forth herein.

          (b)  The Trustee may invest funds deposited in the Distribution
Account in Eligible Investments in accordance with the written direction of the
Servicer with a maturity date no later than the Business Day immediately
proceeding the date on which such funds are required to be withdrawn from such
account pursuant to this Agreement. All income or other gain from such
investments may be released from the Distribution Account and paid to the
Servicer. The Servicer shall be obligated to cover losses on such Eligible
Investments.

          (c)  Amounts on deposit in the Distribution Account shall be withdrawn
by the Trustee as follows:

               (i)    To fund the distributions described in Section 4.01
     hereof;

               (ii)   To withdraw any amount not required to be deposited in the
     Distribution Account or deposited therein in error;

               (iii)  To clear and terminate the Distribution Account upon the
     termination of this Agreement, with any amounts remaining on deposit
     therein being paid to the Holders of the Class R Certificates; and

               (iv)   To distribute any amounts of investment income to the
     Servicer.

          (d)  On each Distribution Date, the Trustee shall distribute all
amounts on deposit in the Distribution Account (other than investment income)
established by it to Certificateholders in respect of the Certificates and to
such other persons in the order of priority set forth in Section 4.01 hereof.

          Section 4.03  Statements.
                        -----------

          (a)  On each Distribution Date, based, as applicable, on information
provided to it by the Servicer, the Trustee shall prepare and make available to
each Holder of the Regular Certificates, the Swap Counterparties, the Servicer
and the Rating Agencies, a statement as to the distributions made on such
Distribution Date:

               (i)    the amount of the distribution made on such Distribution
     Date to the Holders of each Class of Regular Certificates, separately
     identified, allocable to principal and the amount of the distribution made
     to the Holders of the Class P Certificates allocable to Prepayment Charges;

                                       55

<PAGE>

               (ii)   the amount of the distribution made on such Distribution
     Date to the Holders of each Class of Regular Certificates (other than the
     Class P Certificates) allocable to interest, separately identified;

               (iii)  the Pool Balance of the Group I Mortgage Loans, the Group
     II Mortgage Loans and the Group III Mortgage Loans at the Close of Business
     at the end of the related Due Period;

               (iv)   the number, aggregate principal balance, and weighted
     average Mortgage Rate of the Mortgage Loans as of the related Determination
     Date and the number and aggregate principal balance of all Subsequent
     Mortgage Loans added during the preceding Prepayment Period;

               (v)    the number and aggregate unpaid principal balance of
     Mortgage Loans that were (A) Delinquent (exclusive of Mortgage Loans in
     bankruptcy or foreclosure and REO Properties) (1) 30 to 59 days, (2) 60 to
     89 days and (3) 90 or more days, (B) as to which foreclosure proceedings
     have been commenced and (C) REO Properties;

               (vi)   the aggregate amount of Principal Prepayments made during
     the related Prepayment Period;

               (vii)  the aggregate amount of Realized Losses incurred during
     the related Prepayment Period and the cumulative amount of Realized Losses;

               (viii) the Certificate Principal Balance of each class of the
     Class A Certificates, each class of the Mezzanine Certificates, each class
     of the Class B Certificates and the Class O Certificates, after giving
     effect to the distributions made on such Distribution Date;

               (ix)   the Unpaid Interest Shortfall Amount, if any, with respect
     to each class of the Class A Certificates, each class of the Mezzanine
     Certificates and each class of Class B Certificates for such Distribution
     Date;

               (x)    the aggregate amount of any Prepayment Interest Shortfalls
     for such Distribution Date, to the extent not covered by payments by the
     Servicer pursuant to Section 3.25;

               (xi)   the Credit Enhancement Percentage for such Distribution
     Date;

               (xii)  the Available Funds Cap Carryforward Amount for each class
     of the Class A Certificates, each class of the Mezzanine Certificates and
     each class of the Class B Certificates if any, for such Distribution Date
     and the amount remaining unpaid after reimbursements therefor on such
     Distribution Date;

               (xiii) the respective Pass-Through Rates applicable to each class
     of the Class A Certificates, each class of the Mezzanine Certificates and
     the Class B Certificates for such Distribution Date and the Pass-Through
     Rate applicable to each class of the

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<PAGE>

     Class A Certificates, each class of the Mezzanine Certificates and each
     class of the Class B Certificates for the immediately succeeding
     Distribution Date;

               (xiv)  the Supplemental Interest Payment for each Class on such
     Distribution Date;

               (xv)   the difference between (x) the sum of (i) aggregate
     notional amount of the Swap Agreements and (ii) the aggregate notional
     amount of the Cap Agreements and (y) the aggregate Certificate Principal
     Balance of the Underwritten Certificates on such Distribution Date;

               (xvi)  the Required Overcollateralization Amount for such
     Distribution Date; and

               (xvii) the Excess Cashflow for such Distribution Date.

          In the case of information furnished pursuant to subclauses (i) and
(ii) above, the amounts shall be expressed in a separate section of the report
as a dollar amount for each Class for each $1,000 original dollar amount as of
the Closing Date.

          The Trustee may, in the absence of manifest error, conclusively rely
upon the Determination Date Report of the Servicer in its preparation of the
statement to Certificateholders pursuant to this Section 4.03.

          (b)  Within a reasonable period of time after the end of each calendar
year, the Trustee shall, upon written request, furnish to each Person who at any
time during the calendar year was a Certificateholder of a Regular Certificate,
if requested in writing by such Person, such information as is reasonably
necessary to provide to such Person a statement containing the information set
forth in subclauses (i) and (ii) above, aggregated for such calendar year or
applicable portion thereof during which such Person was a Certificateholder.
Such obligation of the Trustee shall be deemed to have been satisfied to the
extent that substantially comparable information shall be prepared and furnished
by the Trustee to Certificateholders pursuant to any requirements of the Code as
are in force from time to time.

          (c)  On each Distribution Date, the Trustee shall forward to the
Residual Certificateholders a copy of the reports forwarded to the Regular
Certificateholders in respect of such Distribution Date with such other
information as the Trustee deems necessary or appropriate.

          (d)  Within a reasonable period of time after the end of each calendar
year, the Trustee shall deliver to each Person who at any time during the
calendar year was a Residual Certificateholder, if requested in writing by such
Person, such information as is reasonably necessary to provide to such Person a
statement containing the information provided pursuant to the previous paragraph
aggregated for such calendar year or applicable portion thereof during which
such Person was a Residual Certificateholder. Such obligation of the Trustee
shall be deemed to have been satisfied to the extent that substantially
comparable information shall be prepared and furnished to Certificateholders by
the Trustee pursuant to any requirements of the Code as from time to time in
force.

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<PAGE>

          (e)  On each Distribution Date, the Trustee shall post on its website
at www.jpmorgan.com\sfr, which posting shall be accessible to each
Certificateholder and the Swap Counterparty, the statement prepared pursuant to
paragraph (a) of this Section 4.03. Assistance in using the website can be
obtained by calling the Trustee's customer service desk at 1-877-722-1095. Such
parties that are unable to use the website are entitled to have a paper copy
mailed to them via first class mail by calling the customer service desk and
indicating such. The Trustee shall have the right to change the way such
statements are distributed in order to make such distribution more convenient
and/or accessible to the above parties and the Trustee shall provide timely and
adequate notification to all above parties regarding any such changes. The
Trustee shall not have any responsibility to (i) verify information provided by
the Servicer to be included in such statement or (ii) include any information
required to be included in such statement if the Servicer has failed to timely
produce such information to the Trustee, as required pursuant hereto.

          (f)  No later than noon on the second Business Day prior to each
Distribution Date, the Trustee will verify that no Notional Amount Test Event is
scheduled to occur on the related Distribution Date. In the event a Notional
Amount Test Event would otherwise occur on the related Distribution Date, the
Trustee will immediately provide notice in the form of Exhibit J to the
appropriate NovaStar entity and assign in $10,000,000 increments a portion of
the related notional amount from the affected Swap Agreement on the day
immediately preceding that Distribution Date until no Notional Amount Test Event
will occur on the related Distribution Date. The Trustee shall assign the
applicable notional amount from the Swap Agreement with the earliest maturity.
In the event that two or more Swap Agreements have the same maturity date, which
date is the earliest maturity date of the outstanding Swap Agreements, the
Trustee shall assign the applicable notional amounts from the Swap Agreement
with the lowest fixed rate. Once such notional amounts have been assigned back
to the appropriate NovaStar entity, the related Swap Counterparty will have no
obligation to, nor interest in, the Trust with respect to such notional amounts.
Furthermore, no distributions will be made from the Supplemental Interest Trust
I to the related Swap Counterparty in respect of notional amounts assigned under
this Section 4.03 (f).

          In no event shall the Trustee allow a Notional Amount Test Event to
occur on any Distribution Date.

          Section 4.04  Supplemental Interest Trusts; Excess Cashflow.
                        ----------------------------------------------

          (a)  (i) The parties do hereby create and establish three sub-trusts
of the Trust Fund, each of which shall hold an account, which, no later than the
Closing Date, the Trustee shall, at the direction of the Servicer, establish and
maintain, as segregated trust accounts that are Eligible Accounts, which shall
be titled "Supplemental Interest Trust [I] [II] [III], as applicable, JPMorgan
Chase Bank, as Trustee for the registered holders of NovaStar Mortgage Funding
Trust 2003-4, Home Equity Loan Asset-Backed Certificates, Series 2003-4." On or
prior to November 20, 2003, the Servicer shall deposit an amount equal to the
Initial Swap Amount to Supplemental Interest Trust I. The Trustee shall,
promptly upon receipt, deposit in Supplemental Interest Trust I amounts of
Excess Cashflow, if any, pursuant to Section 4.01 and each distribution of the
Class I Monthly Interest Distributable Amount pursuant to Section 4.01(a)(i)(A).
Funds deposited in the Supplemental Interest Trusts shall be held in trust

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<PAGE>

by the Trustee for the Certificateholders for the uses and purposes set forth
herein. None of the Supplemental Interest Trusts nor the related Supplemental
Interest Accounts shall be an asset of any of the REMICs created hereunder.

          (ii) (a) On each Distribution Date prior to the Class I Termination
Date, the funds in Supplemental Interest Trust I (as reduced from time to time
in accordance with this Section 4.04) will equal the sum of (a) any amounts
received under any Swap Agreement pursuant to Section 4.04(e), (b) the Class I
Monthly Interest Distributable Amount and (c) any amounts of Excess Cashflow not
used to maintain the Required Overcollateralization Amount.

          On each Distribution Date commencing in November 2006, the funds in
Supplemental Interest Trust I (as reduced from time to time in accordance with
this Section 4.04) will equal any amounts of Excess Cashflow not used to
maintain the Required Overcollateralization Amount.

          (b)  The Trustee will invest funds deposited in the Supplemental
Interest Trusts as directed in writing by the Servicer in Eligible Investments
with a maturity date (i) no later than the Business Day immediately preceding
the date on which such funds are required to be withdrawn from such account
pursuant to this Agreement, if a Person other than the Trustee or an Affiliate
manages or advises such investment, and (ii) no later than the date on which
such funds are required to be withdrawn from such account pursuant to this
Agreement, if the Trustee or an Affiliate manages or advises such investment.
All income and gain realized from investment of funds deposited in the
applicable Supplemental Interest Trust shall be credited to such Account,
provided, however, that any income and gain realized during the period
commencing on the Closing Date and ending on December 25, 2003 will be paid to
the Servicer. The Trustee will not be liable for investment losses on
investments selected by the Servicer pursuant to this Section 4.04(b). None of
the Supplemental Interest Trusts will be an asset of any of the REMICs created
hereunder.

          (c)  On each Distribution Date, the Trustee shall distribute the funds
(other than funds relating to Excess Cashflow and, if such funds are
insufficient, any Excess Cashflow remaining after the distributions set forth in
Section 4.04(d)(i)) held in Supplemental Interest Trust I as follows:

               (i)    first, on November 25, 2003, to each Swap Counterparty,
     its related portion of the Initial Swap Amount, and on each Distribution
     Date up to and including the Class I Termination Date, to each Swap
     Counterparty, its related Swap Amount for such Distribution Date;

               (ii)   second, any remaining amounts to pay, pro rata based on
     Certificate Principal Balance of each class of Underwritten Certificates,
     the Supplemental Interest Payment for each class of Underwritten
     Certificates;

               (iii)  third, to pay each Swap Counterparty its related Swap
     Termination Payment, if any; and

               (iv)   fourth, any remaining amounts, pro rata to the Holders of
     the Class O and Class X Certificates based on the amounts paid to
     Supplemental Interest Trust I on

                                       59

<PAGE>

     behalf of the Holders of the Class O and Class X Certificates pursuant to
     Section 4.01(a)(i)(I), Section 4.01(a)(ii)(K), Section 4.01(a)(ii)(L),
     Section 4.01(a)(iii)(K) and Section 4.01(a)(iii)(L).

          (d)  On each Distribution Date, the Trustee shall distribute the funds
relating to Excess Cashflow as follows:

               (i)    prior to any deposit to Supplemental Interest Trust I, to
     the Holders of the Class or Classes of Certificates then entitled to
     receive distributions in respect of principal, in an amount equal to any
     Extra Principal Distribution Amount, distributable to such holders in the
     same order of priority as the Group I Principal Distribution Amount, the
     Group II Principal Distribution Amount and/or the Group III Principal
     Distribution Amount as described in Section 4.01; and

               (ii)   to Supplemental Interest Trust I to distribute in
     accordance with Section 4.04(c);

          (e)  On any Distribution Date on which the Swap Amount for any Swap
Agreement is a negative number, the absolute value of such negative number shall
be paid by each related Swap Counterparty to Supplemental Interest Trust I.

          (f)  On each Distribution Date starting in November 2006 through and
including the Distribution Date in September 2007, funds, if any, deposited in
Supplemental Interest Trust II will equal any Cap Agreement I Payments received
on such Distribution Date. On each Distribution Date, from the aggregate amounts
on deposit in Supplemental Interest Trust II, the Trustee will make the
following distributions in the following order of priority:

               (i)    first, to pay the Supplemental Interest Payment to the
     Class A-1 Certificates, to the extent not already paid out of Supplemental
     Interest Trust I;

               (ii)   second, to pay, pro rata based on Certificate Principal
     Balance, the Supplemental Interest Payment for each Class of Underwritten
     Certificates (other than the Class A-1 Certificates), to the extent not
     already paid out of Supplemental Interest Trust I; and

               (iii)  third, any remaining amounts, to the Holders of the Class
     X Certificates.

          (g)  On each Distribution Date starting in November 2006 to and
including the Distribution Date in September 2007, funds, if any, deposited in
Supplemental Interest Trust III will equal any Cap Agreement II Payments
received on such Distribution Date. On each Distribution Date, from the
aggregate amounts on deposit in Supplemental Interest Trust III, the Trustee
will make the following distributions in the following order of priority:

               (i)    first, to pay, pro rata based on Certificate Principal
     Balance, the Supplemental Interest Payment to the Class A-2 Certificates,
     to the extent not already paid out of Supplemental Interest Trust I and
     Supplemental Interest Trust II;

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<PAGE>

               (ii)   second, to pay, pro rata based on Certificate Principal
     Balance, the Supplemental Interest Payment for each Class of Underwritten
     Certificates (other than the Class A-2 Certificates) to the extent not
     already paid out of Supplemental Interest Trust I and Supplemental Interest
     Trust II; and

               (iii)  third, any remaining amounts, to the Holders of the Class
     X Certificates.

          (h)  In the event that a Swap Counterparty elects to post collateral
as provided in the related Swap Agreement, the Trustee shall establish and
maintain an Eligible Account with respect to the related Swap Agreement (each, a
"Swap Collateral Account") for the benefit of such Swap Counterparty and the
Certificateholders, as their interests may appear, into which such collateral
shall be deposited. The Trustee may or shall (as indicated) make withdrawals
from the related Swap Collateral Account for the purposes of (i) entering into a
substitute swap agreement, (ii) funding the amount of any payment due to be made
by such Swap Counterparty under the related Swap Agreement following the failure
by such Swap Counterparty to make that payment or (iii) as permitted pursuant to
the related Swap Agreement or this Agreement. The Trustee shall make withdrawals
from the related Swap Collateral Account and transfer the collateral (i) as
required of the Trustee pursuant to the related Swap Agreement or (ii) if the
circumstances which required the posting of collateral no longer exist; and the
Trustee is permitted to liquidate any investments held in such Swap Collateral
Account for any such purpose. In the event that additional collateral is
required to be posted by a Swap Counterparty under the related Swap Agreement,
the Trustee shall promptly make a demand on such Swap Counterparty to post such
additional collateral. To the extent cash makes up all or any portion of the
collateral in a Swap Collateral Account, such cash shall be invested in Eligible
Investments in accordance with the related Swap Agreement. Any and all interest
generated by such investment shall be transferred to the related Swap
Counterparty as provided in the related Swap Agreement, or where unspecified, on
each Distribution Date. In connection with the maintenance and administration of
a Swap Collateral Account, the Trustee may request and rely on written
instructions from the Servicer, which the Servicer hereby agrees to provide,
with respect to the maintenance and administration of such account. For the
avoidance of doubt, the Trustee shall not have any right to apply any amounts or
assets in any Swap Collateral Account except in accordance with the enforcement
and realization of its security interest pursuant to the related Swap Agreement
or otherwise in accordance with the related Swap Agreement.

The Trustee may designate an agent to maintain any Swap Collateral Account,
provided that the following conditions are satisfied: (i) the agent's long-term
unsubordinated debt is rated at least "BBB+" by S&P and at least "Baa1" by
Moody's and (ii) the total assets of the agent shall exceed $25,000,000. Under
such circumstances, all references to the Trustee in this subsection (h) shall
be to the Trustee's agent appointed pursuant to this paragraph.

          Section 4.05  Pre-Funding Account.
                        --------------------

          (a)  No later than the Closing Date, the Trustee, at the direction of
the Servicer, shall establish and maintain, a segregated trust account that is
an Eligible Account, which shall be titled "Pre-Funding Account, JPMorgan Chase
Bank, as Trustee for the registered holders of NovaStar Mortgage Funding Trust
2003-4, Home Equity Loan Asset-Backed

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<PAGE>

Certificates, Series 2003-4" (the "Pre-Funding Account"). The Trustee shall,
promptly upon receipt, deposit in the Pre-Funding Account and retain therein the
Original Pre-Funded Amount remitted on the Closing Date to the Trustee by the
Company. Funds deposited in the Pre-Funding Account shall be held in trust by
the Trustee for the Certificateholders for the uses and purposes set forth
herein.

          (b)  The Trustee will invest funds deposited in the Pre-Funding
Account as directed by the Servicer in Permitted Investments with a maturity
date (i) no later than the Business Day immediately preceding the date on which
such funds are required to be withdrawn from such account pursuant to this
Agreement, if a Person other than the Trustee or an Affiliate manages or advises
such investment, and (ii) no later than the date on which such funds are
required to be withdrawn from such account pursuant to this Agreement, if the
Trustee or an Affiliate manages or advises such investment. For federal income
tax purposes, the Servicer shall be the owner of the Pre-Funding Account and
shall report all items of income, deduction, gain or loss arising therefrom. All
income and gain realized from investment of funds deposited in the Pre-Funding
Account shall be withdrawn and deposited in the Distribution Account. The
Trustee shall treat the Pre-Funding Account as an outside reserve fund within
the meaning of Treasury Regulation Section 1.860G-2(h). At no time will the
Pre-Funding Account be an asset of any REMIC created hereunder. The Trustee
shall not be liable for investment losses on investments selected by the
Servicer pursuant to this Section 4.05(b).

          (c)  Amounts on deposit in the Pre-Funding Account shall be withdrawn
by the Trustee as follows:

               (i)    On any Subsequent Transfer Date, the Trustee shall
     withdraw from the Pre-Funding Account an amount equal to 100% of the
     Principal Balances of the Subsequent Mortgage Loans transferred and
     assigned to the Trustee for deposit in the Mortgage Pool on such Subsequent
     Transfer Date and pay such amount to or upon the order of the Company upon
     satisfaction of the conditions set forth in Section 2.08 with respect to
     such transfer and assignment;

               (ii)   If the amount on deposit in the Pre-Funding Account has
     not been reduced to zero on the day of the termination of the Pre-Funding
     Period, the Trustee shall deposit into the Distribution Account on such day
     any amounts remaining in the Pre-Funding Account for distribution in
     accordance with the terms hereof;

               (iii)  To withdraw any amount not required to be deposited in the
     Pre-Funding Account or deposited therein in error; and

               (iv)   To clear and terminate the Pre-Funding Account upon the
     earlier to occur of (A) the Distribution Date immediately following the end
     of the Pre-Funding Period but not later than the Distribution Date in
     February 2004 and (B) the termination of this Agreement, with any amounts
     remaining on deposit therein being paid to the Holders of the Certificates
     then entitled to distributions in respect of principal.

          Withdrawals from the Pre-Funding Account pursuant to clauses (i), (ii)
and (iv) shall be treated as contributions of cash to REMIC I on the date of
withdrawal.

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          Section 4.06  [Reserved]
                        ----------

          Section 4.07  Allocation of Realized Losses.
                        ------------------------------

          All Realized Losses on the Mortgage Loans shall be allocated by the
Trustee on each Distribution Date as follows: first, to amounts of Excess
Cashflow, second, to the Class O Certificates, until the Certificate Principal
Balance thereof has been reduced to zero; third, to the Class B-3 Certificates,
until the Certificate Principal Balance thereof has been reduced to zero;
fourth, to the Class B-2 Certificates, until the Certificate Principal Balance
thereof has been reduced to zero; fifth, to the Class B-1 Certificates, until
the Certificate Principal Balance thereof has been reduced to zero; sixth, to
the Class M-3 Certificates, until the Certificate Principal Balance thereof has
been reduced to zero; seventh, to the Class M-2 Certificates, until the
Certificate Principal Balance thereof has been reduced to zero; eighth, to the
Class M-1 Certificates, until the Certificate Principal Balance thereof has been
reduced to zero; and ninth, to the Class A-3 Certificates, until the Certificate
Principal Balance thereof has been reduced to zero. All Realized Losses to be
allocated to the Certificate Principal Balances of all Classes on any
Distribution Date shall be so allocated after the actual distributions to be
made on such date as provided above. All references above to the Certificate
Principal Balance of any Class of Certificates shall be to the Certificate
Principal Balance of such Class immediately prior to the relevant Distribution
Date, before reduction thereof by any Realized Losses, in each case to be
allocated to such Class of Certificates, on such Distribution Date. In no event
shall Realized Losses be allocated to the Class A-1 Certificates or the Class
A-2 Certificates.

          Any allocation of Realized Losses to a Class O Certificate, a Class B
Certificate, the Mezzanine Certificate, or a Class A-3 Certificate on any
Distribution Date shall be made by reducing the Certificate Principal Balance
thereof by the amount so allocated.

                                   ARTICLE V

                                THE CERTIFICATES

          Section 5.01  The Certificates.
                        -----------------

          Each of the Class A Certificates, the Mezzanine Certificates, the
Class B Certificates, the Class X Certificates, the Class I Certificates, the
Class P Certificates, the Class O Certificates and the Residual Certificates
shall be substantially in the forms annexed hereto as exhibits, and shall, on
original issue, be executed, authenticated and delivered by the Trustee to or
upon the order of the Company concurrently with the sale and assignment to the
Trust of the Trust Fund. The Underwritten Certificates shall be initially
evidenced by one or more Certificates representing a Percentage Interest with a
minimum dollar denomination of $25,000 and integral dollar multiples of $1,000
in excess thereof, except that one Certificate of each such Class of
Certificates may be in a different denomination so that the sum of the
denominations of all outstanding Certificates of such Class shall equal the
Certificate Principal Balance of such Class on the Closing Date. The Class X
Certificates, the Class I Certificates, the Class P Certificates, the Class O
Certificates and the Residual Certificates are issuable in any Percentage
Interests; provided, however, that the sum of all such percentages for each such
Class totals 100% and no more than ten Certificates of each Class may be issued.

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<PAGE>

          The Certificates shall be executed on behalf of the Trust by manual or
facsimile signature on behalf of the Trustee by a Responsible Officer.
Certificates bearing the manual or facsimile signatures of individuals who were,
at the time when such signatures were affixed, authorized to sign on behalf of
the Trustee shall bind the Trust, notwithstanding that such individuals or any
of them have ceased to be so authorized prior to the authentication and delivery
of such Certificates or did not hold such offices at the date of such
Certificate. No Certificate shall be entitled to any benefit under this
Agreement or be valid for any purpose, unless such Certificate shall have been
manually authenticated by the Trustee substantially in the form provided for
herein, and such authentication upon any Certificate shall be conclusive
evidence, and the only evidence, that such Certificate has been duly
authenticated and delivered hereunder. All Certificates shall be dated the date
of their authentication. Subject to Section 5.02(c), the Underwritten
Certificates and the Class P Certificates shall be Book-Entry Certificates. The
other Classes of Certificates shall be Definitive Certificates.

          Section 5.02  Registration of Transfer and Exchange of Certificates.
                        ------------------------------------------------------

          (a)  The Certificate Registrar shall cause to be kept at the Corporate
Trust Office a Certificate Register in which, subject to such reasonable
regulations as it may prescribe, the Certificate Registrar shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar for
the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.

          Upon surrender for registration of transfer of any Certificate at any
office or agency of the Certificate Registrar maintained for such purpose
pursuant to the foregoing paragraph and, in the case of a Residual Certificate,
upon satisfaction of the conditions set forth below, the Trustee on behalf of
the Trust shall execute, authenticate and deliver, in the name of the designated
transferee or transferees, one or more new Certificates of the same aggregate
Percentage Interest.

          At the option of the Certificateholders, Certificates may be exchanged
for other Certificates in authorized denominations and the same aggregate
Percentage Interests, upon surrender of the Certificates to be exchanged at any
such office or agency. Whenever any Certificates are so surrendered for
exchange, the Trustee shall execute on behalf of the Trust and authenticate and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of transfer or exchange shall (if so required by the Trustee or the Certificate
Registrar) be duly endorsed by, or be accompanied by a written instrument of
transfer satisfactory to the Trustee and the Certificate Registrar duly executed
by, the Holder thereof or his attorney duly authorized in writing.

          (b)  Except as provided in paragraph (c) below, the Book-Entry
Certificates shall at all times remain registered in the name of the Depository
or its nominee and at all times: (i) registration of such Certificates may not
be transferred by the Trustee except to another Depository; (ii) the Depository
shall maintain book-entry records with respect to the Certificate Owners and
with respect to ownership and transfers of such Certificates; (iii) ownership
and transfers of registration of such Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and

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customary fees, charges and expenses from its Depository Participants; (v) the
Trustee shall for all purposes deal with the Depository as representative of the
Certificate Owners of the Certificates for purposes of exercising the rights of
Holders under this Agreement, and requests and directions for and votes of such
representative shall not be deemed to be inconsistent if they are made with
respect to different Certificate Owners; (vi) the Trustee may rely and shall be
fully protected in relying upon information furnished by the Depository with
respect to its Depository Participants and furnished by the Depository
Participants with respect to indirect participating firms and Persons shown on
the books of such indirect participating firms as direct or indirect Certificate
Owners; and (vii) the direct participants of the Depository shall have no rights
under this Agreement under or with respect to any of the Certificates held on
their behalf by the Depository, and the Depository may be treated by the
Trustee, the Trustee and its agents, employees, officers and directors as the
absolute owner of the Certificates for all purposes whatsoever.

          All transfers by Certificate Owners of Book-Entry Certificates shall
be made in accordance with the procedures established by the Depository
Participant or brokerage firm representing such Certificate Owners. Each
Depository Participant shall only transfer Book-Entry Certificates of
Certificate Owners that it represents or of brokerage firms for which it acts as
agent in accordance with the Depository's normal procedures. The parties hereto
are hereby authorized to execute a Letter of Representations with the Depository
or take such other action as may be necessary or desirable to register a
Book-Entry Certificate to the Depository. In the event of any conflict between
the terms of any such Letter of Representation and this Agreement, the terms of
this Agreement shall control.

          (c)  If (i)(x) the Depository or the Company advises the Trustee in
writing that the Depository is no longer willing or able to discharge properly
its responsibilities as Depository and (y) the Trustee or the Company is unable
to locate a qualified successor, (ii) the Company, at its sole option, with the
consent of the Trustee, elects to terminate the book-entry system through the
Depository or (iii) after the occurrence of a Servicing Default, the Certificate
Owners of the Book-Entry Certificates representing not less than 51% of the
Voting Rights advise the Trustee and Depository through the Financial
Intermediaries and the Depository Participants in writing that the continuation
of a book-entry system through the Depository to the exclusion of definitive,
fully registered certificates ("Definitive Certificates") to Certificate Owners
is no longer in the best interests of the Certificate Owners. Upon surrender to
the Certificate Registrar of the Book-Entry Certificates by the Depository,
accompanied by registration instructions from the Depository for registration,
the Trustee shall, at the Company's expense, in the case of (ii) above, or the
Seller's expense, in the case of (i) and (iii) above, execute on behalf of the
Trust and authenticate the Definitive Certificates. Neither the Company nor the
Trustee shall be liable for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such instructions.
Upon the issuance of Definitive Certificates, the Trustee, the Certificate
Registrar, the Servicer, any Paying Agent and the Company shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.

          (d)  No transfer, sale, pledge or other disposition of any Class I
Certificate, Class O Certificate, Class X Certificate or Residual Certificate
shall be made unless such disposition is exempt from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and any
applicable state securities laws or is made in accordance with

                                       65

<PAGE>

the 1933 Act and laws. In the event of any such transfer, except with respect to
the initial transfers of any Class I Certificate, Class O Certificate, Class X
Certificate or Residual Certificates by the Company to NCFC, unless (i) such
transfer is made in reliance upon Rule 144A under the 1933 Act and an investment
letter, in substantially the form attached hereto as Exhibit G, is delivered by
the Transferee to the Trustee) or (ii) a written Opinion of Counsel (which may
be in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Company is delivered to them stating that
such transfer may be made pursuant to (x) the 1933 Act, or an exemption thereto,
describing the applicable provision or exemption and the basis therefor, and (y)
the Investment Company Act of 1940, or an exemption thereto, describing the
applicable provision or exemption and the basis therefor, which Opinion of
Counsel shall not be an expense of the Trustee or the Company. The Holder of a
Class I Certificate, Class O Certificate, Class X Certificate or Residual
Certificate desiring to effect such transfer shall, and the Trustee and the
Company against any liability that may result if the transfer is not so exempt
or is not made in accordance with such federal and state laws.

          No transfer of a Class I Certificate, Class O Certificate, Class P
Certificate, Class X Certificate or Residual Certificate or any interest therein
shall be made to any Plan subject to ERISA or Section 4975 of the Code, any
Person acting, directly or indirectly, on behalf of any such Plan or any Person
acquiring such Certificates with "plan assets" of a Plan within the meaning of
the Department of Labor regulation promulgated at 29 C.F.R. Section 2510.3-101
or otherwise ("Plan Assets"). Each Person who acquires any Ownership Interest in
such classes of Certificates shall be deemed, by the acceptance or acquisition
of such Ownership Interest, to represent that it is not acquiring such Ownership
Interest with Plan Assets.

          Prior to the expiration of the Pre-Funding Period, no transfer of
Class A Certificates, Class B Certificates or Mezzanine Certificates or any
interest therein shall be made to any Person acquiring such Certificates with
Plan Assets. Each Person who acquires any Ownership Interest in such class of
Certificates prior to the expiration of such Pre-Funding Period shall be deemed,
by the acceptance or acquisition of such Ownership Interest, to represent that
it is not acquiring such Ownership Interest with Plan Assets.

          Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions and to
have irrevocably appointed the Company or its designee as its attorney-in-fact
to negotiate the terms of any mandatory sale under clause (v) below and to
execute all instruments of transfer and to do all other things necessary in
connection with any such sale, and the rights of each Person acquiring any
Ownership Interest in a Residual Certificate are expressly subject to the
following provisions:

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

               (ii)   No Person shall acquire an Ownership Interest in a
     Residual Certificate unless such Ownership Interest is a pro rata undivided
     interest.

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<PAGE>

               (iii)  In connection with any proposed transfer of any Ownership
     Interest in a Residual Certificate, the Trustee shall as a condition to
     registration of the transfer, require delivery to it, in form and substance
     satisfactory to it, of each of the following:

               A.     an affidavit in the form of Exhibit H hereto from the
     proposed transferee to the effect that such transferee is a Permitted
     Transferee and that it is not acquiring its Ownership Interest in the
     Residual Certificate that is the subject of the proposed transfer as a
     nominee, Trustee or agent for any Person who is not a Permitted Transferee;
     and

               B.     an affidavit in the form of Exhibit I hereto from the
     proposed transferor to the effect that no purpose of the transfer is to
     impede the assessment or collection of any tax.

               (iv)   Any attempted or purported transfer of any Ownership
     Interest in a Residual Certificate in violation of the provisions of this
     Section shall be absolutely null and void and shall vest no rights in the
     purported transferee. If any purported transferee shall, in violation of
     the provisions of this Section, become a Holder of a Residual Certificate,
     then the prior Holder of such Residual Certificate that is a Permitted
     Transferee shall, upon discovery that the registration of transfer of such
     Residual Certificate was not in fact permitted by this Section, be restored
     to all rights as Holder thereof retroactive to the date of registration of
     transfer of such Residual Certificate. The Trustee shall be under no
     liability to any Person for any registration of transfer of a Residual
     Certificate that is in fact not permitted by this Section or for making any
     distributions due on such Residual Certificate to the Holder thereof or
     taking any other action with respect to such Holder under the provisions of
     this Agreement so long as the Trustee received the documents specified in
     clause (iii). The Trustee shall be entitled to recover from any Holder of a
     Residual Certificate that was in fact not a Permitted Transferee at the
     time such distributions were made all distributions made on such Residual
     Certificate. Any such distributions so recovered by the Trustee shall be
     distributed and delivered by the Trustee to the prior Holder of such
     Residual Certificate that is a Permitted Transferee.

               (v)    If any Person other than a Permitted Transferee acquires
     any Ownership Interest in a Residual Certificate in violation of the
     restrictions in this Section, then the Trustee shall have the right but not
     the obligation, without notice to the Holder of such Residual Certificate
     or any other Person having an Ownership Interest therein, to notify the
     Company to arrange for the sale of such Residual Certificate. The proceeds
     of such sale, net of commissions (which may include commissions payable to
     the Company or its affiliates in connection with such sale), expenses and
     taxes due, if any, will be remitted by the Trustee to the previous Holder
     of such Residual Certificate that is a Permitted Transferee, except that in
     the event that the Trustee determines that the Holder of such Residual
     Certificate may be liable for any amount due under this Section or any
     other provisions of this Agreement, the Trustee may withhold a
     corresponding amount from such remittance as security for such claim. The
     terms and conditions of any sale under this clause (v) shall be determined
     in the sole discretion of the Trustee and it shall

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<PAGE>

     not be liable to any Person having an Ownership Interest in a Residual
     Certificate as a result of its exercise of such discretion.

               (vi)   If any Person other than a Permitted Transferee acquires
     any Ownership Interest in a Residual Certificate in violation of the
     restrictions in this Section, then the Trustee upon receipt of reasonable
     compensation will provide to the Internal Revenue Service, and to the
     persons specified in Sections 860E(e)(3) and (6) of the Code, information
     needed to compute the tax imposed under Section 860E(e) of the Code on
     transfers of residual interests to disqualified organizations.

          The foregoing provisions of this Section shall cease to apply to
transfers occurring on or after the date on which there shall have been
delivered to the Trustee, in form and substance satisfactory to the Trustee, (i)
written notification from each Rating Agency that the removal of the
restrictions on Transfer set forth in this Section will not cause such Rating
Agency to downgrade its rating of the Certificates and (ii) an Opinion of
Counsel to the effect that such removal will not cause any REMIC created
hereunder to fail to qualify as a REMIC.

          (e)  No service charge shall be made for any registration of transfer
or exchange of Certificates of any Class, but the Certificate Registrar may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer or exchange of Certificates.

          All Certificates surrendered for registration of transfer or exchange
shall be cancelled by the Certificate Registrar and disposed of pursuant to its
standard procedures.

          Section 5.03  Mutilated, Destroyed, Lost or Stolen Certificates.
                        --------------------------------------------------

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

          Section 5.04  Persons Deemed Owners.
                        ----------------------

          The Servicer, the Company, the Trustee, the Certificate Registrar, any
Paying Agent and any agent of the Servicer, the Company, the Trustee, the
Certificate Registrar or any Paying Agent may treat the Person, including a
Depository, in whose name any Certificate is registered as the owner of such
Certificate for the purpose of receiving distributions pursuant to

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Section 4.01 and for all other purposes whatsoever, and none of the Servicer,
the Trust, the Trustee nor any agent of any of them shall be affected by notice
to the contrary.

          Section 5.05  Appointment of Paying Agent.
                        ----------------------------

          (a)  The Paying Agent shall make distributions to Certificateholders
from the Distribution Account pursuant to Section 4.01 and shall report the
amounts of such distributions to the Trustee. The duties of the Paying Agent may
include the obligation to distribute statements prepared by the Trustee pursuant
to Section 4.03 and provide information to Certificateholders as required
hereunder. The Paying Agent hereunder shall at all times be an entity duly
incorporated and validly existing under the laws of the United States of America
or any state thereof, authorized under such laws to exercise corporate trust
powers and subject to supervision or examination by federal or state
authorities. The Paying Agent shall initially be the Trustee. The Trustee may
appoint a successor to act as Paying Agent, which appointment shall be
reasonably satisfactory to the Company.

          (b)  The Trustee shall cause the Paying Agent (if other than the
Trustee) to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee that such Paying Agent shall hold all
sums, if any, held by it for payment to the Certificateholders in trust for the
benefit of the Certificateholders entitled thereto until such sums shall be paid
to such Certificateholders and shall agree that it shall comply with all
requirements of the Code regarding the withholding of payments in respect of
Federal income taxes due from Certificate Owners and otherwise comply with the
provisions of this Agreement applicable to it.

                                   ARTICLE VI

                          THE SERVICER AND THE COMPANY

          Section 6.01  Liability of the Servicer and the Company.
                        ------------------------------------------

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

          Section 6.02  Merger or Consolidation of, or Assumption of the
                        ------------------------------------------------
Obligations of, the Servicer or the Company.
--------------------------------------------

          Any entity into which the Servicer or Company may be merged or
consolidated, or any entity resulting from any merger, conversion or
consolidation to which the Servicer or the Company shall be a party, or any
corporation succeeding to the business of the Servicer or the Company, shall be
the successor of the Servicer or the Company, as the case may be, hereunder,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding;
provided, however, that the successor Servicer shall satisfy all the
requirements of Section 7.02 with respect to the qualifications of a successor
Servicer.

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          Section 6.03  Limitation on Liability of the Servicer and Others.
                        ---------------------------------------------------

          Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action by the Servicer in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or negligence in the
performance of duties of the Servicer or by reason of its reckless disregard of
its obligations and duties of the Servicer hereunder.

          The Servicer and any director or officer or employee or agent of the
Servicer may rely in good faith on any document of any kind prima facie properly
executed and submitted by any Person respecting any matters arising hereunder.
The Servicer and any director or officer or employee or agent of the Servicer
shall be indemnified by the Trust and held harmless against any loss, liability
or expense incurred in connection with any legal action relating to this
Agreement or the Certificates, including any amount paid to the Trustee pursuant
to Section 6.06(b), other than any loss, liability or expense related to any
specific Mortgage Loan or Mortgage Loans (except as any such loss, liability or
expense shall be otherwise reimbursable pursuant to this Agreement) and any
loss, liability or expense incurred by reason of its willful misfeasance, bad
faith or negligence in the performance of its duties hereunder or by reason of
its reckless disregard of its obligations and duties hereunder. The 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 Mortgage Loans in
accordance with this Agreement, and which in its opinion may involve it in any
expense or liability; provided, however, that the Servicer may in its sole
discretion undertake any such action which it may deem necessary or desirable in
respect of this Agreement, and the rights and duties of the parties hereto and
the interests of the Certificateholders hereunder. 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 Trust, and the Servicer shall be
entitled to be reimbursed therefor. The Servicer's right to indemnity or
reimbursement pursuant to this Section 6.03 shall survive any resignation or
termination of the 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). Any reimbursements or indemnification to the Servicer from the
Trust pursuant to this Section 6.03 shall be payable in the priority set forth
in Section 4.01 hereof.

          Section 6.04  Servicer Not to Resign.
                        -----------------------

          Subject to the provisions of Section 6.02, the 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 (ii) upon satisfaction of the
following conditions: (a) the Servicer has proposed a successor servicer to the
Trustee in writing and such proposed successor servicer is reasonably acceptable
to the Trustee; and (b) each Rating Agency shall have delivered a letter to the
Trustee prior to the appointment of the successor servicer stating that the
proposed appointment of such successor servicer as Servicer hereunder will not
result in the reduction or withdrawal of then current rating of the
Certificates; provided, however, that no such resignation by the Servicer shall
become effective

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<PAGE>

until such successor servicer or, in the case of (i) above, the Trustee or its
designee as successor Servicer shall have assumed the Servicer's
responsibilities and obligations hereunder or shall have designated a successor
servicer in accordance with Section 7.02. Any such resignation shall not relieve
the 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
Servicer. The Servicer shall have no claim (whether by subrogation or otherwise)
or other action against any Certificateholder for any amounts paid by the
Servicer pursuant to any provision of this Pooling and Agreement. Any such
determination permitting the resignation of the Servicer under clause (i) above
shall be evidenced by an Opinion of Counsel to such effect delivered to the
Trustee.

          Section 6.05  Delegation of Duties.
                        ---------------------

          In the ordinary course of business, the 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 the same
standards with which the Servicer complies pursuant to Section 3.01. Such
delegation shall not relieve the 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  Servicer to Pay Trustee's Fees and Expenses;
                        --------------------------------------------
Indemnification.
----------------

          (a)  The Servicer covenants and agrees to pay to the Trustee and any
co-trustee of the Trustee from time to time, and the Trustee and any such
co-trustee shall be entitled to, reasonable compensation, including all
indemnification payments (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 hereunder and in
the exercise and performance of any of the powers and duties and the Servicer
will pay or reimburse the Trustee and any co-trustee upon request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
or any co-trustee of the Trustee in accordance with any of the provisions of
this Agreement except any such expense, disbursement or advance as may arise
from its negligence or bad faith.

          (b)  The Servicer agrees to indemnify the Trustee for, and to defend
and hold, the Trustee harmless against, any claim, tax, penalty, loss, liability
or expense of any kind whatsoever, incurred without gross negligence or willful
misconduct on the part of the Trustee as such and/or in its individual capacity,
arising out of, or in connection with, the performance of the Trustee's duties
under this Agreement or the other Basic Documents, including the reasonable
costs and expenses (including reasonable legal fees and expenses) of defending
itself against any claim in connection with the exercise or performance of any
of its powers or duties hereunder, provided that:

               (i)    with respect to any such claim, the Trustee shall have
     given the Servicer written notice thereof promptly after the Trustee shall
     have actual knowledge thereof;

               (ii)   while maintaining control over its own defense, the
     Trustee shall cooperate and consult fully with the Servicer in preparing
     such defense; and

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<PAGE>

               (iii)  notwithstanding anything in this Agreement to the
     contrary, the Servicer shall not be liable for settlement of any claim by
     the Trustee entered into without the prior consent of the Servicer, which
     consent shall not be unreasonably withheld.

          No termination of this Agreement and resignation and removal of the
Trustee shall affect the obligations created by this Section 6.06 of the
Servicer to indemnify the Trustee under the conditions and to the extent set
forth herein. This section shall survive the termination of this Agreement and
resignation and removal of the Trustee. Any amounts to be paid by the Servicer
pursuant to this Subsection may not be paid from the Trust Fund except as
provided in Section 6.03.

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

          (c)  The Servicer agrees to indemnify the Trust Fund in an amount
equal to the amount of any claim made under a MI Policy for which coverage is
denied by the MI Insurer because (and if the MI Insurer's denial of coverage is
contested by the Servicer, a court or arbitrator finally determines that
coverage is not available under the MI Policy because) of the Servicer's failure
to abide by the terms of the MI Policy or the MI Insurance Agreement or the
Servicer's failure to abide by the NFI Underwriting Guidelines or the NFI
Servicing Guidelines, as attached to the MI Insurance Agreement.

          (d)  In the event the Trustee becomes the Servicer pursuant to Section
7.02 hereof, the Trustee shall not be obligated, in its individual capacity, to
pay any obligation of the Servicer under clause (a), (b) or (c) above.

                                   ARTICLE VII

                                     DEFAULT

          Section 7.01  Servicing Default.
                        ------------------

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

               (i)    Any failure by the Servicer to deposit in the Collection
     Account or Distribution Account (A) any Advances and Compensating Interest
     or (B) any other Deposit required to be made under the terms of this
     Agreement, which, in the case of this clause (B), continues unremedied for
     a period of three Business Days after the date upon which written notice of
     such failure shall have been given to the Servicer by the Trustee or to the
     Servicer and the Trustee by the Holders of Certificates evidencing at least
     25% of the Voting Rights; or

               (ii)   Failure on the part of the Servicer duly to observe or
     perform in any material respect any other covenants or agreements of the
     Servicer set forth in this

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<PAGE>

     Agreement, which failure, in each case, materially and adversely affects
     the interests of Certificateholders or the breach of any representation or
     warranty of the Servicer in this Agreement which materially and adversely
     affects the interests of the Certificateholders, and which in either case
     continues unremedied for a period of 30 days after the date on which
     written notice of such failure or breach, requiring the same to be
     remedied, and stating that such notice is a "Notice of Default" hereunder,
     shall have been given to the Servicer by the Trustee or to the Servicer and
     the Trustee by the Holders of Certificates evidencing at least 25% of the
     Voting Rights; or

               (iii)  The entry against the 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, marshaling 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 unstayed and in effect for a period of 60
     consecutive days; or

               (iv)   The Servicer shall voluntarily go into liquidation,
     consent to the appointment of a conservator, receiver, liquidator or
     similar person in any insolvency, readjustment of debt, marshaling of
     assets and liabilities or similar proceedings of or relating to the
     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, marshaling of assets and liabilities or similar proceedings, or for
     the winding-up or liquidation of its affairs, shall have been entered
     against the Servicer and such decree or order shall have remained in force
     undischarged, unbonded or unstayed for a period of 60 days; or the 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 insolvency
     or reorganization statute, make an assignment for the benefit of its
     creditors or voluntarily suspend payment of its obligations; or

               (v)    The Cumulative Loss Percentage exceeds (a) with respect to
     the first 12 Distribution Dates, 1.50% of the Cut-off Date Aggregate
     Principal Balance, (b) with respect to the next 12 Distribution Dates,
     2.50% of the Cut-off Date Aggregate Principal Balance, (c) with respect to
     the next 12 Distribution Dates, 3.75% of the Cut-off Date Aggregate
     Principal Balance, (d) with respect to the next 12 Distribution Dates,
     4.50% of the Cut-off Date Aggregate Principal Balance, (e) with respect to
     the next 12 Distribution Dates, 5.50% of the Cut-off Date Aggregate
     Principal Balance, (f) and with respect to all Distribution Dates
     thereafter, 6.75% of the Cut-off Date Aggregate Principal Balance; or

               (vi)   Realized Losses on the Mortgage Loans over any
     twelve-month period exceeds 2.00% of the sum of the aggregate Principal
     Balance of the Initial Mortgage Loans as of the Cut-off Date and the
     Original Pre-Funded Amount; or

               (vii)  The Rolling 90 Day Delinquency Percentage exceeds 19.00%.

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<PAGE>

          (b)  then, and in each and every such case, so long as a Servicing
Default shall not have been remedied within the applicable grace period, (x)
with respect solely to clause (i)(A) above, if such Advance is not made by 5:00
P.M., New York time, on the Business Day immediately following the Servicer
Remittance Date (provided the Trustee shall give the Servicer notice of such
failure to advance by 5:00 P.M. New York time on the Servicer Remittance Date),
the Trustee shall terminate all of the rights and obligations of the Servicer
under this Agreement and the Trustee, or a successor servicer appointed in
accordance with Section 7.02, shall assume, pursuant to Section 7.02, the duties
of a successor Servicer and (y) in the case of (i)(B), (ii), (iii), (iv), (v)
and (vi) and (vii) above, the Trustee shall, at the direction of the Holders of
Certificates evidencing at least 51% of the Voters Rights, by notice then given
in writing to the Servicer (and to the Trustee if given by Holders of
Certificates), terminate all of the rights and obligations of the Servicer as
servicer under this Agreement. Any such notice to the Servicer shall also be
given to the Trustee, each Rating Agency, the Company and the Seller. On or
after the receipt by the Servicer (and by the Trustee if such notice is given by
the Holders) of such written notice, all authority and power of the Servicer
under this Agreement, whether with respect to the Certificates or the Mortgage
Loans or otherwise, shall pass to and be vested in the Trustee or other
Successor Servicer appointed in accordance with Section 7.02.

          Section 7.02  Trustee to Act; Appointment of Successor.
                        -----------------------------------------

          (a)  Within 90 days of the time the Servicer (and the Trustee if
notice is sent by the Holders) receives a notice of termination pursuant to
Section 7.01, the Trustee (or such other successor Servicer as is approved in
accordance with this Agreement) shall be the successor in all respects to the
Servicer in its capacity as servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the Servicer
by the terms and provisions hereof arising on and after its succession.
Notwithstanding the foregoing, the parties hereto agree that the Trustee, in its
capacity as successor Servicer, immediately will assume all of the obligations
of the Servicer to make Advances; provided however, that the obligation of the
Trustee to make Advances is subject to the standards set forth in Section 3.24
hereof. Notwithstanding the foregoing, the Trustee, in its capacity as successor
Servicer, shall not be responsible for the lack of information and/or documents
that it cannot obtain through reasonable efforts. As compensation therefor, the
Trustee (or such other successor Servicer) shall be entitled to such
compensation as the Servicer would have been entitled to hereunder if no such
notice of termination had been given. Notwithstanding the above, (i) if the
Trustee is unwilling to act as successor Servicer or (ii) if the Trustee is
legally unable so to act, the Trustee shall 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 Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of the Servicer hereunder; provided, that the appointment of any
such successor Servicer will not result in the qualification, reduction or
withdrawal of the ratings assigned to the Certificates by the Rating Agencies as
evidenced by a letter to such effect from the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Mortgage
Loans in an amount equal to the compensation which the Servicer would otherwise
have received pursuant to

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<PAGE>

Section 3.18 (or such other compensation as the Trustee and such successor shall
agree, not to exceed the Servicing Fee). The appointment of a successor Servicer
shall not affect any liability of the predecessor Servicer which may have arisen
under this Agreement prior to its termination as Servicer to pay any deductible
under an insurance policy pursuant to Section 3.14 or to indemnify the Trustee
pursuant to Section 3.06, nor shall any successor Servicer be liable for any
acts or omissions of the predecessor Servicer or for any breach by such Servicer
of any of its representations or warranties contained herein or in any related
document or agreement. The Trustee and such successor shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. All Servicing Transfer Costs shall be paid by the predecessor
Servicer upon presentation of reasonable documentation of such costs, and if
such predecessor Servicer defaults in its obligation to pay such costs, such
costs shall be paid by the successor Servicer or the Trustee (in which case the
successor Servicer or the Trustee, as applicable, shall be entitled to
reimbursement therefor from the assets of the Trust).

          (b)  Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer continue to service and
administer the Mortgage Loans for the benefit of Certificateholders, and
maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
Fidelity Bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 3.14.

          (c)  In connection with the termination or resignation of the Servicer
hereunder, either (i) the successor Servicer, shall represent and warrant that
it is a member of MERS in good standing and shall agree to comply in all
material respects with the rules and procedures of MERS in connection with the
servicing of the Mortgage Loans that are registered with MERS, in which case the
predecessor Servicer shall cooperate with the successor Servicer in causing MERS
to revise its records to reflect the transfer of servicing to the successor
Servicer as necessary under MERS' rules and regulations, or (ii) the predecessor
Servicer shall cooperate with the successor Servicer in causing MERS to execute
and deliver an assignment of Mortgage in recordable form to transfer the
Mortgages from MERS to the Trustee and to execute and deliver such other
notices, documents and other instruments as may be necessary or desirable to
effect a transfer of such Mortgage Loans or servicing of such Mortgage Loan on
the MERS System to the successor Servicer. The predecessor Servicer shall file
or cause to be filed any such assignment in the appropriate recording offices.
The predecessor Servicer shall bear any and all fees of MERS, costs of preparing
any assignments of Mortgage, and fees and costs of filing any assignments of
Mortgage that may be required under this subsection (c). The successor Servicer
shall cause assignment to be delivered to the Trustee promptly upon receipt of
the original with evidence of recording thereon or a copy certified by the
public recording office in which such assignment was recorded.

          Section 7.03  Waiver of Defaults.
                        -------------------

          The Majority Certificateholders may, on behalf of all
Certificateholders, waive any events permitting removal of the Servicer as
servicer pursuant to this Article VII by delivering written notice to the
Trustee, provided, however, that the Majority Certificateholders may not waive a
default in making a required distribution on a Certificate without the consent
of the Holder of such Certificate. Upon any waiver of a past default, such
default shall cease to

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<PAGE>

exist and any Servicing Default arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereto except to the
extent expressly so waived. Notice of any such waiver shall be given by the
Trustee to the Rating Agencies.

          Section 7.04  Notification to Certificateholders.
                        -----------------------------------

          (a)  Upon any termination or appointment of a successor the Servicer
pursuant to this Article VII, the Trustee shall give prompt written notice
thereof to the Certificateholders at their respective addresses appearing in the
Certificate Register and each Rating Agency.

          (b)  No later than 60 days after the occurrence of any event which
constitutes or which, with notice or a lapse of time or both, would constitute a
Servicing Default for five Business Days after a Responsible Officer of the
Trustee becomes aware of the occurrence of such an event, the Trustee shall
transmit by mail to all Certificateholders notice of such occurrence unless such
default or Servicing Default shall have been waived or cured.

          Section 7.05  Survivability of Servicer Liabilities.
                        --------------------------------------

          Notwithstanding anything herein to the contrary, upon termination of
the Servicer hereunder, any liabilities of the Servicer which accrued prior to
such termination shall survive such termination.

                                  ARTICLE VIII

                                   THE TRUSTEE

          Section 8.01  Duties of the Trustee.
                        ----------------------

          If a Servicing Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Agreement and use the
same degree of care and skill in its exercise as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.

          (a)  Except during the continuance of a Servicing Default:

               (i)    the Trustee undertakes to perform such duties and only
     such duties as are specifically set forth in this Agreement with respect to
     the Trustee and no implied covenants or obligations shall be read into this
     Agreement against the Trustee; and

               (ii)   in the absence of bad faith on its part, the Trustee may
     conclusively rely, as to the truth of the statements and the correctness of
     the opinions expressed therein, upon certificates or opinions furnished to
     the Trustee and conforming to the requirements of this Agreement; provided,
     however, that the Trustee shall examine the certificates and opinions
     delivered to it to determine whether or not they conform to the
     requirements of this Agreement.

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<PAGE>

          (b)  The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:

               (i)    this paragraph does not limit the effect of paragraph (b)
     of this Section 8.01;

               (ii)   the Trustee shall not be liable for any error of judgment
     made in good faith by its Responsible Officer unless it is proved that the
     Trustee was negligent in ascertaining the pertinent facts; and

               (iii)  the Trustee shall not be liable with respect to any action
     it takes or omits to take in good faith in accordance with a direction
     received by it from the Majority Certificateholders.

          The Trustee shall not be liable for interest on any money received by
the Trustee.

          Money held in trust by the Trustee need not be segregated from other
trust funds except to the extent required by law or the terms of this Agreement.

          No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or in the exercise of any of its rights or powers,
if it shall have reasonable grounds to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.

          Subject to the other provisions of this Agreement and without limiting
the generality of this Section 8.01, the Trustee shall have no duty (A) to see
to any recording, filing or depositing of this Agreement or any agreement
referred to herein or any financing statement or continuation statement
evidencing a security interest, or to see to the maintenance of any such
recording or filing or depositing or to any rerecording, refiling or
redepositing of any thereof, (B) to see to any insurance, (C) to see to the
payment or discharge of any tax, assessment, or other governmental charge or any
lien or encumbrance of any kind owing with respect to, assessed or levied
against, any part of the Trust Fund other than from funds available in the
Distribution Account, or (D) to confirm or verify the contents of any reports or
certificates of the Servicer delivered to the Trustee believed by the Trustee to
be genuine and to have been signed or presented by the proper party or parties.

          (c)  The Trustee shall act as successor to the Servicer to the extent
provided in Section 7.02 hereof.

          (d)  For all purposes under this Agreement, the Trustee shall not be
deemed to have notice or knowledge of any Servicing Default unless a Responsible
Officer assigned to and working in the Trustee's corporate trust department has
actual knowledge thereof or unless written notice of any event which is in fact
such Servicing Default is received by the Trustee at the Corporate Trust Office,
and such notice references the Certificates generally, the Trust, or this
Agreement.

                                       77

<PAGE>

          The Trustee is hereby authorized to execute and shall execute this
Agreement, the Purchase Agreement, and the Converted Loan Purchase Agreement,
and shall perform their respective duties and satisfy their respective
obligations thereunder. Every provision of this Agreement relating to the
conduct or affecting the liability of or affording protection to the Trustee
shall apply to the Trustee's execution of this Agreement, the Purchase
Agreement, and the Converted Loan Purchase Agreement, and the performance of
their respective duties and satisfaction of its obligations hereunder and
thereunder.

          Section 8.02  Rights of Trustee.
                        ------------------

          The Trustee may rely and shall be protected in acting or refraining
from acting on any resolution, officer's certificate, opinion of counsel,
certificate of auditors or other certificate, statement, instrument, or document
believed by it to be genuine and to have been signed or presented by the proper
person. The Trustee need not investigate any fact or matter stated in the
document.

          Before the Trustee acts or refrains from acting, it may require an
Officer's Certificate or an Opinion of Counsel reasonably satisfactory in form
and substance to the Trustee which Officer's Certificate or Opinion of Counsel
shall not be at the expense of the Trustee or the Trust Fund. The Trustee shall
not be liable for any action either of them takes or omits to take in good faith
in reliance on an Officer's Certificate or Opinion of Counsel.

          The Trustee may execute any of its trusts or powers hereunder and the
Trustee may perform any of its respective duties hereunder either directly or by
or through agents or attorneys or a custodian or nominee and the Trustee shall
have no liability for any misconduct or negligence on the part of such agent,
attorney or custodian appointed by the Trustee with due care.

          The Trustee shall not be liable for any action either of them takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute willful misconduct, negligence or bad faith.

          The Trustee may consult with counsel chosen by it with due care, and
the advice or opinion of counsel with respect to legal matters relating to this
Agreement and the Certificates shall be full and complete authorization and
protection from liability in respect to any action taken, omitted or suffered by
either of them hereunder in good faith and in accordance with the advice or
opinion of such counsel.

          The Trustee shall be under no obligation to exercise any of the trusts
or powers vested in it by this Agreement or to institute, conduct or defend any
litigation hereunder or in relation hereto at the request, order or direction of
any of the Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred therein or thereby (which in the case of the Majority
Certificateholders will be deemed to be satisfied by a letter agreement with
respect to such costs from such Majority Certificateholders); nothing contained
herein shall, however, relieve the Trustee of the obligation, upon the
occurrence of a Servicing Default of which a Responsible Officer of the

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<PAGE>

Trustee shall have actual knowledge (which has not been cured), to exercise such
of the rights and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise, as a prudent person would exercise
or use under the circumstances in the conduct of such person's own affairs.

          The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond or other paper
or document, unless requested in writing to do by the Majority
Certificateholders; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be incurred
by it in the making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the terms of
this Agreement, the Trustee may require reasonable indemnity against such cost,
expense or liability as a condition to taking any such action. The reasonable
expense of every such examination shall be paid by the Servicer or, if paid by
the Trustee, shall be repaid by the Servicer upon demand from the Servicer's own
funds.

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

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

          Section 8.03  Individual Rights of Trustee.
                        -----------------------------

          The Trustee in its individual or any other capacity may become the
owner or pledgee of Certificates and may otherwise deal with the Seller or its
Affiliates with the same rights it would have if it were not Trustee. Any
Certificates Registrar, co-registrar or co-paying agent may do the same with
like rights. However, the Trustee must comply with Section 8.11 hereof.

          Section 8.04  Trustee's Disclaimer.
                        ---------------------

          The Trustee shall not be responsible for and makes no representation
as to the validity or adequacy of this Agreement or the Certificates, or of any
Mortgage Loan or related document, or of MERS or the MERS System. The Trustee
shall not be accountable for the use of the proceeds from the Certificates, and
the Trustee shall not be responsible for any statement of the Trust in this
Agreement or in any document issued in connection with the sale of the
Certificates or in the Certificates other than the Trustee's or the Certificate
Registrar's certificate of authentication.

          Section 8.05  Notice of Servicing Default.
                        ----------------------------

          The Trustee shall mail to each Certificateholder notice of the
Servicing Default within 10 days after a Responsible Officer has actual
knowledge thereof unless such Servicing Default shall have been waived or cured.
Except in the case of a Servicing Default in payment of principal of or interest
on any Certificate, the Trustee may withhold the notice if and so long as it in
good faith determines that withholding the notice is in the interests of
Certificateholders.

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<PAGE>

          Section 8.06  [Reserved].
                        -----------

          Section 8.07  Compensation and Indemnity.
                        ---------------------------

          The amount of the Trustee Fee and Custodian Fee shall be paid to the
Trustee and Custodian, respectively, on each Distribution Date pursuant to
Section 4.01(a)(i) of this Agreement, and all amounts owing to the Trustee
hereunder in excess of such amount shall be paid solely as provided in this
Agreement. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust.

          Section 8.08  Replacement of Trustee.
                        -----------------------

          No resignation or removal of the Trustee and no appointment of a
successor Trustee shall become effective until the acceptance of appointment by
the successor Trustee pursuant to this Section 8.08. The Trustee may resign at
any time by so notifying the Company. The Majority Certificateholders may at any
time remove the Trustee by so notifying the Company and the Trustee and the
Company and may appoint a successor Trustee. The Company shall remove the
Trustee if:

          (a)  the Trustee fails to comply with Section 8.11 hereof;

          (b)  the Trustee is adjudged a bankrupt or insolvent;

          (c)  a receiver or other public officer takes charge of the Trustee or
its respective property; or

          (d)  the Trustee otherwise becomes incapable of acting.

          If the Trustee resigns or is removed or if a vacancy exists in the
office of the Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.

          A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee, the Company, the Trustee and the Servicer.
Thereupon, the resignation or removal of the retiring Trustee shall become
effective, and the successor Trustee shall have all the rights, powers and
duties of the Trustee or under this Agreement. The successor Trustee shall mail
a notice of its succession to the Certificateholders. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the successor Trustee.

          If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, the
Trustee or the Majority Certificateholders may petition any court of competent
jurisdiction for the appointment of a successor Trustee.

          Section 8.09  Successor Trustee by Merger.
                        ----------------------------

          If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business or assets to,
another corporation or banking

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<PAGE>

association, the resulting, surviving or transferee corporation, without any
further act, shall be the successor Trustee; provided, that such corporation or
banking association shall be otherwise qualified and eligible under Section 8.11
hereof.

          If at the time such successor or successors by merger, conversion or
consolidation to the Trustee, shall succeed to the trusts created by this
Agreement and any of the Certificates shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee and deliver such Certificates so
authenticated; and if at that time any of the Certificates shall not have been
authenticated, any successor to the Trustee may authenticate such Certificates
either in the name of any predecessor hereunder or in the name of the successor
to the Trustee; and in all such cases such certificates shall have the full
force as the Certificates or this Agreement provide that such certificates of
the Trustee shall have.

          Section 8.10  Appointment of Co-Trustee or Separate Trustee.
                        ----------------------------------------------

          Notwithstanding any other provisions of this Agreement, at any time,
for the purpose of meeting any legal requirement of any jurisdiction in which
any part of the Trust Fund may at the time be located, the Trustee shall have
the power and may execute and deliver all instruments to appoint one or more
Persons to act as a co-trustee or co-trustees, or separate trustee or separate
trustees, of all or any part of the Trust Fund, and to vest in such Person or
Persons, in such capacity and for the benefit of the Certificateholders, such
title to the Trust Fund, or any part hereof, and, subject to the other
provisions of this Section, such powers, duties, obligations, rights and trusts
as the Trustee may consider necessary or desirable. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 8.11 hereof and notice to, and no consent of the
Certificateholders of the appointment of any co-trustee or separate trustee
shall be required.

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

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

          (b)  no trustee hereunder shall be personally liable by reason of any
act or omission of any other trustee hereunder; and

          (c)  the Trustee may at any time accept the resignation of or remove
any separate trustee or co-trustee.

                                       81

<PAGE>

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

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

          Section 8.11  Eligibility; Disqualification.
                        ------------------------------

          The Trustee shall be a corporation or association organized and doing
business under the laws of a state of the United States. The Trustee is subject
to supervision or examination by federal or state authority. The Trustee shall
at all times be reasonably acceptable to the Company and authorized to exercise
corporate trust powers. The Trustee shall have a combined capital and surplus of
at least $50,000,000 as set forth in its most recent published annual report of
condition and it or its parent shall have a long-term debt rating of Baa3 or
better by Moody's and BBB or better by Standard & Poor's.

          Section 8.12  [Reserved].
                        -----------

          Section 8.13  Representations and Warranties.
                        -------------------------------

          (a)  The Trustee hereby represents that:

               (i)    The Trustee is duly organized and validly existing as a
     New York banking corporation in good standing under the laws of the State
     of New York with power and authority to own its properties and to conduct
     its business as such properties are currently owned and such business is
     presently conducted;

               (ii)   The Trustee has the power and authority to execute and
     deliver this Agreement and to carry out its terms; and the execution,
     delivery and performance of this Agreement have been duly authorized by the
     Trustee by all necessary corporate action;

               (iii)  The consummation of the transactions contemplated by this
     Agreement and the fulfillment of the terms hereof do not conflict with,
     result in any breach of any of the terms and provisions of, or constitute
     (with or without notice or lapse of time) a default under, the articles of
     organization or bylaws of the Trustee or any agreement or other instrument
     to which the Trustee is a party or by which it is bound; and

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<PAGE>

               (iv)   To the Trustee's best knowledge, there are no proceedings
     or investigations pending or threatened before any court, regulatory body,
     administrative agency or other governmental instrumentality having
     jurisdiction over the Trustee or its properties: (A) asserting the
     invalidity of this Agreement, (B) seeking to prevent the consummation of
     any of the transactions contemplated by this Agreement or (C) seeking any
     determination or ruling that might materially and adversely affect the
     performance by the Trustee of its obligations under, or the validity or
     enforceability of, this Agreement.

          Section 8.14  Directions to Trustee.
                        ----------------------

          The Trustee is hereby directed:

          (a)  to accept the Mortgage Loans and hold the assets of the Trust
Fund in trust for the Certificateholders;

          (b)  to authenticate and deliver the Certificates of each Class
substantially in the forms prescribed by Exhibits A-1, A-2, A-3, A-4, A-5, A-7,
A-8, A-9, A-10, A-11, A-12, A-13, A-14, A-15 and A-16 in accordance with the
terms of this Agreement; and

          (c)  to take all other actions as shall be required to be taken by the
terms of this Agreement.

          Section 8.15  The Agents.
                        -----------

          The provisions of this Agreement relating to the limitations of the
Trustee's liability and to its indemnity shall inure also to the Paying Agent,
and the Certificate Registrar.

          Section 8.16  Reports by the Trustee; Trust Fiscal Year.
                        ------------------------------------------

          The Trustee, on behalf of the Trust, shall:

          (a)  file with the Commission, on behalf of the Trust, the annual
reports and information, documents and other reports (or copies of such portions
of any of the foregoing as the Commission may from time to time by rules and
regulations prescribe) that the Trust may be required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act. Such filings
shall be as follows: within 15 days after each Distribution Date, the Trustee,
on behalf of the Trust, shall file with the Commission via the Electronic Data
Gathering, Analysis and Retrieval System, a Form 8-K with a copy of the
statement to Certificateholders for such Distribution Date as an exhibit
thereto. Prior to January 31, 2004, the Trustee, shall file a Form 15 Suspension
Notification with respect to the Trust Fund, if applicable. Prior to March 31,
2004, the Trustee, on behalf of the Trust, shall file a Form 10-K, in substance
conforming to industry standards, with respect to the Trust Fund. The Company
will prepare and execute any certifications to be filed with the Form 10-K as
required under the Sarbanes-Oxley Act of 2002. The Trust hereby grants to the
Trustee, a limited power of attorney to execute and file each such document on
behalf of the Trust. Such power of attorney shall continue until the termination
of the Trust Fund. The Trustee, on behalf of the Trust, shall deliver to the
Seller within three Business Days after filing any Form 8-K or Form 10-K
pursuant to this Section 8.16 a copy of such Form 8-K or Form 10-K, as the case
may be; and

                                       83

<PAGE>

          (b)  file with the Commission (with copies to the Seller and the
Company) in accordance with rules and regulations prescribed from time to time
by the Commission such additional information, documents and reports with
respect to compliance by the Trust with the conditions and covenants of this
Agreement as may be required from time to time by such rules and regulations.

          The fiscal year of the Trust shall end on December 31 of each year.

          Section 8.17  Execution of the Novation and Swap Agreements.
                        ----------------------------------------------

          The Company hereby directs the Trustee to enter into and execute the
Novation Agreement and the Swap Agreement on the Closing Date on behalf of the
Trust. The Seller, the Company, the Servicer and the Certificateholders (by
their acceptance of such Certificates) acknowledge that JPMorgan Chase Bank is
entering into the Novation Agreement and the Swap Agreement solely in its
capacity as Trustee of the Trust Fund and not in its individual capacity.

                                   ARTICLE IX

                                   [Reserved]

                                    ARTICLE X

                              REMIC ADMINISTRATION

          Section 10.01 REMIC Administration.
                        ---------------------

          (a)  [Reserved].

          (b)  The Closing Date is hereby designated as the "Startup Day" of
each REMIC within the meaning of section 860G(a)(9) of the Code.

          (c)  The Servicer shall pay any and all tax related expenses (not
including taxes) of each REMIC, including but not limited to any professional
fees or expenses related to audits or any administrative or judicial proceedings
with respect to each REMIC that involve the Internal Revenue Service or state
tax authorities, but only to the extent that (i) such expenses are ordinary or
routine expenses, including expenses of a routine audit but not expenses of
litigation (except as described in (ii)); or (ii) such expenses or liabilities
(including taxes and penalties) are attributable to the negligence or willful
misconduct of the Servicer in fulfilling its duties hereunder. The Servicer
shall be entitled to reimbursement of expenses to the extent provided in clause
(i) above from the Collection Account.

          (d)  The Trustee shall (a) maintain (or cause to be maintained) the
books of the Trust on a calendar year basis using the accrual method of
accounting, (b) deliver (or cause to be delivered) to each Certificateholder as
may be required by the Code and applicable Treasury Regulations, including the
REMIC Provisions, such information as may be required to enable each
Certificateholder to prepare its federal and state income tax returns, (c)
prepare and file or cause to be prepared and filed such Tax Returns relating to
the Trust as may be required by the Code and applicable Treasury Regulations
(including timely making elections to treat specified

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<PAGE>

assets of the Trust as one or more REMICs for federal income tax purposes and
any other such elections as may from time to time be required or appropriate
under any applicable state or federal statutes, rules or regulations), (d)
collect or cause to be collected any required withholding tax with respect to
income or distributions to Certificateholders and prepare or cause to be
prepared the appropriate forms relating thereto and (e) maintain records as
required by the REMIC Provisions.

          (e)  The Holder of the Residual Certificate at any time holding the
largest Percentage Interest thereof shall be the "tax matters person" as defined
in the REMIC Provisions (the "Tax Matters Person") with respect to each REMIC
and shall act as Tax Matters Person for each REMIC. The Trustee, as agent for
the Tax Matters Person, shall perform on behalf of each REMIC all reporting and
other tax compliance duties that are the responsibility of such REMIC under the
Code, the REMIC Provisions, or other compliance guidance issued by the Internal
Revenue Service or any state or local taxing authority. Among its other duties,
if required by the Code, the REMIC Provisions, or other such guidance, the
Trustee, as agent for the Tax Matters Person, shall provide (i) to the Treasury
or other governmental authority such information as is necessary for the
application of any tax relating to the transfer of a Residual Certificate to any
Disqualified Organization or non-U.S. Person and (ii) to the Certificateholders
such information or reports as are required by the Code or REMIC Provisions.

          (f)  The Trustee, the Servicer and the Holders of Certificates shall
take any action or cause the REMIC to take any action necessary to create or
maintain the status of each REMIC as a REMIC under the REMIC Provisions and
shall assist each other as necessary to create or maintain such status. Neither
the Trustee, the Servicer nor the Holder of any Residual Certificate shall take
any action, cause any REMIC created hereunder to take any action or fail to take
(or fail to cause to be taken) any action that, under the REMIC Provisions, if
taken or not taken, as the case may be, could (i) endanger the status of such
REMIC as a REMIC or (ii) result in the imposition of a tax upon such REMIC
(including but not limited to the tax on prohibited transactions as defined in
Code Section 860F(a)(2) and the tax on prohibited contributions set forth on
Section 860G(d) of the Code) (either such event, an "Adverse REMIC Event")
unless the Trustee and the Servicer have received an Opinion of Counsel (at the
expense of the party seeking to take such action) to the effect that the
contemplated action will not endanger such status or result in the imposition of
such a tax. In addition, prior to taking any action with respect to any REMIC
created hereunder or the assets therein, or causing such REMIC to take any
action, which is not expressly permitted under the terms of this Agreement, any
Holder of a Residual Certificate will consult with the Trustee and the Servicer,
or their respective designees, in writing, with respect to whether such action
could cause an Adverse REMIC Event to occur with respect to any REMIC, and no
such Person shall take any such action or cause any REMIC to take any such
action as to which the Trustee or the Servicer has advised it in writing that an
Adverse REMIC Event could occur.

          (g)  Each Holder of a Residual Certificate shall pay when due any and
all taxes imposed on each REMIC created hereunder by federal or state
governmental authorities. To the extent that such Trust taxes are not paid by a
Residual Certificateholder, the Trustee shall pay any remaining REMIC taxes out
of current or future amounts otherwise distributable to the Holder of the
Residual Certificate in the REMICs or, if no such amounts are available, out of

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<PAGE>

other amounts held in the Distribution Account, and shall reduce amounts
otherwise payable to Holders of regular interests in the related REMIC.

          (h)  The Trustee, as agent for the Tax Matters Person, shall, for
federal income tax purposes, maintain books and records with respect to each
REMIC created hereunder on a calendar year and on an accrual basis.

          (i)  After the Pre-Funding Period, no additional contributions of
assets shall be made to any REMIC created hereunder, except as expressly
provided in this Agreement with respect to Qualified Replacement Mortgages.

          (j)  Neither of the Trustee nor the Servicer shall enter into any
arrangement by which any REMIC created hereunder will receive a fee or other
compensation for services.

          (k)  The Trustee will apply for an Employee Identification Number from
the Internal Revenue Service via a Form SS-4 or other acceptable method for
REMIC I, REMIC II, REMIC III and REMIC IV and the Master REMIC.

          (l)  The Trustee shall treat each Supplemental Interest Trust as an
outside reserve fund within the meaning of Treasury Regulation Section
1.860G-2(h) that is owned by the holders of the Class X, Class O and Class R
Certificates and that is not an asset of any REMIC. The Trustee shall treat the
rights of the holders of the Underwritten Certificates to receive any interest
payments in excess of the REMIC Pass-Through Rate on the Master REMIC Regular
Interest corresponding to such Class of Certificates as rights in an interest
rate cap contract written by the Class X Certificateholders in favor of the
holders of the Underwritten Certificates. Thus, each Underwritten Certificate
shall be treated as representing not only ownership of a regular interest in the
Master REMIC, but also ownership of an interest in an interest rate cap
contract. Notwithstanding the priority and sources of payments set forth in
Article IV hereof or otherwise, the Trustee shall account for all distributions
on the Certificates as set forth in this section. In no event shall any payments
provided for in this section be treated as payments with respect to a "regular
interest" in a REMIC within the meaning of Code Section 860G(a)(1).

          Section 10.02 Prohibited Transactions and Activities.
                        ---------------------------------------

          None of the Company, the Servicer nor the Trustee shall sell, dispose
of, or substitute for any of the Mortgage Loans, if such disposition,
acquisition, substitution, or acceptance would (a) affect adversely the status
of any REMIC created hereunder as a REMIC or (b) cause any REMIC created
hereunder to be subject to a tax on prohibited transactions or prohibited
contributions pursuant to the REMIC Provisions.

                                       86

<PAGE>

                                   ARTICLE XI

                                   TERMINATION

          Section 11.01 Termination.
                        ------------

          (a)  The respective obligations and responsibilities of the Seller,
the Servicer, the Company and the Trustee created hereby (other than the
obligation of the Trustee to make certain payments to Certificateholders after
the final Distribution Date and the obligation of the Servicer to send certain
notices as hereinafter set forth and the obligation of the Servicer to indemnify
the Trustee in accordance with Section 6.06) shall terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below and (iv) the Distribution Date in February 2034. Notwithstanding the
foregoing, in no event shall the trust created hereby continue beyond the
expiration of 21 years from the death of the last survivor of the descendants of
Joseph P. Kennedy, the late ambassador of the United States to the Court of St.
James, living on the date hereof.

          The Servicer may, at its option, terminate this Agreement on any date
on which the aggregate of the Principal Balances of the Mortgage Loans on such
date is equal to or less than 10% of the Maximum Collateral Amount, by
purchasing, on the next succeeding Distribution Date, all of the outstanding
Mortgage Loans and REO Properties at a price equal to the greater of the
Principal Balance of the Mortgage Loans and REO Properties or the market value
of the Mortgage Loans and REO Properties, in each case plus accrued and unpaid
interest thereon at the weighted average of the Mortgage Rates through the end
of the Due Period preceding the final Distribution Date plus unreimbursed
Servicing Advances, Advances, any unpaid Servicing Fees allocable to such
Mortgage Loans and REO Properties, any accrued and unpaid Available Funds Cap
Shortfall Amount and Available Funds Cap Carryforward Amount and any unpaid
amount due the Trustee and the Custodian under this Agreement; provided,
however, that in no event shall such price be less than the amount necessary to
pay the sum of (i) 100% of the aggregate Certificate Principal Balance of each
Class of Certificates, (ii) accrued and unpaid interest thereon at the related
Pass-Through Rate through the date on which the trust is terminated and (iii)
any unpaid Administrative Fees (the "Termination Price"); provided, however,
that such option may only be exercised if the Termination Price is sufficient to
pay all interest accrued on, as well as amounts necessary to retire the
principal balance of, each class of net interest margin notes issued pursuant to
the Indenture at the time the option is exercised.

          In connection with any such purchase pursuant to the preceding
paragraph, the Servicer shall deposit in the Distribution Account all amounts
then on deposit in the Collection Account, which deposit shall be deemed to have
occurred immediately preceding such purchase.

          Any such purchase shall be accomplished by deposit into the
Distribution Account on the Distribution Date of the Termination Price.

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<PAGE>

          (b)  In the event that the Certificate Principal Balances of all of
the Class A, Mezzanine and Class B Certificates have not been reduced to zero by
the Distribution Date in February 2034, the Trustee, shall (i) sign a plan of
complete liquidation of each REMIC created hereunder meeting the requirements of
a "Qualified Liquidation" under Section 860F of the Code and any regulations
thereunder, (ii) sell all of the assets of the Trust Fund for cash in a
commercially reasonable manner to maximize the value thereof, pursuant to the
terms of the plan of complete liquidation, (iii) distribute the proceeds of the
sale to the Certificateholders in accordance with Section 4.01 hereof, and (iv)
terminate the Trust. By their acceptance of Certificates, the Holders thereof
hereby agree to appoint the Trustee as their attorney in fact to: (i) adopt such
a plan of complete liquidation (and the Certificateholders hereby appoint the
Trustee as their attorney in fact to sign such a plan) as appropriate and (ii)
to take such other action in connection therewith as may be reasonably required
to carry out such plan of complete liquidation in accordance with the terms
thereof.

          (c)  Notice of any termination, specifying the Distribution Date
(which shall be a date that would otherwise be a Distribution Date) upon which
the Certificateholders may surrender their Certificates to the Trustee for
payment of the final distribution and cancellation, shall be given promptly by
the Trustee upon the Trustee receiving notice of such date from the Servicer, by
letter to the Certificateholders mailed not earlier than the 15th day and not
later than the 25th day of the month next preceding the month of such final
distribution specifying (1) the Distribution Date upon which final distribution
of the Certificates will be made upon presentation and surrender of such
Certificates at the office or agency of the Trustee therein designated, (2) the
amount of any such final distribution and (3) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office or agency
of the Trustee therein specified.

          (d)  Upon presentation and surrender of the Certificates, the Trustee
shall cause to be distributed to the Holders of the Certificates on the
Distribution Date for such final distribution, in proportion to the Percentage
Interests of their respective Class and to the extent that funds are available
for such purpose, an amount equal to the amount required to be distributed to
such Holders in accordance with the provisions of Section 4.01 for such
Distribution Date.

          (e)  In the event that all Certificateholders shall not surrender
their Certificates for final payment and cancellation on or before such final
Distribution Date, the Trustee shall promptly following such date cause all
funds in the Distribution Account not distributed in final distribution to
Certificateholders to be withdrawn therefrom and credited to the remaining
Certificateholders by depositing such funds in a separate Servicing Account for
the benefit of such Certificateholders, and the Servicer (if the Servicer has
exercised its right to purchase the Mortgage Loans) or the Trustee (in any other
case) shall give a second written notice to the remaining Certificateholders, to
surrender their Certificates for cancellation and receive the final distribution
with respect thereto. If within nine months after the second notice all the
Certificates shall not have been surrendered for cancellation, the Residual
Certificateholder shall be entitled to all unclaimed funds and other assets
which remain subject hereto, and the Trustee upon transfer of such funds shall
be discharged of any responsibility for such funds, and the Certificateholders
shall look to the Residual Certificateholder for payment.

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<PAGE>

          Section 11.02 Additional Termination Requirements.
                        ------------------------------------

          (a)  In the event that the Servicer exercises its purchase option as
provided in Section 11.01 or the Trustee terminates the Trust, each REMIC shall
be terminated in accordance with the following additional requirements, unless
the Trustee shall have been furnished with an Opinion of Counsel to the effect
that the failure of the Trust to comply with the requirements of this Section
will not (i) result in the imposition of taxes on "prohibited transactions" of
the Trust as defined in Section 860F of the Code or (ii) cause any REMIC
constituting part of the Trust Fund to fail to qualify as a REMIC at any time
that any Certificates are outstanding:

               (i)    Within 90 days prior to the final Distribution Date, the
     Servicer shall adopt and the Trustee shall sign a plan of complete
     liquidation of each REMIC created hereunder meeting the requirements of a
     "Qualified Liquidation" under Section 860F of the Code and any regulations
     thereunder; and

               (ii)   At or after the time of adoption of such a plan of
     complete liquidation and at or prior to the final Distribution Date, the
     Trustee shall sell all of the assets of the Trust Fund to the Servicer for
     cash pursuant to the terms of the plan of complete liquidation.

          (b)  By their acceptance of Certificates, the Holders thereof hereby
agree to appoint the Trustee as their attorney in fact to: (i) adopt such a plan
of complete liquidation (and the Certificateholders hereby appoint the Trustee
as their attorney in fact to sign such plan) as appropriate and (ii) to take
such other action in connection therewith as may be reasonably required to carry
out such plan of complete liquidation all in accordance with the terms hereof.

                                   ARTICLE XII

                            MISCELLANEOUS PROVISIONS

          Section 12.01 Amendment.
                        ----------

          This Agreement may be amended from time to time by the parties hereto,
and without the consent of the Certificateholders or the Swap Counterparties (i)
to cure any ambiguity, (ii) to correct or supplement any provisions herein which
may be defective or inconsistent with any other provisions herein or (iii) to
make any other provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with the provisions of this
Agreement; provided, however, that any such action listed in clause (i) through
(iii) above shall be deemed not to adversely affect in any respect the interests
of (A) any Certificateholder, if evidenced by (i) written notice to the Company,
the Servicer and the Trustee from the Rating Agencies that such action will not
result in the reduction or withdrawal of the rating of any outstanding Class of
Certificates with respect to which it is a Rating Agency or (ii) an Opinion of
Counsel delivered to the Servicer, the Company and the Trustee and (B) any Swap
Counterparty, if evidenced by an Opinion of Counsel delivered to the Servicer,
the Company, the Trustee and each Swap Counterparty. This Agreement may be
amended by the parties hereto without the consent of the Swap Counterparties
after the Class I Termination Date.

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<PAGE>

          In addition, this Agreement may be amended from time to time by the
parties hereto with the consent of the Majority Certificateholders for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment or waiver
shall (w) reduce in any manner the amount of, or delay the timing of, payments
on the Certificates or distributions which are required to be made on any
Certificate without the consent of the Holder of such Certificate, (x) adversely
affect in any material respect the interests of the Holders of any Class of
Certificates in a manner other than as described in clause (w) above, without
the consent of the Holders of Certificates of such Class evidencing at least a
66% Percentage Interest in such Class, (y) reduce the percentage of Voting
Rights required by clause (x) above without the consent of the Holders of all
Certificates of such Class then outstanding or (z) have a material adverse
effect on the interests of the Swap Counterparties without such Swap
Counterparties' consent. Upon approval of an amendment, a copy of such amendment
shall be sent to the Rating Agencies.

          Notwithstanding any provision of this Agreement to the contrary, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, delivered by (and at the expense of)
the Person seeking such Amendment, to the effect that such amendment will not
result in the imposition of a tax on any REMIC created hereunder constituting
part of the Trust Fund pursuant to the REMIC Provisions or cause any REMIC
created hereunder constituting part of the Trust to fail to qualify as a REMIC
at any time that any Certificates are outstanding and that the amendment is
being made in accordance with the terms hereof. Additionally, prior to entering
into any amendment, the Trustee shall be entitled to receive from the party
requesting such amendment an opinion of counsel stating that such amendment is
authorized any permitted pursuant to the terms of this Agreement.

          Promptly after the execution of any such amendment the Trustee shall
furnish, at the expense of the Person that requested the amendment if such
Person is Seller or the Servicer (but in no event at the expense of the
Trustee), otherwise at the expense of the Trust, a copy of such amendment and
the Opinion of Counsel referred to in the immediately preceding paragraph to the
Servicer and each Rating Agency.

          It shall not be necessary for the consent of Certificateholders under
this Section 12.01 to approve the particular form of any proposed amendment;
instead it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.

          The Trustee shall not be obligated to enter into any amendment
pursuant to this Section 12.01 that affects its rights, duties and immunities
under this Agreement or otherwise.

          Section 12.02 Recordation of Agreement; Counterparts.
                        ---------------------------------------

          To the extent permitted by applicable law, this Agreement is subject
to recordation in all appropriate public offices for real property records in
all the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be

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<PAGE>

effected by the Servicer at the expense of the Trust, but only upon direction of
Certificateholders accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.

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

          Section 12.03 Limitation on Rights of Certificateholders.
                        -------------------------------------------

          The death or incapacity of any Certificateholder shall not (i) operate
to terminate this Agreement or the Trust, (ii) entitle such Certificateholder's
legal representatives or heirs to claim an accounting or to take any action or
proceeding in any court for a partition or winding up of the Trust, or (iii)
otherwise affect the rights, obligations and liabilities of the parties hereto
or any of them.

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

          No Certificateholder shall have any right by virtue of any provision
of this Agreement to institute any suit, action or proceeding in equity or at
law upon or under or with respect to this Agreement, unless such Holder
previously shall have given to the Trustee a written notice of default and of
the continuance thereof, as hereinbefore provided, and unless also the Holders
of Certificates entitled to at least 25% of the Voting Rights shall have made
written request upon the Trustee to institute such action, suit or proceeding in
its own name as Trustee hereunder and shall have offered to the Trustee such
reasonable indemnity as it may require against the costs, expenses and
liabilities to be incurred therein or thereby, and the Trustee for 15 days after
its receipt of such notice, request and offer of indemnity, shall have neglected
or refused to institute any such action, suit or proceeding. It is understood
and intended, and expressly covenanted by each Certificateholder with every
other Certificateholder and the Trustee, that no one or more Holders of
Certificates shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of the
Holders of any other of such Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, which priority or
preference is not otherwise provided for herein, or to enforce any right under
this Agreement, except in the manner herein provided and for the equal, ratable
and common benefit of all Certificateholders. For the protection and enforcement
of the provisions of this Section 12.03 each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

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<PAGE>

          Section 12.04 Governing Law; Jurisdiction.
                        ----------------------------

          This 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. With respect to any
claim arising out of this Agreement, each party irrevocably submits to the
exclusive jurisdiction of the courts of the State of New York and the United
States District Court located in the Borough of Manhattan in The City of New
York, and each party irrevocably waives any objection which it may have at any
time to the laying of venue of any suit, action or proceeding arising out of or
relating hereto brought in any such courts, irrevocably waives any claim that
any such suit, action or proceeding brought in any such court has been brought
in any inconvenient forum and further irrevocably waives the right to object,
with respect to such claim, suit, action or proceeding brought in any such
court, that such court does not have jurisdiction over such party, provided that
service of process has been made by any lawful means.

          Section 12.05 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, or sent by reputable overnight
courier service to:

          (a)  in the case of the Company:

                      NovaStar Mortgage Funding Corporation
                      8140 Ward Parkway
                      Suite 300
                      Kansas City, Missouri 64114
                      Attention:  Matt Kaltenrieder

          (b)  in the case of the Servicer or the Seller:

                      NovaStar Mortgage, Inc.
                      8140 Ward Parkway
                      Suite 300
                      Kansas City, Missouri 64114
                      Attention:  Matt Kaltenrieder

          (c)  in the case of Rating Agencies:

                      Moody's Investors Service Inc.
                      99 Church Street
                      New York, New York  10007
                      Attention: Karin Kelner

                      Standard & Poor's
                      26 Broadway
                      New York, New York  10004-1064
                      Attention:  Scott Mason

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<PAGE>

          (d)  in the case of the Custodian:

                      Wachovia Bank, National Association
                      4527 Metropolitan Court
                      Suite C
                      Frederick, MD  21704
                      Attn: Edwin Aquino
                      Tel: (301) 874-4531
                      Fax: (301) 874-6055
                      Attention:  Structured Finance Trust Services
                      (NovaStar Mortgage Funding Trust, Series 2003-4)

          (e)  in the case of the Trustee:

                      JPMorgan Chase Bank
                      4 New York Plaza, 6/th/ Floor
                      New York, NY 10004-2477
                      Attention:  Institutional Trust Services
                      (NovaStar Mortgage Funding Trust, Series 2003-4)

          (f)  in the case of Greenwich Capital Derivatives, Inc., as Swap
               Counterparty:

                      Greenwich Capital Derivatives, Inc.
                      600 Steamboat Road
                      Greenwich, CT 08830
                      Attention:  Legal Dept./Credit Dept.
                      Tel: (203) 618-2531/32
                      Fax: (203) 618-2533

          (g)  in the case of Wachovia Bank, N.A., as Swap Counterparty:

                      Wachovia Bank, N.A.
                      201 South College Street, 6th Floor
                      Charlotte, NC 28288-0601
                      Attention:  Collateral Management Group
                      Tel: (704) 715-7663
                      Fax: (704) 383-3394

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 Certificateholder shall be given by first class mail,
     postage prepaid, at the address of such Certificateholder as shown in the
     Certificate Register. Any notice so mailed within the time prescribed in
     this Agreement shall be conclusively presumed to have been duly given,
     whether or not the Certificateholder receives such notice. Any notice or
     other document required to be delivered or mailed by the Trustee to any
     Rating Agency shall be given on a reasonable efforts basis and only as a
     matter of courtesy and accommodation and the Trustee shall have no
     liability for failure to deliver such notice or document to any Rating
     Agency.

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<PAGE>

          Section 12.06 Severability of Provisions.
                        ---------------------------

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

          Section 12.07 Article and Section References.
                        -------------------------------

          All article and section references used in this Agreement, unless
otherwise provided, are to articles and sections in this Agreement.

          Section 12.08 Further Assurances.
                        -------------------

          Notwithstanding any other provision of this Agreement, the Trustee
shall not have any obligation to consent to any amendment or modification of
this Agreement unless they have been provided reasonable security or indemnity
against their out-of-pocket expenses (including reasonable attorneys' fees) to
be incurred in connection therewith.

          Section 12.09 Benefits of Agreement.
                        ----------------------

          Nothing in this Agreement or in the Certificates, expressed or
implied, shall give to any Person, other than the Certificateholders, the Swap
Counterparties and the parties hereto and their successors hereunder, any
benefit or any legal or equitable right, remedy or claim under this Agreement.

          Section 12.10 Acts of Certificateholders.
                        ---------------------------

          (a)  Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
agent duly appointed in writing, and such action shall become effective when
such instrument or instruments are delivered to the Trustee, the Seller and the
Servicer. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "act" of the
Certificateholders signing such instrument or instruments. Proof of execution of
any such instrument or of a writing appointing any such agent shall be
sufficient for any purpose of this Agreement and conclusive in favor of the
Trustee and the Trust, if made in the manner provided in this Section 12.10.

          (b)  The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by the certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Whenever
such execution is by a signer acting in a capacity other than his or her
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority.

                                       94

<PAGE>

          (c)  Any request, demand, authorization, direction, notice, consent,
waiver or other action by any Certificateholder shall bind every future Holder
of such Certificate and the Holder of every Certificate issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof, in
respect of anything done, omitted or suffered to be done by the Trustee or the
Trust in reliance thereon, whether or not notation of such action is made upon
such Certificate.

          Section 12.11 Confidentiality.
                        ----------------

          The Trustee hereby agrees to hold and treat all Confidential
Information (as defined below) provided to it in connection with the offering of
the Certificates in confidence and in accordance with this Section 12.11, and
will implement and maintain safeguards in accordance with the "Interagency
Guidelines Establishing Standards for Safeguarding Customer Information" as
required by Appendix B to 12 CFR, Chapter I, Part 30, to further assure the
confidentiality of such Confidential Information. Such Confidential Information
will not, without the prior written consent of the Servicer, be disclosed or
used by the Trustee or by its subsidiaries or, affiliates, or its or their
directors, officers, employees, agents or controlling persons or agents or
advisors (collectively, the "Information Recipients") other than for the
purposes of (i) structuring the securitization transaction and the facilitating
the issuance of the Certificates, or (ii) in connection with the performance of
its required due diligence on the Mortgage Loans. Disclosure that is not in
violation of the Right to Financial Privacy Act of 1978, as amended, the
Gramm-Leach-Bliley Act of 1999, as amended, (the "G-L-B Act") or other
applicable law by the Trustee of any Confidential Information at the request of
its outside auditors or governmental regulatory authorities in connection with
an examination of the Trustee by any such authority or for the purposes
specified in above shall not constitute a breach of its obligations under this
Section 12.11, and shall not require the prior consent of the Servicer.

          As used herein, "Confidential Information" means non-public personal
information (as defined in the G-L-B Act and its enabling regulations issued by
the Federal Trade Commission) regarding obligors on the Mortgage Loans that is
identified as such by the Servicer. Confidential Information shall not include
information which (i) is or becomes generally available to the public other than
as a result of disclosure by the Trustee or any of its Information Recipients;
(ii) was available to the Trustee on a non-confidential basis from a person or
entity other than the Servicer; (iii) is requested to be disclosed by a
governmental authority or related governmental, administrative, or regulatory or
self-regulatory agencies having or claiming authority to regulate or oversee any
aspect of the Trustee's business or that of its affiliates or is otherwise
required by law or by legal or regulatory process to be disclosed; (iv) becomes
available to the Trustee on a non-confidential basis from a person or entity
other than the Servicer who, to the best knowledge of the Trustee, is not
otherwise bound by a confidentiality agreement with the Servicer, and is not
otherwise prohibited from transmitting the information to the Trustee; (v) the
Servicer provides written permission to the Trustee to release, (vi) is
independently developed by employees of the Trustee who did not have access to
any or all of the otherwise Confidential Information or (vii) is disclosed to
the Trustee's auditors or counsel or is required to be disclosed to its lenders
or rating agencies, to the extent required for the purpose of consummating the
services it is to provide as set forth herein.

                                       95

<PAGE>

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

                                        NOVASTAR MORTGAGE FUNDING CORPORATION,
                                        as Company

                                        By:  /s/ Matt Kaltenrieder
                                             -----------------------------------
                                             Name:  Matt Kaltenrieder
                                             Title: Vice President

                                        NOVASTAR MORTGAGE, INC.,
                                        as Servicer and as Seller

                                        By:  /s/ Matt Kaltenrieder
                                             -----------------------------------
                                             Name:  Matt Kaltenrieder
                                             Title: Vice President

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                        as Custodian

                                        By:  /s/ Edwin Aquino
                                             -----------------------------------
                                             Name:  Edwin Aquino
                                             Title: Vice President

                                        JPMORGAN CHASE BANK,
                                        as Trustee

                                        By:  /s/ Jennifer H. McCourt
                                             -----------------------------------
                                             Name:  Jennifer H. McCourt
                                             Title: Vice President

                [Pooling and Servicing Agreement Signature Page]

                                       96

<PAGE>

STATE OF MISSOURI   )
                    ) ss.:
COUNTY OF JACKSON   )

          On the 17th day of November, 2003 before me, a notary public in and
for said State, personally appeared Matt Kaltenrieder known to me (or proved to
me on the basis of satisfactory evidence) to be a Vice President of NovaStar
Mortgage Funding Corporation, a Delaware corporation that executed the within
instrument, and also known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                        /s/ Myra N. Kerr
                                        ----------------------------------------
Seal                                    Notary Public

                                       97

<PAGE>

STATE OF MISSOURI   )
                    ) ss.:
COUNTY OF JACKSON   )

          On the 17th day of November, 2003 before me, a notary public in and
for said State, personally appeared Matt Kaltenrieder known to me (or proved to
me on the basis of satisfactory evidence) to be a Vice President of NovaStar
Mortgage, Inc., a Virginia corporation that executed the within instrument, and
also known to me (or proved to me on the basis of satisfactory evidence) to be
the person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                        /s/ Myra N. Kerr
                                        ----------------------------------------
Seal                                    Notary Public

                                       98

<PAGE>

STATE OF MARYLAND   )
                    ) ss.:
COUNTY OF FREDERICK )

          On the 18th day of November, 2003 before me, a notary public in and
for said State, personally appeared Edwin Aquino known to me (or proved
to me on the basis of satisfactory evidence) to be a Vice President of
Wachovia Bank, National Association, a national banking association that
executed the within instrument, and also known to me (or proved to me on the
basis of satisfactory evidence) to be the person who executed it on behalf of
said corporation, and acknowledged to me that such corporation executed the
within instrument.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                        /s/ Tina Radtke
                                        ----------------------------------------
Seal                                    Notary Public

                                       99

<PAGE>

STATE OF NEW YORK   )
                    ) ss.:
COUNTY OF NEW YORK  )

          On the 20th day of November, 2003 before me, a notary public in and
for said State, personally appeared Jennifer McCourt, known to me (or proved to
me on the basis of satisfactory evidence) to be Vice President of JPMorgan Chase
Bank that executed the within instrument, and also known to me (or proved to me
on the basis of satisfactory evidence) to be the person who executed it on
behalf of said association, and acknowledged to me that such corporation
executed the within instrument.

          IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.

                                        /s/ Margaret M. Price
                                        ----------------------------------------
Seal                                    Notary Public

                                       100

<PAGE>

                                                                     Exhibit A-1

                          Form of Class A-1 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-1 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  A-1                   Date: November 20, 2003 CUSIP:  66987X DE 2

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$1,074,859,000              CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 0.370%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group I Mortgage Loan identified on the Mortgage
Loan Schedule attached as Exhibit B to that certain Pooling and Servicing
Agreement dated as of November 1, 2003 (the "Pooling and Servicing Agreement")
by and among NovaStar Mortgage Funding Corporation, as the company (the
"Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the custodian (the "Custodian"), and NovaStar Mortgage,
Inc. as servicer (the "Servicer") and as seller (the "Seller"), including the
related Cut-off Date Principal Balance, all interest accruing thereon on and
after the Cut-off Date and all collections in respect

<PAGE>

of interest and principal due after the Cut-off Date; (ii) property which
secured each such Mortgage Loan and which has been acquired by foreclosure or
deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of such Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust Fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-1 Certificates on November
20, 2003 which aggregate amount was $1,074,859,000. The owner hereof is entitled
to principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-1 Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to December 26, 2003 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class A-1 Certificates (the "Class A-1 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-2A Certificates, Class A-2B Certificates, Class A-2C
Certificates, Class A-3 Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such

                                      A-1-2

<PAGE>

Certificates are collectively referred to as the "Certificates". Terms
capitalized herein and not otherwise defined herein shall have the respective
meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class A-1 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available fluids to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-1 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-1 Certificates. The Percentage
Interest of each Class A-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-1 Certificate by $1,074,859,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                      A-1-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and the REMIC I, REMIC II, REMIC III
and REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III or REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class A-1 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                      A-1-4

<PAGE>

forth, Class A-1 Certificates are exchangeable for new Class A-1 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-1-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-1-6

<PAGE>

                                                                     Exhibit A-2

                         Form of Class A-2A Certificate
                         ------------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-2A CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                Mortgage Loans The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  A-2A                  Date: November 20, 2003 CUSIP: 66987X DF 9

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$52,000,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 0.220%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group II Mortgage Loan identified on the
Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of November 1, 2003 (the "Pooling and Servicing
Agreement") by and among NovaStar Mortgage Funding Corporation, as the company
(the "Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the Custodian (the "Custodian"), and NovaStar Mortgage,
Inc. as servicer (the "Servicer") and as seller (the "Seller"), including the
related Cut-off Date Principal Balance, all interest accruing thereon on and
after the Cut-off Date and all collections in respect of interest and principal
due after the Cut-off Date; (ii) property which secured each such

<PAGE>

Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) the Company's interest in any insurance policies in respect
of such Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all
interest and principal due to the Company or the Servicer after the Cut-off Date
with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-2A Certificates on November
20, 2003 which aggregate amount was $52,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-2A Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to December 26, 2003 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class A-2A Certificates (the "Class A-2A Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2B Certificates, Class A-2C
Certificates, Class A-3 Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

                                      A-2-2

<PAGE>

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class A-2A Certificates
as of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available funds to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-2A Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-2A Certificates. The Percentage
Interest of each Class A-2A Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-2A Certificate by $52,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such

                                      A-2-3

<PAGE>

Certificate or to institute suit for the enforcement of any such distribution,
and such right shall not be impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III or REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class A-2A Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class A-2A Certificates are
exchangeable for new Class A-2A Certificates of authorized denominations
evidencing the same aggregate principal amount.

                                      A-2-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-2-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as  Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-2-6

<PAGE>

                                                                     Exhibit A-3

                         Form of Class A-2B Certificate
                         ------------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-2B CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                Mortgage Loans The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.: A-2B                   Date: November 20, 2003 CUSIP: 66987X DG 7

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$25,101,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest: 100%   Pass-Through Rate:
                            LIBOR + 0.550%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group II Mortgage Loan identified on the
Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of November 1, 2003 (the "Pooling and Servicing
Agreement") by and among NovaStar Mortgage Funding Corporation, as the company
(the "Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the Custodian (the "Custodian"), and NovaStar Mortgage,
Inc. as servicer (the "Servicer") and as seller (the "Seller"), including the
related Cut-off Date Principal Balance, all interest accruing thereon on and
after the Cut-off Date and all collections in respect of interest and principal
due after the Cut-off Date; (ii) property which secured each such

<PAGE>

Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) the Company's interest in any insurance policies in respect
of such Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all
interest and principal due to the Company or the Servicer after the Cut-off Date
with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-2B Certificates on November
20, 2003 which aggregate amount was $25,101,000. The owner hereof is entitled to
principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-2B Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to December 26, 2003 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class A-2B Certificates (the "Class A-2B Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2C
Certificates, Class A-3 Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

                                      A-3-2

<PAGE>

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class A-2B Certificates
as of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available funds to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-2B Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-2B Certificates. The Percentage
Interest of each Class A-2B Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-2B Certificate by $25,101,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such

                                      A-3-3

<PAGE>

Certificate or to institute suit for the enforcement of any such distribution,
and such right shall not be impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III or REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class A-2B Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class A-2B Certificates are
exchangeable for new Class A-2B Certificates of authorized denominations
evidencing the same aggregate principal amount.

                                      A-3-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-3-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-3-6

<PAGE>

                                                                     Exhibit A-4

                         Form of Class A-2C Certificate
                         ------------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-2C CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                Mortgage Loans The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.: A-2C                   Date: November 20, 2003 CUSIP: 66987X DH 5

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$77,102,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest: 100%   Pass-Through Rate:
                            LIBOR + 0.370%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group II Mortgage Loan identified on the
Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of November 1, 2003 (the "Pooling and Servicing
Agreement") by and among NovaStar Mortgage Funding Corporation, as the company
(the "Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the Custodian (the "Custodian"), and NovaStar Mortgage,
Inc. as servicer (the "Servicer") and as seller (the "Seller"), including the
related Cut-off Date Principal Balance, all interest accruing thereon on and
after the Cut-off Date and all collections in respect of interest and principal
due after the Cut-off Date; (ii) property which secured each such

<PAGE>

Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) the Company's interest in any insurance policies in respect
of such Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all
interest and principal due to the Company or the Servicer after the Cut-off Date
with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-2C Certificates on November
20, 2003 which aggregate amount was $77,102,000. The owner hereof is entitled to
principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-2C Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to December 26, 2003 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class A-2C Certificates (the "Class A-2C Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-3 Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

                                      A-4-2

<PAGE>

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class A-2C Certificates
as of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available funds to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-2C Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-2C Certificates. The Percentage
Interest of each Class A-2C Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-2C Certificate by $77,102,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such

                                      A-4-3

<PAGE>

Certificate or to institute suit for the enforcement of any such distribution,
and such right shall not be impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III or REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class A-2C Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class A-2C Certificates are
exchangeable for new Class A-2C Certificates of authorized denominations
evidencing the same aggregate principal amount.

                                      A-4-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-4-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-4-6

<PAGE>

                                                                     Exhibit A-5

                          Form of Class A-3 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-3 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                Mortgage Loans The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  A-3                   Date: November 20, 2003 CUSIP: 66987X DJ 1

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$64,688,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 0.490%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group II Mortgage Loan identified on the
Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of November 1, 2003 (the "Pooling and Servicing
Agreement") by and among NovaStar Mortgage Funding Corporation, as the company
(the "Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the Custodian (the "Custodian"), and NovaStar Mortgage,
Inc. as servicer (the "Servicer") and as seller (the "Seller"), including the
related Cut-off Date Principal Balance, all interest accruing thereon on and
after the Cut-off Date and all collections in respect of interest and principal
due after the Cut-off Date; (ii) property which secured each such

<PAGE>

Mortgage Loan and which has been acquired by foreclosure or deed in lieu of
foreclosure; (iii) the Company's interest in any insurance policies in respect
of such Mortgage Loans; (iv) all proceeds of any of the foregoing; (v) the
rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all
interest and principal due to the Company or the Servicer after the Cut-off Date
with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-3 Certificates on November
20, 2003 which aggregate amount was $64,688,000. The owner hereof is entitled to
principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-3 Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to December 26, 2003 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class A-3 Certificates (the "Class A-3 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

                                      A-5-2

<PAGE>

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class A-3 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available funds to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-3 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-3 Certificates. The Percentage
Interest of each Class A-3 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-3 Certificate by $64,688,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such

                                      A-5-3

<PAGE>

Certificate or to institute suit for the enforcement of any such distribution,
and such right shall not be impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III or REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class A-3 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class A-3 Certificates are
exchangeable for new Class A-3 Certificates of authorized denominations
evidencing the same aggregate principal amount.

                                      A-5-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-5-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-5-6

<PAGE>

                                                                     Exhibit A-6
                          Form of Class M-1 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-1 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  M-1                   Date: November 20, 2003 CUSIP: 66987X DK 8

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$75,000,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 0.710%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company, (the "Company"),
JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank, National
Association, as the Custodian (the "Custodian"), and NovaStar Mortgage, Inc. as
servicer (the "Servicer") and as seller (the "Seller"), including the related
Cut-off Date Principal Balance, all interest accruing thereon on and after the
Cut-off Date and all collections in respect of interest and principal due after
the Cut-off Date; (ii) property which secured each such Mortgage Loan

<PAGE>

and which has been acquired by foreclosure or deed in lieu of foreclosure; (iii)
the Company's interest in any insurance policies in respect of the Mortgage
Loans; (iv) all proceeds of any of the foregoing; (v) the rights of the Company
under the Purchase Agreement and (vi) all other assets included or to be
included in the Trust fund. Such assignment includes all interest and principal
due to the Company or the Servicer after the Cut-off Date with respect to the
Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class M-1 Certificates on November
20, 2003 which aggregate amount was $75,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class M-1
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class M-1 Certificates (the "Class M-1 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

                                      A-6-2

<PAGE>

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class M-1 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class M-1 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-1 Certificates. The Percentage
Interest of each Class M-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-1 Certificate by $75,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such

                                      A-6-3

<PAGE>

Certificate or to institute suit for the enforcement of any such distribution,
and such right shall not be impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class M-1 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class M-1 Certificates are
exchangeable for new Class M-1 Certificates of authorized denominations
evidencing the same aggregate principal amount.

                                      A-6-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                      A-6-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                      A-6-6

<PAGE>

                                                                     Exhibit A-7
                          Form of Class M-2 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-2 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  M-2                   Date: November 20, 2003 CUSIP: 66987X DL 6

Original Principal Balance:   Registered Owner:     Final Scheduled Distribution
$60,000,000                   CEDE & CO.            Date:February 25, 2034

Percentage Interest:  100%    Pass-Through Rate:
                              LIBOR + 1.625%

          The registered owner named above is the registered owner of a
fractional interest in (I) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the

<PAGE>

Cut-off Date; (ii) property which secured each such Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class M-2 Certificates on November
20, 2003 which aggregate amount was $60,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class M-2
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class M-2 Certificates (the "Class M-2 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class

                                     A-7-2

<PAGE>

I Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class M-2 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class M-2 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-2 Certificates. The Percentage
Interest of each Class M-2 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-2 Certificate by $60,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-7-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class M-2 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                     A-7-4

<PAGE>

forth, Class M-2 Certificates are exchangeable for new Class M-2 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-7-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                         individual capacity, but solely in its
                                         capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
 individual capacity, but solely in its
 capacity as Trustee

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

                                     A-7-6

<PAGE>

                                                                     Exhibit A-8
                          Form of Class M-3 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-3 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  M-3                   Date: November 20, 2003 CUSIP: 66987X DM 4

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$15,000,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 1.850%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the

<PAGE>

Cut-off Date; (ii) property which secured each such Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class M-3 Certificates on November
20, 2003 which aggregate amount was $15,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class M-3
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class M-3 Certificates (the "Class M-3 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class

                                     A-8-2

<PAGE>

I Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class M-3 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class M-3 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-3 Certificates. The Percentage
Interest of each Class M-3 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-3 Certificate by $15,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-8-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class M-3 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                     A-8-4

<PAGE>

forth, Class M-3 Certificates are exchangeable for new Class M-3 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-8-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                         individual capacity, but solely in its
                                         capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
 individual capacity, but solely in its
 capacity as Trustee

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

                                     A-8-6

<PAGE>

                                                                     Exhibit A-9
                          Form of Class B-1 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS B-1 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  B-1                   Date: November 20, 2003 CUSIP: 66987X DN 2

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$15,000,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest:  100%  Pass-Through Rate:
                            LIBOR + 2.500%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the

<PAGE>

Cut-off Date; (ii) property which secured each such Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class B-1 Certificates on November
20, 2003 which aggregate amount was $15,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class B-1
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class B-1 Certificates (the "Class B-1 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class

                                     A-9-2

<PAGE>

I Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class B-1 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class B-1 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class B-1 Certificates. The Percentage
Interest of each Class B-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class B-1 Certificate by $15,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-9-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class B-1 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                     A-9-4

<PAGE>

forth, Class B-1 Certificates are exchangeable for new Class B-1 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-9-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                         individual capacity, but solely in its
                                         capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
 individual capacity, but solely in its
 capacity as Trustee

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

                                     A-9-6

<PAGE>

                                                                    Exhibit A-10
                          Form of Class B-2 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS B-2 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.: B-2                    Date: November 20, 2003 CUSIP: 66987X DP 7

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$15,000,000                 CEDE & CO.              Date: February 25, 2034

Percentage Interest: 100%   Pass-Through Rate:
                            LIBOR + 3.250%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the

<PAGE>

Cut-off Date; (ii) property which secured each such Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class B-2 Certificates on November
20, 2003 which aggregate amount was $15,000,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class B-2
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class B-2 Certificates (the "Class B-2 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-3 Certificates, Class X Certificates, Class

                                     A-10-2

<PAGE>

I Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class B-2 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class B-2 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class B-2 Certificates. The Percentage
Interest of each Class B-2 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class B-2 Certificate by $15,000,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-10-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class B-2 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                     A-10-4

<PAGE>

forth, Class B-2 Certificates are exchangeable for new Class B-2 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-10-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in
  its capacity as Trustee

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

                                     A-10-6

<PAGE>

                                                                    Exhibit A-11
                          Form of Class B-3 Certificate
                          -----------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS B-3 CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

No.:  B-3                   Date: November 20, 2003 CUSIP: 66987X DU 6

Original Principal Balance: Registered Owner:       Final Scheduled Distribution
$8,250,000                  CEDE & CO.              Date: February 25, 2034

Percentage Interest: 100%   Pass-Through Rate:
                            LIBOR + 3.750%

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the

<PAGE>

Cut-off Date; (ii) property which secured each such Mortgage Loan and which has
been acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class B-3 Certificates on November
20, 2003 which aggregate amount was $8,250,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class B-3
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to December 26, 2003 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class B-3 Certificates (the "Class B-3 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-2 Certificates, Class X Certificates, Class

                                     A-11-2

<PAGE>

I Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class B-3 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class B-3 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class B-3 Certificates. The Percentage
Interest of each Class B-3 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class B-3 Certificate by $8,250,000.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-11-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          The Class B-3 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set

                                     A-11-4

<PAGE>

forth, Class B-3 Certificates are exchangeable for new Class B-3 Certificates of
authorized denominations evidencing the same aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-11-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to
be duly executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
 individual capacity, but solely in
 its capacity as Trustee

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

                                     A-11-6

<PAGE>

                                                                    Exhibit A-12
                           Form of Class I Certificate
                           ---------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS I CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, JPMorgan Chase Bank, in its capacity as trustee of the NovaStar Mortgage
Funding Trust, Series 2003-4, has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

          THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<PAGE>

No.:  I-1                 Date: November 20, 2003   Final Scheduled Distribution
                                                    Date: February 25, 2034

Percentage Interest: 100% Registered Owner:
                          JPMorgan Chase Bank,
                          not in its individual
                          capacity but solely as
                          Trustee for the
                          NovaStar Mortgage Funding
                          Trust, Series 2003-4

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of the Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE

                                     A-12-2

<PAGE>

CORPORATION, THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION OR ANY OTHER
GOVERNMENTAL AGENCY.

          THIS CERTIFICATE IS AN INTEREST ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF PRINCIPAL WITH RESPECT
TO THE MORTGAGE LOANS.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class I Certificates (the "Class I Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates, Class X
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class I Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class I Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class I Certificates.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or

                                     A-12-3

<PAGE>

any of their subsidiaries and affiliates and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, the Government National Mortgage
Association, or any other governmental agency. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Mortgage
Loans and amounts on deposit in the Accounts (except as otherwise provided in
the Pooling and Servicing Agreement) all as more specifically set forth
hereinabove and in the Pooling and Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is

                                     A-12-4

<PAGE>

registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the office designated as the location of the
Certificate Register, and thereupon one or more new certificates of like class,
tenor and Percentage Interest will be issued to the designated transferee or
transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class I Certificates are exchangeable for
new Class I Certificates of authorized denominations evidencing the same
aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-12-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
 individual capacity, but solely in
 its capacity as Trustee

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

                                     A-12-6

<PAGE>

                                                                    Exhibit A-13

                           Form of Class X Certificate
                           ---------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS X CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

          THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE DISPOSITION OF THIS
CERTIFICATE WITHOUT SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A
TRANSACTION WHICH DOES NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN
ACCORDANCE WITH THE PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

No.: X-1-1          Date:  November 20, 2003           CUSIP: 66987X DS 1

Notional Amount:    Registered Owner:                  Final Scheduled
                    [Greenwich Capital Financial       Distribution
$1,500,000,000      Products, Inc./Wachovia Capital    Date: February 25, 2034
                    Investments, Inc.]

Percentage
Interest: [50%]

<PAGE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of the Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust Fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          Each owner of record of a Class X Certificate will be entitled to
interest payments only on each Distribution Date, which shall be calculated
based on a notional principal balance equal to the aggregate outstanding
principal balance of the Mortgage Loans plus the Pre-Funded Amount. The owner
hereof will not receive any distributions of principal.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN ONE OR MORE CLASSES OF "REGULAR INTERESTS" IN A "REAL ESTATE
MORTGAGE INVESTMENT CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY,
IN SECTION 860G AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"), ASSUMING COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH
860G) OF THE CODE.

          DISTRIBUTIONS ON THIS CERTIFICATE WILL BE MADE TO THE OWNER HEREOF
FOLLOWING THE PRIOR FUNDING OF AMOUNTS OWED TO CERTAIN SWAP COUNTERPARTIES, AND
FOLLOWING THE FUNDING OF SUPPLEMENTAL INTEREST PAYMENTS TO CERTAIN OTHER CLASSES
OF CERTIFICATES.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

                                     A-13-2

<PAGE>

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class X Certificates (the "Class X Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates, Class I
Certificates, Class P Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class X Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive Class X
Distribution Amount relating to such Distribution Date. Distributions will be
made in immediately available funds to such owners, by wire transfer or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee,

                                     A-13-3

<PAGE>

or for any other remedy under the Pooling and Servicing Agreement except in
compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

                                     A-13-4

<PAGE>

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class X Certificates are exchangeable for
new Class X Certificates of authorized denominations evidencing the same
aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-13-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK,
                                          not in its individual capacity, but
                                          solely in its capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK,
  not in its individual capacity, but
  solely in its capacity as Trustee

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

                                     A-13-6

<PAGE>

                                                                    Exhibit A-14

                           Form of Class P Certificate
                           ---------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS P CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans held in
the Trust Fund.)

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

No.:  P-1                     Date: November 20, 2003    CUSIP: 66987X DQ 5

Original Principal Balance:   Registered Owner:          Final Scheduled
$ 100                         Cede & Co.                 Distribution
                                                         Date: February 25, 2034

Percentage Interest: 100%

<PAGE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of the Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust Fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTION 860G AND
860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          THE HOLDER OF THIS CERTIFICATE IS ENTITLED TO PREPAYMENT CHARGES
COLLECTED WITH RESPECT TO THE MORTGAGE LOANS AND A SINGLE PRINCIPAL PAYMENT OF
$100 ON THE EARLIER OF (1) THE DISTRIBUTION DATE ON WHICH THE AGGREGATE
CERTIFICATE PRINCIPAL BALANCE OF THE CLASS A CERTIFICATES IS REDUCED TO ZERO, OR
(2) THE 35/TH/ DISTRIBUTION DATE. THE HOLDERS OF THIS CERTIFICATE ARE NOT
ENTITLED TO ANY DISTRIBUTIONS OF INTEREST WITH RESPECT TO THE MORTGAGE LOANS.

                                     A-14-2

<PAGE>

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class P Certificates (the "Class P Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates, Class X
Certificates, Class I Certificates, Class O Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class P Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the Prepayment
Charges relating to such Distribution Date. Furthermore, on the earlier of (i)
the distribution date on which the aggregate certificate principal balance is
reduced to zero, or (ii) the 35/th/ Distribution Date, the owner of the Class P
Certificates on the Record Date will be entitled to the Certificate Principal
Balance on the Class P Certificates. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any Sub-Servicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

                                     A-14-3

<PAGE>

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

                                     A-14-4

<PAGE>

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class P Certificates are exchangeable for
new Class P Certificates of authorized denominations evidencing the same
aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-14-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK,
                                          not in its individual capacity, but
                                          solely in its capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK,
  not in its individual capacity, but
  solely in its capacity as Trustee

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

                                     A-14-6

<PAGE>

                                                                    Exhibit A-15

                           Form of Class O Certificate
                           ---------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS O CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans and
other assets held in the Trust Fund.)

          THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

No.:  O-1-1             Date:  November 20, 2003       CUSIP:  66987X DT 9

Original Principal      Registered Owner:              Final Scheduled
Balance:                [Greenwich Capital Financial   Distribution
$17,999,900             Products, Inc./Wachovia        Date: February 25, 2034
                        Capital Investments, Inc.]

Percentage
Interest: [50%]

<PAGE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of the Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust Fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          Each owner of record of a Class O Certificate will be entitled to
certain distributions, as described under Article IV of the Pooling and
Servicing Agreement.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS AN
INTEREST IN A CLASS OF "REGULAR INTERESTS" IN A "REAL ESTATE MORTGAGE INVESTMENT
CONDUIT" ("REMIC") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G
AND 860D OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          THIS CERTIFICATE IS A PRINCIPAL ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF INTEREST WITH RESPECT
TO THE MORTGAGE LOANS.

                                     A-15-2

<PAGE>

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class O Certificates (the "Class O Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2A Certificates, Class A-2B
Certificates, Class A-2C Certificates, Class A-3 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B-1
Certificates, Class B-2 Certificates, Class B-3 Certificates, Class X
Certificates, Class I Certificates, Class P Certificates, and Class R
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class O Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the Class O
Distribution Amount relating to such Distribution Date. Distributions will be
made in immediately available funds to such owners, by wire transfer or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

                                     A-15-3

<PAGE>

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the last survivor of the descendants of Joseph P. Kennedy, the late ambassador
of the United States to the Court of St. James, living on the date of the
Pooling and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class O Certificates are exchangeable for
new Class O Certificates of authorized denominations evidencing the same
aggregate principal amount.

                                     A-15-4

<PAGE>

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-15-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in
                                          its individual capacity, but solely
                                          in its capacity as  Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in
  its capacity as Trustee

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

                                   A-15-6

<PAGE>

                                                                    Exhibit A-16

                           Form of Class R Certificate
                           ---------------------------

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2003-4
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS R CERTIFICATES

                     Comprised of a Certificate Representing
                     Certain Interests Relating to a Pool of
                                 Mortgage Loans
                       The Mortgage Loans are Serviced by

                      NOVASTAR MORTGAGE, INC., as Servicer

          (This certificate does not represent an interest in, or an obligation
of, nor are the underlying Mortgage Loans insured or guaranteed by, NovaStar
Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar Financial, Inc.,
NovaStar Capital, Inc. or any of their subsidiaries and affiliates. This
certificate is comprised of a Certificate representing a fractional ownership
interest in distributions in certain Accounts created pursuant to the Pooling
and Servicing Agreement and certain other rights relating thereto and is payable
only from amounts received by the Trustee relating to the Mortgage Loans held in
the Trust Fund.)

          THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

No.: R-[I/II/III/IV]       Date: November 20, 2003  Final Scheduled Distribution
                                                    Date: February 25, 2034

Percentage Interest: 100%  Registered Owner:
                           NovaStar REMIC Financing
                           Corporation

<PAGE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of November 1, 2003 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the Custodian (the
"Custodian"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in lieu of foreclosure; (iii) the Company's interest in any insurance
policies in respect of the Mortgage Loans; (iv) all proceeds of any of the
foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust Fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          Each owner of record of a Class R Certificate will be entitled to
certain distributions as described in Section 2.09 of the Pooling and Servicing
Agreement.

          In order to receive the final distribution hereon, the owner hereof is
required to present this Certificate to the Trustee. The Pooling and Servicing
Agreement provides that, in any event, upon the making of the final distribution
due on this Certificate, this Certificate shall be deemed cancelled for all
purposes under the Pooling and Servicing Agreement.

          SOLELY FOR FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS
"RESIDUAL INTERESTS" IN FIVE "REAL ESTATE MORTGAGE INVESTMENT CONDUITS"
("REMICs") AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D
OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"), ASSUMING
COMPLIANCE WITH THE REMIC PROVISIONS (SECTIONS 860A THROUGH 860G) OF THE CODE.

          THIS CERTIFICATE IS A PASS-THROUGH CERTIFICATE ONLY AND,
NOTWITHSTANDING REFERENCES HEREIN TO PRINCIPAL AND INTEREST, NO DEBT OF ANY
PERSON IS REPRESENTED HEREBY (OTHER THAN AS REQUIRED FOR FEDERAL INCOME TAX
PURPOSES).

          TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN THE
POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY BE
MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860E(5) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUCH TERM INCLUDES THE
UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN
GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR INSTRUMENTALITY OF ANY
OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE INSTRUMENTALITIES), ANY COOPERATIVE
ORGANIZATION FURNISHING ELECTRIC ENERGY OR PROVIDING THEREOF SERVICE TO PERSONS
IN RURAL AREAS, OR ANY ORGANIZATION (OTHER THAN A FARMERS' COOPERATIVE) THAT IS
EXEMPT FROM FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON
UNRELATED BUSINESS INCOME. NO TRANSFER OF THIS CLASS R

                                     A-16-2

<PAGE>

CERTIFICATE WILL BE REGISTERED BY THE TRUSTEE UNLESS THE PROPOSED TRANSFEREE HAS
DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THAT THE PROPOSED
TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING THE CLASS R
CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY OF THE FORM
OF AFFIDAVIT REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND AVAILABLE FROM
THE TRUSTEE.

          A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE
TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT
ACTING FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS R
CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY
TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE
PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF
THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY SUCH DISQUALIFIED
ORGANIZATION AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THRU" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
T, CHAPTER 1 OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS,
NOMINEES.

          NEITHER THIS CERTIFICATE NOR THE MORTGAGE LOANS ARE INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION OR ANY OTHER GOVERNMENTAL AGENCY.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-4
Class R Certificates (the "Class R Certificates") and issued under and subject
to the terms, provisions and conditions of the Pooling and Servicing Agreement,
to which the owner of this Certificate, by virtue of acceptance hereof assents,
and is bound. Also issued under the Pooling and Servicing Agreement are Class
A-1 Certificates, Class A-2A Certificates, Class A-2B Certificates, Class A-2C
Certificates, Class A-3 Certificates, Class M-1 Certificates, Class M-2
Certificates, Class M-3 Certificates, Class B-1 Certificates, Class B-2
Certificates, Class B-3 Certificates, Class X Certificates, Class I
Certificates, Class P Certificates and Class O Certificates, and all such
Certificates are collectively referred to as the "Certificates".

          Terms capitalized herein and not otherwise defined herein shall have
the respective meanings set forth in the Pooling and Servicing Agreement.

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing December 26, 2003, the owners of the Class R Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement

                                     A-16-3

<PAGE>

relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          The Trustee is required to duly and punctually pay distributions with
respect to this Certificate in accordance with the terms hereof and the Pooling
and Servicing Agreement. Amounts properly withheld under the Code or applicable
to any owner shall be considered as having been paid by the Trustee to such
owner for all purposes of the Pooling and Servicing Agreement.

          The Mortgage Loans will be serviced by the Servicer pursuant to the
Pooling and Servicing Agreement. The Pooling and Servicing Agreement permits the
Servicer to enter into Sub-Servicing Agreements with certain institutions
eligible for appointment as Sub-Servicers for the servicing and administration
of certain Mortgage Loans. No appointment of any SubServicer shall release the
Servicer from any of its obligations under the Pooling and Servicing Agreement.

          This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and recoveries relating to the Mortgage Loans and amounts on deposit
in the Accounts (except as otherwise provided in the Pooling and Servicing
Agreement) all as more specifically set forth hereinabove and in the Pooling and
Servicing Agreement.

          No owner shall have any right to institute any proceeding, judicial or
otherwise, with respect to the Pooling and Servicing Agreement for the
appointment of a receiver or trustee, or for any other remedy under the Pooling
and Servicing Agreement except in compliance with the terms thereof.

          Notwithstanding any other provisions in the Pooling and Servicing
Agreement, the owner of any Certificate shall have the right which is absolute
and unconditional to receive distributions to the extent provided in the Pooling
and Servicing Agreement with respect to such Certificate or to institute suit
for the enforcement of any such distribution, and such right shall not be
impaired without the consent of such owner.

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee upon the earliest of (i) the Distribution Date on which the Certificate
Principal Balances of the Regular Certificates have been reduced to zero, (ii)
the final payment or other liquidation of the last Mortgage Loan in the Trust,
(iii) the optional purchase by the Servicer of the Mortgage Loans as described
below, (iv) the Distribution Date in February 2034 and (v) at any time when a
Qualified Liquidation of the Master REMIC and REMIC I, REMIC II, REMIC III and
REMIC IV is effected pursuant to the Pooling and Servicing Agreement. In
addition, under certain circumstances relating to the qualification of either
the Master REMIC or any of REMIC I, REMIC II, REMIC III and REMIC IV as a REMIC
under the Code, the Mortgage Loans may be sold, thereby affecting the early
retirement of the Certificates. Notwithstanding the foregoing, in no event shall
the Trust hereby continue beyond the expiration of 21 years from the death of
the

                                     A-16-4

<PAGE>

last survivor of the descendants of Joseph P. Kennedy, the late ambassador of
the United States to the Court of St. James, living on the date of the Pooling
and Servicing Agreement.

          The Servicer may, at its option, terminate the Pooling and Servicing
Agreement on any date on which the aggregate of the Principal Balances of the
Mortgage Loans on such date is equal to or less than 10% of the Maximum
Collateral Amount, by purchasing, on the next succeeding Distribution Date, all
of the outstanding Mortgage Loans and REO Properties at a price equal to the
greater of the Principal Balance of the Mortgage Loans and REO Properties or the
market value of the Mortgage Loans and REO Properties, in each case plus accrued
and unpaid interest thereon at the weighted average of the Mortgage Rates
through the end of the Due Period preceding the final Distribution Date plus
unreimbursed Servicing Advances, Advances, any unpaid Servicing Fees allocable
to such Mortgage Loans and REO Properties and any accrued and unpaid Available
Funds Cap Carryforward Amount.

          The Trustee shall give written notice of termination of the Pooling
and Servicing Agreement to each owner in the manner set forth therein.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or
more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

          The Trustee is required to furnish certain information on each
Distribution Date to the owner of this Certificate, as more fully described in
the Pooling and Servicing Agreement.

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class R Certificates are exchangeable for
new Class R Certificates of authorized denominations evidencing the same
aggregate principal amount.

          The Trustee and any agent thereof may treat the person in whose name
this Certificate is registered as the owner hereof for all purposes, and none of
the Trustee or any such agent shall be affected by notice to the contrary.

                                     A-16-5

<PAGE>

          IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed on behalf of the Trust.

                                        JPMORGAN CHASE BANK, not in its
                                          individual capacity, but solely in its
                                          capacity as Trustee

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

Trustee Authentication

JPMORGAN CHASE BANK, not in its
  individual capacity, but solely in its
  capacity as Trustee

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

                                     A-16-6

<PAGE>

                                                                       Exhibit B

                             Mortgage Loan Schedule
                             ----------------------

                        On File with Dewey Ballantine LLP

<PAGE>

                                                                       Exhibit C

                             Form of Addition Notice
                             -----------------------

                              ______________, 2003

VIA FEDERAL EXPRESS
-------------------

JPMorgan Chase Bank
4 New York Plaza, 6/th/ Floor
New York, New York 10004
Attn: Institutional Trust Services - NovaStar Series 2003-4

     Re:  Mortgage Loan Purchase Agreement, dated as of November 1, 2003 (the
          "Purchase Agreement"), among NovaStar Mortgage, Inc. (the "Seller"),
          NovaStar Mortgage Funding Corporation (the "Company"), Wachovia Bank,
          National Association, as Custodian (the "Custodian") and JPMorgan
          Chase Bank, as trustee (the "Trustee"), relating to NovaStar Home
          Equity Loan Asset-Backed Certificates, Series 2003-4

Ladies and Gentlemen:

          Pursuant to Section 2.02(b)(i) of the above-captioned Purchase
Agreement, the Seller has designated the Subsequent Mortgage Loans (see
subsequent mortgage loan schedule attached hereto) to be sold to the Company,
and then sold by the Company to the Trust, on ____________, with an aggregate
principal balance of $______________. Capitalized terms not otherwise defined
herein have the meaning set forth in the Purchase Agreement.

          Please acknowledge your receipt of this notice by countersigning the
enclosed copy in the space indicated below and returning it to the attention of
the undersigned.

                                        Very truly yours,

                                        NOVASTAR MORTGAGE, INC.

                                        By:
                                            ------------------------------------
                                              Matt Kaltenrieder
                                              Vice President

Acknowledged and agreed:

JPMORGAN CHASE BANK, not in its
individual capacity, but solely in its capacity as Trustee

By:
    -------------------------------

<PAGE>

                                                                       Exhibit D

                     Form of Subsequent Transfer Instrument
                     --------------------------------------

      [See Exhibits 2(A) and 2(B) to the Mortgage Loan Purchase Agreement]

<PAGE>

                                                                       Exhibit E

                               Request for Release
                               -------------------

                                                                [date]

To:  Wachovia Bank, National Association,
     as Custodian and JPMorgan Chase Bank,
     as Trustee

     Re:  Pooling and Servicing Agreement, dated as of November 1, 2003 NovaStar
          Home Equity Loan Asset-Backed Certificates, Series 2003-4

          In connection with the administration of the pool of Mortgage Loans
held by you as Custodian, we request the release, and acknowledge receipt, of
the (Mortgage File/[specify document]) for the Mortgage Loan described below,
for the reason indicated.

Mortgagor's Name, Address & Zip Code:

Mortgage Loan Number:

Reason for Requesting Documents (check one)

--------------------------------------------------------------------------------
____ 1.   Mortgage Loan Paid in Full
          (Servicer hereby certifies that all amounts received in connection
          therewith have been credited to the Collection Account and remitted to
          the Trustee for deposit into the Distribution Account pursuant to the
          Pooling and Servicing Agreement.)
--------------------------------------------------------------------------------
____ 2.   Mortgage Loan Liquidated
          (Servicer hereby certifies that all proceeds of foreclosure, insurance
          or other liquidation have been finally received and credited to the
          Collection Account and remitted to the Trustee for deposit into the
          Distribution Account pursuant to the Pooling and Servicing Agreement.)
--------------------------------------------------------------------------------
____ 3.   Mortgage Loan in Foreclosure
--------------------------------------------------------------------------------
____ 4.   Mortgage Loan Purchased Pursuant to Section 11.01 of the Pooling and
          Servicing Agreement.
--------------------------------------------------------------------------------
____ 5.   Mortgage Loan Repurchased or Substituted pursuant to Article II or III
          of the Pooling and Servicing Agreement (Seller hereby certifies that
          the repurchase price or Substitution Adjustment has been credited to
          the Collection Account and that the substituted mortgage loan is a
          Qualified Substitute Mortgage Loan.)
--------------------------------------------------------------------------------
____ 6.   Other
          (explain) ___________________________________________________
--------------------------------------------------------------------------------

<PAGE>

          If box 1 or 2 above is checked, and if all or part of the Mortgage
File was previously released to us, please release to us our previous receipt on
file with you, as well as any additional documents in your possession relating
to the above specified Mortgage Loan.

          If box 3, 4, 5 or 6 above is checked, upon our return of all of the
above documents to you as Custodian, please acknowledge your receipt by signing
in the space indicated below, and returning this form.

                                        NovaStar Mortgage, Inc.,
                                        as [Servicer][Seller]

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

Documents returned to Custodian:

Wachovia Bank, National Association,
as Custodian

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

Date:
     -------------------------------

Remittance returned to Trustee:

JPMORGAN CHASE BANK, not in its
individual capacity, but solely in
its capacity as Trustee

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

Date:
     -------------------------------

                                       E-2

<PAGE>

                                                                     Exhibit F-1

                          Form of Initial Certification
                          -----------------------------

                                                      [Date]

NovaStar Mortgage, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Chris Miller, Senior Vice President

NovaStar Mortgage Funding Corporation
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Chris Miller, Senior Vice President

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn: NovaStar Mortgage Funding Trust,
      Series 2003-4

JPMorgan Chase Bank
4 New York Plaza, 6/th/ Floor
New York, New York 10004
Attn: Institutional Trust Services - NovaStar Series 2003-4

     Re:  Pooling and Servicing Agreement, dated as of November 1, 2003 (the
          "Agreement"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
          Corporation, Wachovia Bank, National Association (the "Custodian") and
          JPMorgan Chase Bank (the "Trustee"), relating to the NovaStar Mortgage
          Funding Trust, Series 2003-4 Home Equity Loan Asset-Backed
          Certificates

Gentlemen:

          In accordance with Section 2.03 of the above-captioned Agreement, and
Section 2.01(c) of the Mortgage Loan Purchase Agreement, dated as of November 1,
2003 (the "Purchase Agreement" and, together with the Agreement, the
"Agreements"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
Corporation, the Custodian, the Trustee and Wachovia Bank, National Association,
the undersigned, as Custodian, on behalf of the Trustee, hereby certifies that
as to each Mortgage Loan listed in the Mortgage Loan Schedule (other than any
Mortgage Loan paid in full or listed on the attachment hereto) it has reviewed
the Mortgage File and the Mortgage Loan Schedule and has determined that: (i)
all documents required to be included in the Mortgage File are in its
possession; (ii) such documents have been reviewed by it and appear regular on
their face and relate to such Mortgage Loan; and (iii) based on examination by
it, and only as to such documents, the information set forth in items (i) -
(vii) and (xiv) of the definition or description of "Mortgage Loan Schedule" is
correct.

<PAGE>

          The Custodian, on behalf of the Trustee, has made no independent
examination of any documents contained in each Mortgage File beyond the review
specifically required in the above-referenced Agreements. The Custodian, on
behalf of the Trustee, makes no representation that any documents specified in
clause (vi) of Section 2.01(c) of the Purchase Agreement should be included in
any Mortgage File. The Custodian, on behalf of the Trustee, makes no
representations as to and shall not be responsible to verify: (i) the validity,
legality, sufficiency, enforceability, due authorization, recordability or
genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan, or (iii) the existence of any assumption, modification, written assurance
or substitution agreement with respect to any Mortgage File if no such documents
appear in the Mortgage File delivered to the Custodian, on behalf of the
Trustee.

          Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Agreement.

                                        WACHOVIA BANK, NATIONAL ASSOCIATION, not
                                        in its individual capacity but solely as
                                        Custodian

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

                                       F-2

<PAGE>

                                                                     Exhibit F-2

                           Form of Final Certification
                           ---------------------------
                                                      [Date]

NovaStar Mortgage, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention:  Chris Miller, Senior Vice President

NovaStar Mortgage Funding Corporation
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention:  Chris Miller, Senior Vice President

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn:  NovaStar Mortgage Funding Trust,
       Series 2003-4

JPMorgan Chase Bank
4 New York Plaza, 6/th/ Floor
New York, New York 10004
Attn: Institutional Trust Services - NovaStar Series 2003-4

     Re:  Pooling and Servicing Agreement, dated as of November 1, 2003 (the
          "Agreement"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
          Corporation, Wachovia Bank, National Association (the "Custodian") and
          JPMorgan Chase Bank (the "Trustee") relating to the NovaStar Mortgage
          Funding Trust, Series 2003-4 Home Equity Loan Asset-Backed
          Certificates

Gentlemen:

          In accordance with Section 2.03 of the above-captioned Agreement, and
Section 2.01(c) of the Mortgage Loan Purchase Agreement, dated as of November 1,
2003 (the "Purchase Agreement" and, together with the Agreement, the
"Agreements"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
Corporation, the Custodian and the Trustee, the undersigned, as Custodian, on
behalf of the Trustee, hereby certifies that as to each Mortgage Loan listed in
the Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed
on the attachment hereto) it has received the documents set forth in Section
2.01(c) of the Mortgage Loan Purchase Agreement.

          The Custodian, on behalf of the Trustee, has made no independent
examination of any documents contained in each Mortgage File beyond the review
specifically required in the Agreements. The Custodian, on behalf of the
Trustee, makes no representation that any documents specified in clause (vi) of
Section 2.01(c) should be included in any Mortgage File. The Custodian, on
behalf of the Trustee, makes no representations as to and shall not be
responsible to verify: (i) the validity, legality, sufficiency, enforceability,
due authorization,

<PAGE>

recordability or genuineness of any of the documents contained in each Mortgage
File of any of the Mortgage Loans identified on the Mortgage Loan Schedule, (ii)
the collectability, insurability, effectiveness or suitability of any such
Mortgage Loan or (iii) the existence of any assumption, modification, written
assurance or substitution agreement with respect to any Mortgage File if no such
documents appear in the Mortgage File delivered to the Custodian, on behalf of
the Trustee.

          Capitalized words and phrases used herein shall have the respective
meanings assigned to them in the above-captioned Agreement.

                                        WACHOVIA BANK, NATIONAL ASSOCIATION, not
                                        in its individual capacity but solely as
                                        Custodian

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

                                      F-2-2

<PAGE>

                                                                       Exhibit G

                            Form of Investment Letter
                            -------------------------

NovaStar Mortgage, Inc.
8140 Ward Parkway, Suite 300
Kansas City, Missouri 64114
Attention: Chris Miller, Senior Vice President

JPMorgan Chase Bank
4 New York Plaza, 6/th/ Floor
New York, New York 10004
Attn: Institutional Trust Services - NovaStar Series 2003-4

Ladies and Gentlemen:

          The undersigned (the "Transferee") has agreed to purchase from
________ (the "Transferor") the following certificates:

          Class                     Number
          -----                     ------

          --
          --
          --
          --
          --

     I.   The Transferee is (check one):

--------------------------------------------------------------------------------
     __   (i) An insurance company, as defined in Section 2(13) of the
          Securities Act of 1933, as amended (the "Securities Act"), (ii) an
          investment company registered under the Investment Company Act of
          1940, as amended (the "Investment Company Act"), (iii) a business
          development company as defined in Section 2(a)(48) of the Securities
          Act, (iv) a Small Business Investment Company licensed by the U.S.
          Small Business Administration under Section 301(c) or (d) of the Small
          Business Investment Act of 1958, as amended, (v) a plan established
          and maintained by a state, its political subdivisions, or any agency
          or instrumentality of a state or its political subdivisions, for the
          benefit of its employees, (vi) an employee benefit plan within the
          meaning of Title I of the Employee Retirement Income Security Act of
          1974, as amended ("ERISA"), (vii) a business development company as
          defined in Section 202(a)(22) of the Investment Advisors Act of 1940,
          as amended, (viii) an organization described in Section 501(c)(3) of
          the Internal Revenue Code, corporation (other than a bank as defined
          in Section 3(a)(2) of
--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
          the Securities Act or a savings and loan association or other
          institution referenced in Section 3(a)(2) of the Securities Act or a
          foreign bank or savings and loan association or equivalent
          institution), partnership, or Massachusetts or similar business trust;
          or (ix) an investment advisor registered under the Investment Advisors
          Act of 1940, as amended, which, for each of (i) through (ix), owns and
          invests on a discretionary basis at least $100 million in securities
          other than securities of issuers affiliated with the Transferee,
          securities issued or guaranteed by the United States or a person
          controlled or supervised by and acting as an instrumentality of the
          government of the United States pursuant to authority granted by the
          Congress of the United States, bank deposit notes and certificates of
          deposit, loan participations, repurchase agreements, securities owned
          but subject to a repurchase agreement, and currency, interest rate and
          commodity swaps (collectively, "Excluded Securities");

--------------------------------------------------------------------------------
     __   a dealer registered pursuant to Section 15 of the Securities Exchange
          Act of 1934, as amended (the "Exchange Act") that in the aggregate
          owns and invests on a discretionary basis at least $10 million of
          securities other than Excluded Securities and securities constituting
          the whole or part of an unsold allotment to, or subscription by,
          Transferee as a participant in a public offering;

--------------------------------------------------------------------------------
     __   an investment company registered under the Investment Company Act that
          is part of a family of investment companies (as defined in Rule 144A
          of the Securities and Exchange Commission) which own in the aggregate
          at least $100 million in securities other than Excluded Securities and
          securities of issuers that are part of such family of investment
          companies;

--------------------------------------------------------------------------------
     __   an entity, all of the equity owners of which are entities described in
          this Paragraph A(I);

--------------------------------------------------------------------------------
     __   a bank as defined in Section 3(a)(2) of the Securities Act, any
          savings and loan association or other institution as referenced in
          Section 3(a)(5)(A) of the Securities Act, or any foreign bank or
          savings and loan association or equivalent institution that in the
          aggregate owns and invests on a discretionary basis at least $100
          million in securities other than Excluded Securities and has an
          audited net worth of at least $25 million as demonstrated in its
          latest annual financial statements, as of a date not more than 16
          months preceding the date of transfer of the Certificates to the
          Transferee in the case of a U.S. Bank or savings and loan association,
          and not more than 18 months preceding such date in the case of a
          foreign bank or savings association or equivalent institution.

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

     II.  The Transferee is acquiring such Certificates solely for its own
account, for the account of one or more others, all of which are "Qualified
Institutional Buyers" within the

                                      G-2

<PAGE>

meaning of Rule 144A, or in its capacity as a dealer registered pursuant to
Section 15 of the Exchange Act acting in a riskless principal transaction on
behalf of a "Qualified Institutional Buyer". The Transferee is not acquiring
such Certificates with a view to or for the resale, distribution, subdivision or
fractionalization thereof which would require registration of the Certificates
under the Securities Act.

          D.  The Transferee represents that it is not (i) an employee benefit
plan (as defined in section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")) subject to the provisions of Title I of ERISA,
(ii) a plan described in section 4975(e)(1) of the Internal Revenue Code of
1986, or (iii) an entity whose underlying assets are deemed to be assets of a
plan described in (i) or (ii) above by reason of such plan's investment in the
entity.

                                        Very truly yours,

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

Dated:
       ---------------

                                      G-3

<PAGE>

                                                                       Exhibit H

                 Form of Residual Certificate Transfer Affidavit
                 -----------------------------------------------

          AFFIDAVIT PURSUANT TO SECTION 860E OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED

          [NAME OF OFFICER], being first duly sworn, deposes and says:

          1.     That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of ______] [the United States], on behalf of which
he makes this affidavit and agreement.

          2.     That the Investor (i) is not and will not be a "disqualified
organization" as of [date of transfer] within the meaning of Section 860E(e)(5)
of the Internal Revenue Code of 1986 (the "Code"), (ii) will endeavor to remain
other than a disqualified organization for so long as it retains its ownership
interest in the Class R Certificates, and (iii) is acquiring the Class R
Certificates for its own account or for the account of another investor from
which it has received an affidavit and agreement in substantially the same form
as this affidavit and agreement. For this purpose, a "disqualified organization"
means the United States, any state or political subdivision thereof, any agency
or instrumentality of any of the foregoing (other than an instrumentality all of
the activities of which are subject to tax and, except for the Federal Home Loan
Mortgage Corporation, a majority of whose board of directors is not selected by
any such governmental entity) or any foreign government, international
organization or any agency or instrumentality of such foreign government or
organization, any rural electric or telephone cooperative, or any organization
(other than certain farmers' cooperatives) that generally is exempt from federal
income tax unless such organization is subject to the tax on unrelated business
taxable income.

          3.     That the Investor has historically paid its debts as they came
due and will continue to pay its debts as they come due in the future.

          4.     That the Investor has no present knowledge or expectation that
it will be unable to pay any United States taxes owed by it or that it will
become insolvent or subject to a bankruptcy proceeding for so long as any of the
Class R Certificates remain outstanding.

          5.     That the Investor has been advised of, and understands that as
the holder of a noneconomic residual interest it may incur tax liabilities in
excess of any cash flows generated by the interest. That the Investor intends to
pay such taxes associated with holding the Class R Certificates as they become
due.

<PAGE>

          6.     That the Investor will not cause income from the Class R
Certificates to be attributable to a foreign permanent establishment or fixed
base (within the meaning of an applicable income tax treaty) of the Investor or
another U.S. taxpayer.

          7.     /1/[A. Formula Test] That the Investor agrees that the
present value of the anticipated tax liabilities associated with holding the
Class R Certificates does not exceed the sum of the present value of any
consideration given to the Investor to acquire the Class R Certificates, the
present value of the expected future distributions on the Class R Certificates,
and the present value of the anticipated tax savings associated with holding the
interest as the REMIC generates losses. That the Investor agrees that it
complied with U.S. Treasury Regulations Section 1.860E-1(c)(8) in making such
representation.

               That the Investor agrees that it is not a foreign permanent
establishment or fixed base (within the meaning of an applicable income tax
treaty) of the Transferor or another U.S. taxpayer.

               [B. Asset Test] That the Investor, at the time of the transfer,
and at the close of the Investor's two fiscal years preceding the year of the
transfer, had gross assets for financial reporting purposes in excess of $100
million and net assets in excess of $10 million (excluding any obligation of a
person related to the Investor within the meaning of U.S. Treasury Regulations
Section 1.860E-1(c)(6)(ii) or any other asset if a principle purpose for holding
or acquiring the other asset was to permit the Investor to satisfy the above
stated minimum asset requirements).

               That the Investor is an "eligible corporation," as defined in
U.S. Treasury Regulations Section 1.860E-1(c)(6)(i). That the Investor agrees,
in connection with any subsequent transfer of its ownership interest in the
Class R Certificates, to transfer its ownership interest only to another
"eligible corporation," as defined in U.S. Treasury Regulations Section
1.860E-1(c)(6)(i), and to honor the restrictions on subsequent transfers of the
Class R Certificates by transferring its ownership interest only in a
transaction that satisfies the requirements of U.S. Treasury Regulations Section
1.860E-1(c)(4)(i), (ii) (iii) and U.S. Treasury Regulations Section
1.860E-1(c)(5).

               That the Investor determined the consideration paid to it to
acquire the Class R Certificates in good faith and based on reasonable market
assumptions (including, but not limited to, borrowing and investment rates,
prepayment and loss assumptions, expense and reinvestment assumptions, tax rates
and other factors specific to the Investor).

          8.     That the Investor is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in, or
under the laws of, the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includable in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States.

----------

/1/ Insert either section 7A or 7B.

                                      H-2

<PAGE>

          9.     That the Investor's Taxpayer Identification Number is
____________.

          10.    That the Investor has reviewed the restrictions set forth on
the face of the Class R Certificates and the provisions of Section 5.02(d) of
the Pooling and Servicing Agreement under which the Class R Certificates were
issued, which authorize the Trustee to deliver payments to a person other than
the Investor and negotiate a mandatory sale by the Trustee in the event that the
Investor holds such Certificates in violation of Section 5.02(d). That the
Investor expressly agrees to be bound by and to comply with all the provisions
of Section 5.02(d) of the Pooling and Servicing Agreement and the restrictions
on the face of the Class R Certificates.

          11.    That the Investor will, in connection with any transfer that it
makes of the Class R Certificates, deliver to the Trustee a certificate, in form
and substance satisfactory to the Trustee, that is in substantially the same
form as Exhibit I attached to the Pooling and Servicing Agreement and that
contains the same representations set forth therein.

          12.    That the Investor will not transfer any of its interest in the
Class R Certificates unless (i) it has received from any subsequent transferee
an affidavit in substantially the same form as this affidavit containing the
same representations set forth herein, and (ii) as of the time of the transfer,
it does not have actual knowledge that such affidavit is false. That the
Investor will cause such affidavit to be delivered to the Trustee upon receipt.
That the Investor is aware that the Trustee will not register the transfer of
any Class R Certificates unless and until such affidavit is received.

          13.    That the Investor consents to any additional restrictions or
arrangements that shall be deemed necessary upon advice of counsel to constitute
a reasonable arrangement to ensure that the Class R Certificates will only be
owned, directly or indirectly, by an investor that is not a disqualified
organization.

          14.    That the Investor understands and agrees that any breach of any
of the representations included herein shall render the transfer to the Investor
contemplated hereby null and void.

                                      H-3

<PAGE>

          IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to the authority of its Board of Directors, by
its [Title of Officer] and its corporate seal to be hereunto attached, attested
by its [Assistant] Secretary, this _ day of    .

                                        [NAME OF INVESTOR]

                                        By:
                                            ------------------------------------
                                        [Name of Officer]
                                        [Title of Officer]

          [Corporate Seal]

          ATTEST:

          ------------------------------
          [Assistant] Secretary

          Personally appeared before me the above named [Name of Officer], known
or proved to me to be the same person who executed the foregoing instrument and
to be the [Title of Officer] of the Investor, and acknowledged to me that he
executed the same as his free act and deed and the free act and deed of the
Investor.

                                      H-4

<PAGE>

                                                                       Exhibit I

                            Transferor's Certificate
                            ------------------------

     To:  [Trustee]

          Re:  The Pooling and Servicing Agreement, dated as of November 1,
               2003, among NovaStar Mortgage Funding Corporation, as Company,
               NovaStar Mortgage, Inc., as Servicer and as Seller, Wachovia
               Bank, National Association, as Custodian, and JPMorgan Chase
               Bank, as Trustee
               -----------------------------------------------------------------

     Ladies and Gentlemen:

          This letter is delivered to you in connection with the transfer by
NovaStar Mortgage, Inc. (the "Seller") to ______________________ (the
"Purchaser") of a ___% Percentage Interest of NovaStar Mortgage Funding Trust,
Series 2003-4, NovaStar Home Equity Loan Asset-Backed Certificates, Series
2003-4, Class R (the "Certificates"), pursuant to Section 5.02(d) of the Pooling
and Servicing Agreement (the "Pooling and Servicing Agreement"), dated as of
November 1, 2003 among NovaStar Mortgage Funding Corporation, as Company (the
"Company"), NovaStar Mortgage, Inc., as Servicer and Seller (the "Servicer and
Seller"), Wachovia Bank, National Association, as Custodian (the "Custodian"),
and JPMorgan Chase Bank, as Trustee (the "Trustee"). All terms used herein and
not otherwise defined shall have the meanings set forth in the Pooling and
Servicing Agreement. The Seller hereby certifies, represents and warrants to,
and covenants with, the Company and the Trustee that:

          1.  No purpose of the Seller relating to the transfer of the
Certificates by the Seller to the Purchaser is or will be to impede the
assessment or collection of any tax.

          2.  The Seller has conducted a reasonable investigation of the
financial condition of the Purchaser and, as a result of such investigation, has
concluded that the Purchaser has historically paid its debts as they came due
and will continue to pay its debts as they come due in the future.

          3.  The Seller has received, and understands that the Purchaser has
delivered to the Trustee and the Company, a Residual Certificate Transfer
Affidavit in the form attached to the Pooling and Servicing Agreement as Exhibit
H. The Seller does not know or believe that any representation contained therein
is false.

          4.  The Seller does not know or have reason to know that the Purchaser
(i) will be unwilling or unable to pay taxes due on its share of the
Certificates or (ii) will not honor the restrictions on subsequent transfers of
the Certificates set forth in section 5.02(d) of the Pooling and Servicing
Agreement and in the Residual Certificate Transfer Affidavit.

<PAGE>

          5.  The Seller has no actual knowledge that the proposed Transferee is
not both a United States Person and a Permitted Transferee.

                                        Very truly yours,

                                        ----------------------------------------
                                        (Seller)

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

                                      I-2

<PAGE>

                                                                       Exhibit J

                    Form of Notional Amount Test Event Notice

                        On File with Dewey Ballantine LLP

<PAGE>

                                   APPENDIX A
                                   ----------

                                   DEFINITIONS
                                   -----------

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

     "Account": The Collection Account, the Pre-Funding Account, the
Supplemental Interest Accounts, and the Distribution Account.

     "Accrual Period": With respect to each Distribution Date, the period
commencing on the preceding Distribution Date (or in the case of the first
Accrual Period, other than with respect to the Swap Amount due in December 2003,
commencing on the Closing Date) and ending on the day preceding the applicable
Distribution Date, or with respect to the Swap Amount due in December 2003, the
period commencing on November 25, 2003 and ending on December 25, 2003.

     "Addition Notice": With respect to the transfer of Subsequent Mortgage
Loans to the Trust Fund pursuant to Section 2.08, a notice of the Company's
designation of the Subsequent Mortgage Loans to be sold to the Trust Fund and
the aggregate principal balance of such Subsequent Mortgage Loans as of the
Subsequent Cut-off Date. The Addition Notice shall be given not later than four
Business Days prior to the related Subsequent Transfer Date and shall be
substantially in the form attached hereto as Exhibit C.

     "Adjustable Rate Mortgage Loan": A Mortgage Loan which provides at any
period during the life of such loan for the adjustment of the Mortgage Rate
payable in respect thereto. The Adjustable Rate Mortgage Loans are identified as
such on the Mortgage Loan Schedule.

     "Adjustment Date": With respect to each Adjustable Rate Mortgage Loan, each
adjustment date, on which the Mortgage Rate of such Mortgage Loan changes
pursuant to the related Mortgage Note.

     "Administrative Fee": With respect to each Distribution Date, the sum of
the MI Premium, the Servicing Fee, the Custodian Fee and the Trustee Fee with
respect to such Distribution Date.

     "Administrative Fee Rate": As to each Distribution Date, the sum of (i) the
Trustee Fee Rate, (ii) the Servicing Fee Rate, (iii) the Custodian Fee Rate and
(iv) the total MI Premiums due during the related Due Period, expressed as an
annual percentage rate of the Pool Balance as of the beginning of that Due
Period.

     "Advance": As to any Mortgage Loan, any advance made by the Servicer in
respect of any Distribution Date pursuant to Section 3.24.

     "Adverse REMIC Event": As defined in Section 10.01(f) hereof.

     "Affiliate": With respect to any Person, any other Person controlling,
controlled by or under common control with such Person. For purposes of this
definition, "control" means the power to direct the management and policies of a
Person, directly or indirectly, whether through

<PAGE>

ownership of voting securities, by contract or otherwise and "controlling" and
"controlled" shall have meanings correlative to the foregoing.

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

     "Allocated Realized Loss Amount": With respect to any Distribution Date and
any Class A-3 Certificate, Class of Class B Certificates, Class of Mezzanine
Certificates or the Class O Certificates, the Realized Losses allocated to such
Class of Certificates on such Distribution Date.

     "Applicable Regulations": As to any Mortgage Loan, all federal and state
laws, statutes, rules and regulations applicable thereto.

     "Appraised Value": The appraised value of a Mortgaged Property based upon
the appraisal made at the time of the origination of the related Mortgage Loan.
With respect to a Mortgage Loan the proceeds of which were used to refinance an
existing Mortgage Loan, the appraised value of the Mortgaged Property based upon
the appraisal with the lowest appraised value (as reviewed and approved by the
Seller) obtained within 12 months of the time of refinancing.

     "Assignment of Mortgage": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.

     "Assumed Final Maturity Date": As to each Class of Certificates, the
Distribution Date in February 2034.

     "Available Funds": As to each Distribution Date, an amount equal to the
amount on deposit in the Distribution Account, representing the sum of (i) the
aggregate amount of scheduled payments on the related Mortgage Loans due on the
related Due Date and received on or prior to the related Determination Date,
(ii) miscellaneous fees and collections, including prepayment penalties with
respect to the Mortgage Loans (but excluding late fees), (iii) any unscheduled
payments and receipts, including Mortgagor prepayments on the related Mortgage
Loans, received during the related Prepayment Period and proceeds of
repurchases, and adjustments in the case of substitutions and terminations, Net
Liquidation Proceeds, Insurance Proceeds, MI Insurance Proceeds and proceeds
from the sale of Converted Mortgage Loans, and (iv) all Advances made and
Compensating Interest paid for such Distribution Date in respect of the related
Mortgage Loans and (v) on the Distribution Date following the termination of the
Pre-Funding Period, the remaining amount of the Original Pre-Funded Amount on
deposit in the Pre-Funding Account at such time.

     "Available Funds Cap": With respect to each Distribution Date and (a) the
Class A-1 or Class A-2 Certificates, the Group I/Group II Available Funds Cap,
(b) the Class A-3 Certificates, the Group III Available Funds Cap and (c) the
Class M and Class B Certificates, the Subordinate

                                       2

<PAGE>

Available Funds Cap, each for such Distribution Date. Notwithstanding the
foregoing, if either (a) the aggregate principal balance of the Group I and
Group II Mortgage Loans has been reduced to zero on a prior Distribution Date or
(b) the aggregate principal balance of the Group III Mortgage Loans has been
reduced to zero on a prior Distribution Date, the related Available Funds Cap
for a Class of Certificates is equal to the Available Funds Cap related to the
Group or Groups with an aggregate principal balance greater than zero.

     "Available Funds Cap Carryforward Amount": With respect to any Class of
Underwritten Certificates and any Distribution Date, the sum of (i) the positive
excess, if any, of (x) the aggregate cumulative amount of Available Funds Cap
Shortfall Amounts for such Class on all prior Distribution Dates over (y) the
aggregate cumulative amount of Supplemental Interest Payments actually paid to
the Holders of that Class on all prior Distribution Dates pursuant to those
clauses of Sections 4.04(c), 4.04(f), 4.04(g) which relate to payments to that
Class, plus (ii) interest on the amount described in clause (i) at a rate equal
to the related Formula Rate for such Class and Distribution Date.

     "Available Funds Cap Shortfall Amount": With respect to any Distribution
Date and Class of Underwritten Certificates the excess, if any, of (1) the
interest due on such Class calculated using the Formula Rate applicable to such
Class over (2) the interest due on such Class, calculated using the Pass-Through
Rate applicable to such Class.

     "Balloon Mortgage Loan": A Mortgage Loan that provides for the payment of
the unamortized principal balance of such Mortgage Loan in a single payment at
the maturity of such Mortgage Loan that is substantially greater than the
preceding monthly payment.

     "Balloon Payment": A payment of the unamortized principal balance of a
Mortgage Loan in a single payment at the maturity of such Mortgage Loan that is
substantially greater than the preceding Monthly Payment.

     "Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11 of the
United States Code), as amended.

     "Base Prospectus": The base Prospectus, dated August 24, 2003, with respect
to the Offered Certificates.

     "Basic Documents": This Agreement, the Purchase Agreement, each Subsequent
Transfer Instrument, the REMIC Interests Sale Agreement, the Converted Loan
Purchase Agreement, the Underwriting Agreement, and the other documents and
Certificates delivered in connection with any of the above.

     "Book-Entry Certificates": Any of the Certificates that shall be registered
in the name of the Depository or its nominee, the ownership of which is
reflected on the books of the Depository or on the books of a Person maintaining
an account with the Depository (directly, as a Depository Participant, or
indirectly, as an indirect participant in accordance with the rules of the
Depository and as described in Section 5.02 hereof). On the Closing Date, the
Class A Certificates, the Mezzanine Certificates, the Class B Certificates and
the Class P Certificates shall be Book-Entry Certificates.

                                       3

<PAGE>

     "Business Day": Any day other than (i) a Saturday or a Sunday or (ii) a day
on which banking institutions in the City of New York, or the states of
California or Missouri or in the city in which the corporate trust office of the
Trustee or Custodian are located, are required or authorized by law to be
closed.

     "Cap Agreement": Any of the interest rate cap agreements between the
Trustee, on behalf of the Trust, and the Cap Counterparty, which are not deemed
to be assets of any one of the REMICs created hereunder.

     "Cap Agreement I": That certain interest rate cap agreement between the
Trustee, on behalf of the Trust, and the Cap Counterparty, which is deemed to be
an asset of Supplemental Interest Trust II and not an asset of any one of the
REMICS created hereunder.

     "Cap Agreement I Payment": A payment of interest equal to the product of
(x) the excess, if any, of (i) LIBOR, up to a maximum of 9.25%, over (ii) the
related strike rate shown below and (y) the related cap notional amount shown
below, from the Cap Counterparty on each Distribution Date described below,
accrued during the related cap accrual period until the related Cap Agreement is
retired.

----------------------------------------------------------------
Distribution Date           Notional Amount          Strike Rate
----------------------------------------------------------------
November 2006               $  386,179,775.23            8.28909%
----------------------------------------------------------------
December 2006               $  372,981,672.27            8.76573%
----------------------------------------------------------------
January 2007                $  372,981,672.27            8.47386%
----------------------------------------------------------------
February 2007               $  372,981,672.27            8.67528%
----------------------------------------------------------------
April 2007                  $  358,868,465.78            8.66132%
----------------------------------------------------------------
May 2007                    $  350,355,638.93            9.10152%
----------------------------------------------------------------
June 2007                   $  342,052,172.26            8.96174%
----------------------------------------------------------------
July 2007                   $  333,952,669.15            9.24904%
----------------------------------------------------------------
August 2007                 $  326,047,810.97            9.11063%
----------------------------------------------------------------
September 2007              $  318,337,005.52            9.09896%
----------------------------------------------------------------

     "Cap Agreement II Payment": A payment of interest equal to the product of
(x) the excess, if any, of (i) LIBOR, up to a maximum of 9.25%, over (ii) the
related strike rate shown below and (y) the related cap notional amount shown
below, from the Cap Counterparty on each Distribution Date described below,
accrued during the related cap accrual period, until the related Cap Agreement
is retired.

                                       4

<PAGE>

----------------------------------------------------------------
Distribution Date           Notional Amount         Strike Rate
----------------------------------------------------------------
November 2006               $   56,332,509.66            8.28909%
----------------------------------------------------------------
December 2006               $   54,431,618.75            8.76573%
----------------------------------------------------------------
January 2007                $   54,431,618.75            8.47386%
----------------------------------------------------------------
February 2007               $   54,431,618.75            8.67528%
----------------------------------------------------------------
April 2007                  $   52,136,030.87            8.66132%
----------------------------------------------------------------
May 2007                    $   50,909,326.48            9.10152%
----------------------------------------------------------------
June 2007                   $   49,712,371.41            8.96174%
----------------------------------------------------------------
July 2007                   $   48,544,558.17            9.24904%
----------------------------------------------------------------
August 2007                 $   47,404,562.64            9.11063%
----------------------------------------------------------------
September 2007              $   46,292,304.73            9.09896%
----------------------------------------------------------------

     "Cap Contract Rights": The rights of the Class A Certificates, Mezzanine
Certificates and Class B Certificates to receive interest payments in excess of
payments at the REMIC Pass-Through Rate on the Master REMIC Regular Interest
corresponding to such Class of Certificates as set forth in Section 2.09 hereof.

     "Cap Counterparty": Wachovia Bank, N.A., a national banking association.

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

     "Certificate": Any Regular Certificate or Class R Certificate.

     "Certificateholder" or "Holder": The Person in whose name a Certificate is
registered in the Certificate Register, except that a Disqualified Organization
or non-U.S. Person shall not be a Holder of a Residual Certificate for any
purpose hereof.

     "Certificate Margin": With respect to the Class A-1 Certificates on each
Distribution Date (A) prior to the Rate Step-Up Date 0.370% per annum and (B) on
and after the Rate Step-Up Date, 0.740% per annum. With respect to the Class
A-2A Certificates on each Distribution Date (A) prior to the Rate Step-Up Date,
0.220% per annum and (B) on and after the Rate Step-Up Date, 0.440% per annum.
With respect to the Class A-2B Certificates on each Distribution Date (A) prior
to the Rate Step-Up Date, 0.550% per annum and (B) on and after the Rate Step-Up
Date, 1.100% per annum. With respect to the Class A-2C Certificates on each
Distribution Date (A) prior to the Rate Step-Up Date 0.370% per annum and (B) on
and after the Rate Step-Up Date 0.740% per annum. With respect to the Class A-3
Certificates on each Distribution Date (A) prior to the Rate Step-Up Date 0.490%
per annum and (B) on and after the Rate Step-

                                       5

<PAGE>

Up Date 0.980% per annum. With respect to the Class M-1 Certificates on each
Distribution Date (A) prior to the Rate Step-Up Date, 0.710% per annum and (B)
on and after the Rate Step-Up Date, 1.065% per annum. With respect to the Class
M-2 Certificates on each Distribution Date (A) prior to the Rate Step-Up Date,
1.625% per annum and (B) on and after the Rate Step-Up Date, 2.4375% per annum.
With respect to the Class M-3 Certificates on each Distribution Date (A) prior
to the Rate Step-Up Date, 1.850% per annum and (B) on and after the Rate Step-Up
Date, 2.775% per annum. With respect to the Class B-1 Certificates on each
Distribution Date (A) prior to the Rate Step-Up Date 2.500% per annum and (B) on
and after the Rate Step-Up Date, 3.750% per annum. With respect to the Class B-2
Certificates on each Distribution Date (A) prior to the Rate Step-Up Date 3.250%
per annum and (B) on and after the Rate Step-Up Date, 4.875% per annum. With
respect to the Class B-3 Certificates on each Distribution Date (A) prior to the
Rate Step-Up Date 3.750% per annum and (B) on and after the Rate Step-Up Date,
5.625% per annum.

     "Certificate Owner": With respect to each Book-Entry Certificate, any
beneficial owner thereof.

     "Certificate Principal Balance": With respect to any Class of Regular
Certificates (other than the Class X Certificates and the Class I Certificates)
immediately prior to any Distribution Date, an amount equal to the Initial
Certificate Principal Balance thereof reduced by the sum of all amounts actually
distributed in respect of principal of such Class and, in the case of a
Mezzanine Certificate, a Class B Certificate and a Class A-3 Certificate,
Allocated Realized Loss Amounts applied with respect to that Class on all prior
Distribution Dates. The Class X Certificates and the Class I Certificates will
not have a Certificate Principal Balance.

     "Certificate Register": The register maintained by the Certificate
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.

     "Certificate Registrar": Initially, the Trustee, in its capacity as
Certificate Registrar, or any successor to the Trustee in such capacity.

     "Class": Collectively, Certificates which have the same priority of payment
and bear the same Class designation and the form of which is identical except
for variation in the Percentage Interest evidenced thereby.

     "Class A Certificate": Any Class A-1 Certificate, Class A-2 Certificate or
Class A-3 Certificate.

     "Class A Principal Distribution Amount": For any Distribution Date, the sum
of the Class A-1 Principal Distribution Amount, Class A-2 Principal Distribution
Amount and the Class A-3 Principal Distribution Amount for such Distribution
Date.

     "Class A-1 Allocation Percentage" for any Distribution Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group I
Principal Remittance Amount for such Distribution Date and the denominator of
which is (ii) the Principal Remittance Amount for such Distribution Date.

                                       6

<PAGE>

     "Class A-1 Certificate": Any one of the Class A-1 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-1, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class A-1 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the aggregate Certificate Principal Balance of
the Class A-1 Certificates immediately prior to that Distribution Date over (y)
the lesser of (A) the product of (i) 72.50% and (ii) the aggregate principal
balance of the Group I Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) and (B)
the aggregate principal balance of the Group I Mortgage Loans as of the last day
of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $6,231,066.

     "Class A-2 Allocation Percentage" for any Distribution Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group II
Principal Remittance Amount for such Distribution Date and the denominator of
which is (ii) the Principal Remittance Amount for such Distribution Date.

     "Class A-2 Certificate": Any Class A-2A Certificate, Class A-2B Certificate
or Class A-2C Certificate.

     "Class A-2 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the aggregate Certificate Principal Balance of
the Class A-2 Certificates immediately prior to that Distribution Date over (y)
the lesser of (A) the product of (i) 72.50% and (ii) the aggregate principal
balance of the Group II Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) and (B)
the aggregate principal balance of the Group II Mortgage Loans as of the last
day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $893,934.

     "Class A-2A Certificate": Any one of the Class A-2A Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-2, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class A-2B Certificate": Any one of the Class A-2B Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-3, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

                                       7

<PAGE>

     "Class A-2C Certificate": Any one of the Class A-2C Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-4, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class A-3 Allocation Percentage": For any Distribution Date is the
percentage equivalent of a fraction, the numerator of which is (i) the Group III
Principal Remittance Amount for such Distribution Date and the denominator of
which is (ii) the Principal Remittance Amount for such Distribution Date.

     "Class A-3 Certificate": Any one of the Class A-3 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-5, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class A-3 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the aggregate Certificate Principal Balance of
the Class A-3 Certificates immediately prior to that Distribution Date over (y)
the lesser of (A) the product of (i) 72.50% and (ii) the aggregate principal
balance of the Group III Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) and (B)
the aggregate principal balance of the Group III Mortgage Loans as of the last
day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $375,000.

     "Class B Certificate": Any Class B-1 Certificate, Class B-2 Certificate or
Class B-3 Certificate.

     "Class B Principal Distribution Amount": The sum of the Class B-1 Principal
Distribution Amount, the Class B-2 Principal Distribution Amount and the Class
B-3 Principal Distribution Amount.

     "Class B-1 Certificate": Any one of the Class B-1 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-9, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class B-1 Principal Distribution Amount": For any Distribution Date, is an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
payment of the Class A-1 Principal Distribution Amount, the Class A-2 Principal
Distribution Amount and the Class A-3 Principal Distribution Amount on such
Distribution Date), (ii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the payment of
the Class M-2 Principal Distribution

                                       8

<PAGE>

Amount on such Distribution Date), (iv) the Certificate Principal Balance of the
Class M-3 Certificates (after taking into account the payment of the Class M-3
Principal Distribution Amount on such Distribution Date) and (v) the Certificate
Principal Balance of the Class B-1 Certificates immediately prior to that
Distribution Date over (y) the lesser of (A) the product of (i) 94.50% and (ii)
the aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $7,500,000.

     "Class B-2 Certificate": Any one of the Class B-2 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-10, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class B-2 Principal Distribution Amount": For any Distribution Date, is an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
payment of the Class A-1 Principal Distribution Amount, the Class A-2 Principal
Distribution Amount and the Class A-3 Principal Distribution Amount on such
Distribution Date), (ii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the payment of
the Class M-2 Principal Distribution Amount on such date), (iv) the Certificate
Principal Balance of the Class M-3 Certificates (after taking into account the
payment of the Class M-3 Principal Distribution Amount on such Distribution
Date), (v) the Certificate Principal Balance of the Class B-1 Certificates,
(after taking into account the payment of the Class B-1 Principal Distribution
Amount on such Distribution Date) and (vi) the Certificate Principal Balance of
the Class B-2 Certificates immediately prior to such Distribution Date over (y)
the lesser of (A) the product of (i) 96.50% and (ii) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate
principal balance of the Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) minus
$7,500,000.

     "Class B-3 Certificate": Any one of the Class B-3 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-11, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class B-3 Principal Distribution Amount": For any Distribution Date, is an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class

                                       9

<PAGE>

A Certificates (after taking into account the payment of the Class A-1 Principal
Distribution Amount, the Class A-2 Principal Distribution Amount and the Class
A-3 Principal Distribution Amount on such Distribution Date), (ii) the
Certificate Principal Balance of the Class M-1 Certificates (after taking into
account the payment of the Class M-1 Principal Distribution Amount on such
Distribution Date), (iii) the Certificate Principal Balance of the Class M-2
Certificates (after taking into account the payment of the Class M-2 Principal
Distribution Amount on such date), (iv) the Certificate Principal Balance of the
Class M-3 Certificates (after taking into account the payment of the Class M-3
Principal Distribution Amount on such Distribution Date), (v) the Certificate
Principal Balance of the Class B-1 Certificates (after taking into account the
payment of the Class B-1 Principal Distribution Amount on such Distribution
Date), (vi) the Certificate Principal Balance of the Class B-2 Certificates
(after taking into account the payment of the Class B-2 Principal Distribution
Amount on such Distribution Date) and (vii) the Certificate Principal Balance of
the Class B-3 Certificates immediately prior to such Distribution Date over (y)
the lesser of (A) the product of (i) 97.60% and (ii) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate
principal balance of the Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) minus
$7,500,000.

     "Class I Certificate": Any one of the Class I Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-11, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class I Monthly Interest Distributable Amount": For any Distribution Date,
shall mean the sum of (i) the Group I/Group II Class I Monthly Interest
Distributable Amount and (ii) the Group III Class I Monthly Interest
Distributable Amount, each for such Distribution Date.

     "Class IV Accrual Interest": Either the Class IV-Accrual1 or Class
IV-Accrual2 Interest as applicable.

     "Class I Termination Date": The Distribution Date occurring in October
2006.

     "Class M Certificate": Any Class M-1 Certificate, Class M-2 Certificate or
Class M-3 Certificate.

     "Class M-1 Certificate": Any one of the Class M-1 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-6, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class M-1 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
payment of the Class A-1 Principal Distribution

                                       10

<PAGE>

Amount, the Class A-2 Principal Distribution Amount and the Class A-3 Principal
Distribution Amount on such Distribution Date) and (ii) the Certificate
Principal Balance of the Class M-1 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) 82.50% and (ii)
the aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $7,500,000.

     "Class M-2 Certificate": Any one of the Class M-2 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-7, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class M-2 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
payment of the Class A-1 Principal Distribution Amount, the Class A-2 Principal
Distribution Amount and the Class A-3 Principal Distribution Amount on such
Distribution Date), (ii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date) and (iii) the Certificate
Principal Balance of the Class M-2 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) 90.50% and (ii)
the aggregate principal balance of the Mortgage Loans as of the last day of the
related Due Period (after giving effect to scheduled payments of principal due
during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) and (B) the aggregate principal balance of the Mortgage Loans as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) minus $7,500,000.

     "Class M-3 Certificate": Any one of the Class M-3 Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-8, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class M-3 Principal Distribution Amount": For any Distribution Date, an
amount equal to the excess of (x) the sum of (i) the aggregate Certificate
Principal Balance of the Class A Certificates (after taking into account the
payment of the Class A-1 Principal Distribution Amount, the Class A-2 Principal
Distribution Date and the Class A-3 Principal Distribution Amount on such
Distribution Date), (ii) the Certificate Principal Balance of the Class M-1
Certificates (after taking into account the payment of the Class M-1 Principal
Distribution Amount on such Distribution Date), (iii) the Certificate Principal
Balance of the Class M-2 Certificates (after taking into account the payment of
the Class M-2 Principal Distribution

                                       11

<PAGE>

Amount on such Distribution Date) and (iv) the Certificate Principal Balance of
the Class M-3 Certificates immediately prior to such Distribution Date over (y)
the lesser of (A) the product of (i) 92.50% and (ii) the aggregate principal
balance of the Mortgage Loans as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) and (B) the aggregate
principal balance of the Mortgage Loans as of the last day of the related Due
Period (after giving effect to scheduled payments of principal due during the
related Due Period, to the extent received or advanced, and unscheduled
collections of principal received during the related Prepayment Period) minus
$7,500,000.

     "Class O Certificate": Any one of the Class O Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-15, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class P Certificate": Any one of the Class P Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-14, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Class P Monthly Distribution Amount": An amount equal to all prepayment
penalties on a Distribution Date received on the Mortgage Pool during the prior
Prepayment Period.

     "Class P Principal Distribution Date": The earlier of (i) the 35th
Distribution Date and (ii) the Distribution Date on which the Certificate
Principal Balances for all of the Class A Certificates are reduced to zero.

     "Class R Certificate": Any one of the Class R Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-16, representing the right to distributions as set
forth herein, and evidencing the R-I Interest, the R-II Interest, the R-III
Interest, the R-IV Interest and the R-V Interest, each the sole "residual
interest" in REMIC I, REMIC II, REMIC III, REMIC IV and the Master REMIC,
respectively.

     "Class X Certificate": Any one of the Class X Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-13, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

     "Close of Business": As used herein, with respect to any Business Day, 5:00
p.m. (New York time).

     "Closing Date": November 20, 2003.

     "Code": The Internal Revenue Code of 1986 as it may be amended from time to
time.

     "Collection Account": The account or accounts created and maintained by the
Servicer pursuant to Section 3.06(d) hereof, which must be an Eligible Account.

                                       12

<PAGE>

     "Commission": The Securities and Exchange Commission.

     "Company": NovaStar Mortgage Funding Corporation, a Delaware corporation,
and its successors and assigns.

     "Compensating Interest": With respect to any Determination Date, an amount
equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfalls for the related Prepayment Period and (ii) the Servicing Fee for the
related Distribution Date.

     "Conversion Date": The date on which a Convertible Mortgage Loan becomes a
Converted Mortgage Loan according to the terms of the related Mortgage Note.

     "Converted Loan Purchase Agreement": The Converted Loan Purchase Agreement,
dated as of November 1, 2003, among the Converted Loan Purchaser, the Custodian,
the Trustee and the Servicer.

     "Converted Loan Purchaser": NovaStar Capital, Inc., a Delaware corporation,
and any successor thereto.

     "Converted Mortgage Loan": Any Convertible Mortgage Loan as to which the
Mortgagor has exercised the option to convert to a fixed Mortgage Rate and
satisfied all of the conditions to conversion set forth in the Mortgage Note.

     "Convertible Mortgage Loans": Any Mortgage Loan evidenced by a Mortgage
Note that according to its terms is convertible at the option of the Mortgagor
from a variable Mortgage Rate to a fixed Mortgage Rate, subject to satisfaction
of the conditions set forth in such note.

     "Corporate Trust Office": With respect to the Trustee, the Paying Agent and
the Certificate Registrar, the principal corporate trust office at which at any
particular time its corporation trust business shall be administered, which
office at the date of execution of this Agreement is located at 4 New York
Plaza, 6th Floor, New York, New York 10004-2477, Attention: Institutional Trust
Services/Global Debt, NovaStar Mortgage Funding Trust, Series 2003-4.

     "Corresponding Class of Master REMIC Certificates": As defined in Section
2.09 hereof.

     "Corresponding Distribution Date": As set forth in the Swap Interest Rate
Schedule.

     "Corresponding Interest Rate": As set forth in the Swap Interest Rate
Schedule.

     "Corresponding REMIC II Regular Interest": As defined in Section 2.09
hereof.

     "Credit Enhancement Percentage": For any Distribution Date, is equal to (i)
the sum of the aggregate Certificate Principal Balances of the Mezzanine
Certificates, the Class B Certificates and the Class O Certificates, divided by
(ii) the Pool Balance, in each case calculated prior to taking into account the
distribution of the Principal Distribution Amount to the Holders of the
Certificates then entitled to distributions of principal on such Distribution
Date and prior

                                       13

<PAGE>

to taking into account distributions of principal on the Mortgage Loans on such
Distribution Date.

     "Crossover Date": The earlier to occur of (i) the Distribution Date on
which the aggregate Certificate Principal Balance of the Class A Certificates is
reduced to zero; and (ii) the later to occur of (x) the Distribution Date
occurring in December 2006 and (y) the first Distribution Date on which the
Credit Enhancement Percentage (calculated for this purpose only after taking
into account distributions of principal on the Mortgage Loans but prior to the
principal distributions to the certificates) is greater than or equal to 27.50%.

     "Cumulative Loss Percentage": As to any Distribution Date, the percentage
equivalent of the fraction obtained by dividing (i) the aggregate amount of
Realized Losses on the Mortgage Loans (after giving effect to coverage provided
by any MI Policy) from the Cut-off Date through such Distribution Date by (ii)
the sum of the aggregate Principal Balance of the Initial Mortgage Loans as of
the Cut-off Date plus the Original Pre-Funded Amount.

     "Current Interest": For any Distribution Date and each Class of
Underwritten Certificates the amount of interest accrued during the related
Accrual Period at the related Pass-Through Rate on the Certificate Principal
Balance of such Class immediately prior to such Distribution Date, in each case,
reduced by any Net Prepayment Interest Shortfalls and any Relief Act Shortfalls
allocated to that Class (allocated to each Certificate based on its respective
entitlements to interest irrespective of any Net Prepayment Interest Shortfalls
or Relief Act Shortfalls for that Distribution Date).

     "Custodian": Wachovia Bank, National Association, a national banking
association, and any successor thereto.

     "Custodian Fee": With respect to each Distribution Date, the product of (i)
$0.20 and (ii) the number of Mortgage Loans.

     "Custodian Fee Rate": The percentage equivalent expressed as a fraction,
the numerator of which is (i) the product of (a) the Custodian Fee and (b) 12
and the denominator of which is (ii) the aggregate principal balance of the
Mortgage Loans as of the beginning of the Due Period.

     "Cut-off Date": With respect to each Initial Mortgage Loan, the later of
(i) November 1, 2003 and (ii) the date of origination of such Initial Mortgage
Loan. With respect to each Subsequent Mortgage Loan, the later of (i) the first
day of the month in which such Subsequent Mortgage Loan is acquired by the Trust
and (ii) the date of origination of such Subsequent Mortgage Loan.

     "Cut-off Date Aggregate Principal Balance": With respect to the Mortgage
Pool, the aggregate of the Cut-off Date Principal Balances of the Initial
Mortgage Loans of $1,019,921,946.79 consisting of $847,557,817.82 related to
Group I, $121,592,606.02 related to Group II and $50,771,522.95 related to Group
III.

     "Cut-off Date Principal Balance": With respect to any Mortgage Loan, the
unpaid principal balance thereof as of the applicable Cut-off Date or Subsequent
Cut-off Date, as the

                                       14

<PAGE>

case may be (or as of the applicable date of substitution with respect to an
Eligible Substitute Mortgage Loan).

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

     "Deferred Interest": With respect to any REO Property, the current portion
of interest not currently paid by the Mortgagor that is added to the principal
balance of such REO Property.

     "Deficient Valuation": With respect to any Mortgage Loan, a valuation of
the related Mortgaged Property by a court of competent jurisdiction in an amount
less than the then outstanding principal balance of the Mortgage Loan, which
valuation results from a proceeding initiated under the Bankruptcy Code.

     "Definitive Certificates": The Class O, Class I, Class X and Class R
Certificates, and such other Classes of Certificates as become Definitive
Certificates pursuant to Section 5.02(c) hereof.

     "Deleted Mortgage Loan": A Mortgage Loan replaced or to be replaced by one
or more Eligible Substitute Mortgage Loans.

     "30-Day Delinquency Percentage": As of the last day of any Due Period, the
percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 30 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

     "60-Day Delinquency Percentage": As of the last day of any Due Period, the
percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 60 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

     "90-Day Delinquency Percentage": As of the last day of any Due Period, the
percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 90 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

     "Delinquent": Any Mortgage Loan, the Monthly Payment due on a Due Date
which is not made by the Close of Business on the next scheduled Due Date for
such Mortgage Loan.

     "Depository": The initial Depository shall be The Depository Trust Company,
whose nominee is Cede & Co., or any other organization registered as a "clearing
agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as
amended. The Depository shall initially be the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a

                                       15

<PAGE>

"clearing corporation" as defined in Section 8-102(3) of the Uniform Commercial
Code of the State of New York.

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

     "Determination Date": With respect to any Distribution Date, the 15th day
of the calendar month in which such Distribution Date occurs or, if such 15th
day is not a Business Day, the Business Day immediately preceding such 15th day.

     "Determination Date Report": The meaning specified in Section 3.23 hereof.

     "Disqualified Organization": "Disqualified Organization" shall have the
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code and applicable to the Trust.

     "Distribution Account": The trust account or accounts created and
maintained by the Trustee pursuant to Section 4.02 hereof, which must be an
Eligible Account.

     "Distribution Date": The 25th day of any calendar month, or if such 25th
day is not a Business Day, the Business Day immediately following such 25th day,
commencing in December 2003.

     "Due Date": The first day of the month of the related Distribution Date.

     "Due Period": With respect to any Mortgage Loan and Due Date, the period
commencing on the second day of the month preceding the month of such
Distribution Date and ending on the related Due Date.

     "Eligible Account": An account that is either: (A) a segregated account or
accounts maintained with an institution whose deposits are insured by the FDIC,
the unsecured and uncollateralized long-term debt obligations of which
institution shall be rated AA or higher by Standard & Poor's and Aa2 or higher
by Moody's and in the highest short-term rating category by each of the Rating
Agencies, and which is (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, or (iv) a principal subsidiary of a bank holding company or (B) a
segregated trust account or accounts maintained with the trust department of a
federal or state chartered depository institution acceptable to each Rating
Agency, having capital and surplus of not less than $100,000,000, acting in its
fiduciary capacity.

     "Eligible Investments": One or more of the following:

     (i)   direct obligations of, and obligations fully guaranteed by, the
United States of America, any of the Federal Home Mortgage Corporation, the
Federal National Mortgage Association, the Federal Home Loan Banks or any agency
or instrumentality of the United States

                                       16

<PAGE>

of America the obligations of which are backed by the full faith and credit of
the United States of America;

     (ii)  (A) demand and time deposits in, Certificates of deposit of, banker's
acceptances issued by or federal funds sold by any depository institution or
trust company (including the Trustee or its agents acting in their respective
commercial capacities) incorporated under the laws of the United States of
America or any State thereof and subject to supervision and examination by
federal and/or state authorities, so long as at the time of such investment or
contractual commitment providing for such investment, such depository
institution or trust company has a short-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies and provided
that each such investment has an original maturity of no more than 365 days, and
(B) any other demand or time deposit or deposit which is fully insured by the
Federal Deposit Insurance Corporation;

     (iii) repurchase obligations with a term not to exceed 30 days with respect
to any security described in clause (i) above and entered into with a depository
institution or trust company (acting as a principal) rated "A-1+" or higher by
S&P and A2 or higher by Moody's; provided, however, that collateral transferred
pursuant to such repurchase obligation must (A) be valued daily at current
market price plus accrued interest, (B) pursuant to such valuation, equal, at
all times, 105% of the cash transferred in exchange for such collateral and (C)
be delivered in such a manner as to accomplish perfection of a security interest
in the collateral by possession of certificated securities;

     (iv)  securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
State thereof which has a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;

     (v)   commercial paper having an original maturity of less than 365 days
and issued by an institution having a short-term unsecured debt rating in the
highest available rating category of each of the Rating Agencies at the time of
such investment;

     (vi)  a guaranteed investment contract approved by each of the Rating
Agencies and issued by an insurance company or other corporation having a
long-term unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment; and

     (vii) money market funds having ratings in the highest available long-term
rating category of each of the Rating Agencies at the time of such investment;
any such money market funds which provide for demand withdrawals being
conclusively deemed to satisfy any maturity requirement for Eligible Investments
set forth in the Agreement;

     provided, however, that each such instrument shall be acquired in an
arm's-length transaction and no such instrument shall be an Eligible Investment
if it represents, either (1) the right to receive only interest payments with
respect to the underlying debt instrument or (2) the right to receive both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a

                                       17

<PAGE>

yield to maturity greater than 120% of the yield to maturity at par of such
underlying obligations; provided, further, however, that each such instrument
acquired shall not be acquired at a price in excess of par. The Trustee may
purchase from or sell to itself or an affiliate, as principal or agent, the
Eligible Investments listed above.

     "Eligible Substitute Mortgage Loan": A Mortgage Loan substituted by the
Seller for a Deleted Mortgage Loan which must, on the date of such substitution,
as confirmed in an Officer's Certificate delivered to the Trustee, (i) have an
outstanding principal balance, after deduction of the principal portion of the
monthly payment due in the month of substitution (or in the case of a
substitution of more than one Mortgage Loan for a Deleted Mortgage Loan, an
aggregate outstanding principal balance, after such deduction), not in excess of
the outstanding principal balance of the Deleted Mortgage Loan (the amount of
any shortfall to be deposited by the Seller in the Collection Account in the
month of substitution); (ii) comply in all material respects with each
representation and warranty set forth in clauses (ii) through (lxviii) of
Section 3.01(b) of the Purchase Agreement other than clauses (iii), (v)-(xiv),
(xli), (lv) and (lvi); (iii) have a Mortgage Rate and, with respect to an
Adjustable Rate Mortgage Loan, a Gross Margin no lower than and not more than 1%
per annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Loan-to-Value
Ratio, at the time of substitution no higher than that of the Deleted Mortgage
Loan at the time of substitution; (v) have a remaining term to stated maturity
not greater than (and not more than one year less than) that of the Deleted
Mortgage Loan; (vi) not be 30 days or more delinquent; (vii) not be a negative
amortization loan; (viii) have a lien priority equal to or superior to the lien
priority of the Deleted Mortgage Loan; and (ix) be a Qualified Replacement
Mortgage.

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

     "Excess Cashflow": For any Distribution Date, the sum of (i) the
Overcollateralization Release Amount and (ii) the excess of (a) the Interest
Remittance Amount over (b) the sum of (w) the Monthly Interest Distributable
Amounts for the Class A Certificates, the Mezzanine Certificates and the Class B
Certificates, (x) the Class I Monthly Interest Distributable Amount and (y) the
Administrative Fees, each for such Distribution Date.

     "Extra Principal Distribution Amount": For any Distribution Date, is the
lesser of (x) the Excess Cashflow for such Distribution Date and (y) the
Overcollateralization Deficiency Amount for such Distribution Date.

     "Expense Adjusted Mortgage Rate": With respect to any Mortgage Loan, as of
any date of determination, a per annum rate of interest equal to the then
applicable Mortgage Rate for such Mortgage Loan minus the Administrative Fee
Rate.

     "Fannie Mae": Federal National Mortgage Association or any successor
thereto.

     "FDIC": Federal Deposit Insurance Corporation or any successor thereto.

     "Fixed Rate Mortgage Loan": A first-lien or second-lien Mortgage Loan which
provides for a fixed Mortgage Rate payable with respect thereto. The Fixed Rate
Mortgage Loans are identified as such on the Mortgage Loan Schedule.

                                       18

<PAGE>

     "Foreclosure Profit": With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Mortgage Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.

     "Formula Rate": For any Distribution Date and the Class A Certificates, the
Mezzanine Certificates and Class B Certificates the lesser of (i) LIBOR plus the
related Certificate Margin and (ii) 11%.

     "Freddie Mac": The Federal Home Loan Mortgage Corporation, or any successor
thereto.

     "Gross Margin": With respect to each Adjustable Rate Mortgage Loan, the
fixed percentage set forth in the related Mortgage Note that is added to the
Index on each Adjustment Date in accordance with the terms of the related
Mortgage Note used to determine the Mortgage Rate for such Mortgage Loan.

     "Group": Any of the Group I Mortgage Loans, the Group II Mortgage Loans and
the Group III Mortgage Loans.

     "Group I Basic Principal Distribution Amount": For any Distribution Date,
an amount equal to the excess of (i) the Group I Principal Remittance Amount for
such Distribution Date, over (ii) the Overcollateralization Release Amount, if
any, for such Distribution Date multiplied by the Class A-1 Allocation
Percentage.

     "Group I Cross Collateralization Amount": For any Distribution Date, the
portion of the Group I Interest Remittance Amount remaining after payment of the
Monthly Interest Distributable Amount on the Class A-1 Certificates, the related
proportional amount of the Class I Monthly Distributable Amount and the related
proportional amount of the Administrative Fees.

     "Group I/Group II Available Funds Cap": For each Distribution Date, the
percentage equivalent of a fraction equal to (a) an amount equal to (i) the
aggregate Interest Remittance Formula Amount for the Group I Mortgage Loans and
Group II Mortgage Loans, less (ii) the Administrative Fees allocable to the
Group I Mortgage Loans and Group II Mortgage Loans, and less (iii) the Group
I/Group II Class I Monthly Interest Distributable Amount, divided by (b) the
product of (i) the actual number of days in the related Accrual Period divided
by 360 and (ii) the aggregate principal balance of the Group I Mortgage Loans
and Group II Mortgage Loans plus any related amounts on deposit in the
Pre-Funding Account.

     "Group I/Group II Class I Monthly Interest Distributable Amount" shall
mean, on each Distribution Date up to and including the Distribution Date in
October 2006, the following: Commencing on the first Distribution Date through
and including the Distribution Date in July 2005, an amount equal to the sum of

     (I) the product of (x) the excess, if any, of 1.6000% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding

                                       19

<PAGE>

Account, for such Distribution Date, over (ii) $775,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date and (b)
$125,000,000 multiplied by the Group I/Group II Class I Percentage for such
Distribution Date;

     (II) the product of (x) the excess, if any, of 2.1400% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $650,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $125,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date;

     (III) the product of (x) the excess, if any, of 2.2700% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $525,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $125,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

     (IV) the product of (x) the excess, if any, of 1.9775% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $400,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $125,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

     (V) the product of (x) the excess, if any, of 1.9925% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $340,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $60,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

     (VI) the product of (x) the excess, if any, of 2.1000% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $265,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $75,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

     (VII) the product of (x) the excess, if any, of 2.8400% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $190,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $75,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

                                       20

<PAGE>

     (VIII) the product of (x) the excess, if any, of 2.9600% (on a 30/360
basis) over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess
of (i) the aggregate unpaid Principal Balance of the Group I and Group II
Mortgage Loans plus any related amount in the Pre-Funding Account, for such
Distribution Date, over (ii) $115,000,000 multiplied by the Group I/Group II
Class I Percentage for such Distribution Date and (b) $75,000,000 multiplied by
the Group I/Group II Class I Percentage for such Distribution Date; and

     (IX) the product of (x) the excess, if any, of 2.5825% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group I and Group II Mortgage
Loans plus any related amount in the Pre-Funding Account, for such Distribution
Date, over (ii) $40,000,000 multiplied by the Group I/Group II Class I
Percentage for such Distribution Date and (b) $75,000,000 multiplied by the
Group I/Group II Class I Percentage for such Distribution Date; and

     (X) the product of (x) the excess, if any, of 2.6300% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the aggregate
unpaid Principal Balance of the Group I and Group II Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date and (b)
$40,000,000 multiplied by the Group I/Group II Class I Percentage for such
Distribution Date.

     For the Distribution Date commencing in August 2005 through and including
the Distribution Date in September 2005 an amount equal to the sum of the
amounts described in (II) through (X) above.

     For the Distribution Date in October 2005 an amount equal to the sum of the
amounts described in (IV) through (X) above.

     For the Distribution Date commencing in November 2005 through and including
the Distribution Date in July 2006 an amount equal to the sum of the amounts
described in (VI) through (X) above.

     For the Distribution Date commencing in August 2006 through and including
the Distribution Date in September 2006 an amount equal to the sum of the
amounts described in (VII) through (X) above.

     For the Distribution Date in October 2006 an amount equal to the sum of the
amounts described in (IX) through (X) above.

     For the Distribution Date in November 2006 and each Distribution Date
thereafter, the Group I/Group II Class I Monthly Interest Distributable Amount
shall be zero.

                                       21

<PAGE>

     "Group I/Group II Class I Percentage"; For each Distribution Date is as set
forth below:

                       Group I/Group
 Distribution           II Class I
     Date                Percentage
December 2003           94.999993949%
January 2004            94.973171571%
February 2004           94.948424211%
March 2004              94.910968022%
April 2004              94.876264618%
May 2004                94.844418251%
June 2004               94.815531152%
July 2004               94.789704279%
August 2004             94.767037428%
September 2004          94.747548669%
October 2004            94.730289709%
November 2004           94.714155785%
December 2004           94.699185525%
January 2005            94.684198298%
February 2005           94.669194682%
March 2005              94.654175273%
April 2005              94.639140659%
May 2005                94.624091435%
June 2005               94.609028207%
July 2005               94.593951576%
August 2005             94.578862155%
September 2005          94.563760553%
October 2005            94.548647389%
November 2005           94.533523799%
December 2005           94.518390103%
January 2006            94.503246715%
February 2006           94.488094262%
March 2006              94.472933380%
April 2006              94.457764707%
May 2006                94.442588883%
June 2006               94.427406555%
July 2006               94.412218370%
August 2006             94.397024979%
September 2006          94.381827038%
October 2006            94.366625204%

     "Group I/Group II REMIC III Net WAC": The weighted average pass-through
rate on the Class II-A1 through Class II-A35, Class II-B1 through Class II-B35,
II-C1 through Class II-

                                       22

<PAGE>

C35, Class II-D1 through Class II-D35, Class II-E1 through Class II-E35, Class
II-F1 through Class II-F35, Class II-G1 through Class II-G35, Class II-H1
through Class II-H35, Class II-K1 through Class II-K35, Class II-L1 through
Class II-L35 and Class II-J1 Interests.

     "Group I/Group II Pool Balance": The Pool Balance relating to the Group I
and Group II Mortgage Loans.

     "Group I/Group II REMIC Available Funds Cap": The weighted average
pass-through rate on the Class IV-Accrual1, Class IV-A1, Class IV-A2A, Class
IV-A2B and Class IV-A2C Interests.

     "Group I/Group II Schedule": As set forth in Appendix B.

     "Group I/Group II Subordinated Amount": For any Distribution Date, the
excess, if any, of the Group I/Group II Pool Balance plus any related Pre-Funded
Amount over the sum of the aggregate Certificate Principal Balances of the Class
A-1 and Class A-2 Certificates, for such Distribution Date.

     "Group I Interest Remittance Amount": For any Distribution Date, the
portion of the Interest Remittance Amount that was collected or advanced on the
Group I Mortgage Loans.

     "Group I Mortgage Loans": The Mortgage Loans allocated to Group I which
primarily support the Class A-1 Certificates.

     "Group I Principal Distribution Amount" with respect to any Distribution
Date is the sum of (i) the Group I Basic Principal Distribution Amount for such
Distribution Date and (ii) the Extra Principal Distribution Amount for such
Distribution Date multiplied by the Class A-1 Allocation Percentage.

     "Group I Principal Remittance Amount": For any Distribution Date, the
portion of the Principal Remittance Amount that was collected or advanced on the
Group I Mortgage Loans plus, following the Pre-Funding Period, any remaining
Pre-Funded Amounts related to the Group I Mortgage Loans.

     "Group II Basic Principal Distribution Amount" means with respect to any
Distribution Date, the excess of (i) the Group II Principal Remittance Amount
for such Distribution Date over (ii) the Overcollateralization Release Amount,
if any, for such Distribution Date multiplied by the Class A-2 Allocation
Percentage.

     "Group II Cross Collateralization Amount": For any Distribution Date, the
portion of the Group II Interest Remittance Amount remaining after payment of
the Monthly Interest Distributable Amounts on the Class A-2 Certificates, the
related proportional amount of the Class I Monthly Distributable Amount and the
related proportional amount of the Administrative Fees.

     "Group II Interest Remittance Amount": For any Distribution Date, the
portion of the Interest Remittance Amount that was collected or advanced on the
Group II Mortgage Loans.

                                       23

<PAGE>

     "Group II Mortgage Loans:" The Mortgage Loans allocated to Group II which
primarily support the Class A-2 Certificates.

     "Group II Principal Distribution Amount" with respect to any Distribution
Date is the sum of (i) the Group II Basic Principal Distribution Amount for such
Distribution Date and (ii) the Extra Principal Distribution Amount for such
Distribution Date multiplied by the Class A-2 Allocation Percentage.

     "Group II Principal Remittance Amount": For any Distribution Date, the
portion of the Principal Remittance Amount that was collected or advanced on the
Group II Mortgage Loans plus, following the Pre-Funding Period, any remaining
Pre-Funded Amounts related to the Group II Mortgage Loans.

     "Group III Available Funds Cap": For each Distribution Date, the percentage
equivalent of a fraction equal to (a) an amount equal to (i) the aggregate
Interest Remittance Formula Amount for the Group III Mortgage Loans, less (ii)
the Administrative Fees allocable to the Group III Mortgage Loans, and less
(iii) the Group III Class I Monthly Interest Distributable Amount, divided by
(b) the product of (i) the actual number of days in the related Accrual Period
divided by 360 and (ii) the aggregate principal of the Group III Mortgage Loans
plus any related amounts on deposit in the Pre-Funding Account.

     "Group III Basic Principal Distribution Amount": For any Distribution Date,
an amount equal to the excess of (i) the Group III Principal Remittance Amount
for such Distribution Date, over (ii) the Overcollateralization Release Amount,
if any, for such Distribution Date multiplied by the Class A-3 Allocation
Percentage.

     "Group III Class I Monthly Interest Distributable Amount" shall mean, on
each Distribution Date up to and including the Distribution Date in October
2006, the following: Commencing on the first Distribution Date through and
including the Distribution Date in July 2005, an amount equal to the sum of

     (I) the product of (x) the excess, if any, of 1.6000% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$775,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $125,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date;

     (II) the product of (x) the excess, if any, of 2.1400% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$650,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $125,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date;

     (III) the product of (x) the excess, if any, of 2.2700% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account,

                                       24

<PAGE>

for such Distribution Date, over (ii) $525,000,000 multiplied by the Group III
Class I Percentage for such Distribution Date and (b) $125,000,000 multiplied by
the Group III Class I Percentage for such Distribution Date; and

     (IV) the product of (x) the excess, if any, of 1.9775% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$400,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $125,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date; and

     (V) the product of (x) the excess, if any, of 1.9925% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$340,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $60,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date; and

     (VI) the product of (x) the excess, if any, of 2.1000% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$265,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $75,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date; and

     (VII) the product of (x) the excess, if any, of 2.8400% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$190,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $75,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date; and

     (VIII) the product of (x) the excess, if any, of 2.9600% (on a 30/360
basis) over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess
of (i) the aggregate unpaid Principal Balance of the Group III Mortgage Loans
plus any related amount in the Pre-Funding Account, for such Distribution Date,
over (ii) $115,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date and (b) $75,000,000 multiplied by the Group III Class I
Percentage for such Distribution Date; and

     (IX) the product of (x) the excess, if any, of 2.5825% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the excess of (i)
the aggregate unpaid Principal Balance of the Group III Mortgage Loans plus any
related amount in the Pre-Funding Account, for such Distribution Date, over (ii)
$40,000,000 multiplied by the Group III Class I Percentage for such Distribution
Date and (b) $75,000,000 multiplied by the Group III Class I Percentage for such
Distribution Date; and

                                       25

<PAGE>

     (X) the product of (x) the excess, if any, of 2.6300% (on a 30/360 basis)
over LIBOR (on an actual/360 basis) and (y) the lesser of (a) the aggregate
unpaid Principal Balance of the Group III Mortgage Loans plus any related amount
in the Pre-Funding Account, for such Distribution Date and (b) $40,000,000
multiplied by the Group III Class I Percentage for such Distribution Date.

     For the Distribution Date commencing in August 2005 through and including
the Distribution Date in September 2005 an amount equal to the sum of the
amounts described in (II) through (X) above.

     For the Distribution Date in October 2005 an amount equal to the sum of the
amounts described in (IV) through (X) above.

     For the Distribution Date commencing in November 2005 through and including
the Distribution Date in July 2006 an amount equal to the sum of the amounts
described in (VI) through (X) above.

     For the Distribution Date commencing in August 2006 through and including
the Distribution Date in September 2006 an amount equal to the sum of the
amounts described in (VII) through (X) above.

     For the Distribution Date in October 2006 an amount equal to the sum of the
amounts described in (IX) through (X) above.

     For the Distribution Date in November 2006 and each Distribution Date
thereafter, the Group III Class I Monthly Interest Distributable Amount shall be
zero.

                                       26

<PAGE>

"Group III Class I Percentage": For each Distribution Date is as set forth
below:

                                             Group III
 Distribution                                 Class I
     Date                                    Percentage
December 2003                               5.000006051%
January 2004                                5.026828429%
February 2004                               5.051575789%
March 2004                                  5.089031978%
April 2004                                  5.123735382%
May 2004                                    5.155581749%
June 2004                                   5.184468848%
July 2004                                   5.210295721%
August 2004                                 5.232962572%
September 2004                              5.252451331%
October 2004                                5.269710291%
November 2004                               5.285844215%
December 2004                               5.300814475%
January 2005                                5.315801702%
February 2005                               5.330805318%
March 2005                                  5.345824727%
April 2005                                  5.360859341%
May 2005                                    5.375908565%
June 2005                                   5.390971793%
July 2005                                   5.406048424%
August 2005                                 5.421137845%
September 2005                              5.436239447%
October 2005                                5.451352611%
November 2005                               5.466476201%
December 2005                               5.481609897%
January 2006                                5.496753285%
February 2006                               5.511905738%
March 2006                                  5.527066620%
April 2006                                  5.542235293%
May 2006                                    5.557411117%
June 2006                                   5.572593445%
July 2006                                   5.587781630%
August 2006                                 5.602975021%
September 2006                              5.618172962%
October 2006                                5.633374796%

     "Group III Cross Collateralization Amount": For any Distribution Date, the
portion of the Group III Interest Remittance Amount remaining after payment of
the Monthly Interest

                                       27

<PAGE>

Distributable Amount on the Class A-3 Certificates, the related proportional
amount of the Class I Monthly Distributable Amount and the related proportional
amount of the Administrative Fees.

     "Group III Interest Remittance Amount": For any Distribution Date, the
portion of the Interest Remittance Amount that was collected or advanced on the
Group III Mortgage Loans.

     "Group III Mortgage Loans": The Mortgage Loans allocated to Group III which
primarily support the Class A-3 Certificates.

     "Group III Pool Balance": The Pool Balance relating to the Group III
Mortgage Loans.

     "Group III Principal Distribution Amount" with respect to any Distribution
Date is the sum of (i) the Group III Basic Principal Distribution Amount for
such Distribution Date and (ii) the Extra Principal Distribution Amount for such
Distribution Date multiplied by the Class A-3 Allocation Percentage.

     "Group III Principal Remittance Amount": For any Distribution Date, the
portion of the Principal Remittance Amount that was collected or advanced on the
Group III Mortgage Loans plus, following the Pre-Funding Period, any remaining
Pre-Funded Amounts related to the Group III Mortgage Loans.

     "Group III REMIC III Net WAC": The weighted average pass-through rate on
the Class II-M1 through Class II-M35, Class II-O1 through Class II-O35, Class
II-Q1 through Class II-Q35, Class II-Z1 through Class II-Z35, Class II-S1
through Class II-S35, Class II-T1 through Class II-T35, Class II-U1 through
Class II-U35, Class II-V1 through Class II-V35, Class II-W1 through Class
II-W35, Class II-Y1 through Class II-Y35 and Class II-J2 Interests.

     "Group III REMIC Available Funds Cap": The weighted average pass-through
rate on the Class IV-Accrual2 and Class IV-A3 Interests.

     "Group III Schedule": As set forth in Appendix B.

     "Group III Subordinated Amount": For any Distribution Date, the excess, if
any, of the Group III Pool Balance plus any related Pre-Funded Amount over the
aggregate Certificate Principal Balance of the Class A-3 Certificates, for such
Distribution Date.

     "Indenture" An indenture relating to the issuance of net interest margin
notes secured by the Class O Certificates, the Class P Certificates and the
Class X Certificates.

     "Independent": When used with respect to any specified Person, any such
Person who (a) is in fact independent of the Company, the Servicer and their
respective Affiliates, (b) does not have any direct financial interest in or any
material indirect financial interest in the Company or the Servicer or any
Affiliate thereof, and (c) is not connected with the Company or the Servicer or
any Affiliate thereof as an officer, employee, promoter, underwriter, trustee,
partner, director or Person performing similar functions; provided, however,
that a Person shall not fail to be Independent of the Company or the Servicer or
any Affiliate thereof merely because such Person is the beneficial owner of 1%
or less of any Class of securities issued by the Company or the Servicer or any
Affiliate thereof, as the case may be.

                                       28

<PAGE>

     "Index": With respect to each Adjustable Rate Mortgage Loan and with
respect to each related Adjustment Date, the index as specified in the related
Mortgage Note.

     "Initial Certificate Principal Balance": With respect to any Regular
Certificate (other than a Class X Certificate or Class I Certificate), the
amount designated "Initial Certificate Principal Balance" on the face thereof.

     "Initial Mortgage Loan": The Mortgage Loans which are described (with
complete statistical information included) in the Prospectus Supplement and
which are included in the Trust Fund on the Closing Date.

     "Initial Swap Amount": Shall mean a payment in the amount of $856,256.92.

     "Insurance Proceeds": Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan which are required to be remitted to
the Servicer, including MI Insurance Proceeds in the case of Mortgage Loans
covered under a MI Policy, or amounts required to be paid by the Servicer
hereunder, net of any component thereof (i) covering any expenses incurred by or
on behalf of the Servicer in connection with obtaining such proceeds, (ii) that
is applied to the restoration or repair of the related Mortgaged Property or
(iii) released to the Mortgagor in accordance with the Servicer's normal
servicing procedures.

     "Interest Determination Date": With respect to each Accrual Period, the
second LIBOR Business Day preceding the commencement of such Accrual Period.

     "Interest Remittance Amount": With respect to any Distribution Date, that
portion of the Available Funds for such Distribution Date allocable to interest
(excluding Prepayment Charges).

     "Interest Remittance Formula Amount": As of any Distribution Date and any
Group is an amount equal to (1) the product of (x) 1/12 of the Weighted Average
Mortgage Rate of the related Group as of the beginning of the prior Due Period
and (y) the Pool Balance related to that Group as of the beginning of the prior
Due Period minus (2) the aggregate amount of Relief Act Shortfalls and Net
Prepayment Interest Shortfalls for such Group for the prior period.

     "Lender Letter": The lender letter #LL03-00 dated April 11, 2000 for Fannie
Mae Sellers.

     "LIBOR": All references to LIBOR herein are references to LIBOR. With
respect to any Accrual Period, the rate determined by the Trustee on the related
Interest Determination Date on the basis of the offered rates of the Reference
Banks for one-month United States dollar deposits, as such rates appear on the
Telerate Page 3750, as of 11:00 a.m. (London time) on such Interest
Determination Date. If such rate does not appear on Telerate Page 3750, the rate
for that day will be determined on the basis of the rates at which deposits in
United States dollars are offered by the Reference Banks at approximately 11:00
a.m., London time, on that day to prime banks in the London interbank market for
a period equal to the relevant Accrual Period (commencing on the first day of
such Accrual Period). The Trustee will request the principal London office of
each of the Reference Banks to provide a quotation of its rate. If at least two
such quotations are provided, the rate for that day will be the arithmetic mean
of the quotations.

                                       29

<PAGE>

If fewer than two quotations are provided as requested, the rate for that day
will be the arithmetic mean of the rates quoted by major banks in New York City,
selected by the Trustee, at approximately 11:00 a.m., New York City time, on
that day for loans in United States dollars to leading European banks for a
period equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period).

     The establishment of LIBOR on each Interest Determination Date by the
Trustee and the Trustee's calculation of the rate of interest applicable to the
Certificates for the related Accrual Period shall (in the absence of manifest
error) be final and binding.

     "LIBOR Business Day": Any day other than (i) a Saturday or a Sunday or (ii)
a day on which banking institutions in the State of New York or in the city of
London, England are required or authorized by law to be closed.

     "Lifetime Rate Cap": With respect to each Adjustable Rate Mortgage Loan
with respect to which the related Mortgage Note provides for a lifetime rate
cap, the maximum Mortgage Rate permitted over the life of such Mortgage Loan
under the terms of such Mortgage Note, as set forth on the Mortgage Loan
Schedule.

     "Liquidated Mortgage Loan": With respect to any Distribution Date, any
Mortgage Loan in respect of which the Servicer has determined, in accordance
with the servicing procedures specified in Article III hereof, as of the end of
the related Prepayment Period that substantially all Liquidation Proceeds which
it reasonably expects to recover with respect to the disposition of the related
Mortgaged Property or REO Property have been recovered.

     "Liquidation Expenses": Out-of-pocket expenses (exclusive of overhead)
which are incurred by or on behalf of the Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
such expenses, including, without limitation, legal fees and expenses, any
unreimbursed amount expended respecting the related Mortgage Loan and any
related and unreimbursed expenditures for real estate property taxes or for
property restoration, preservation or insurance against casualty loss or damage.

     "Liquidation Proceeds": Proceeds (including Insurance Proceeds) received in
connection with the liquidation of any Mortgage Loan or related REO Property.

     "Loan-to-Value Ratio": With respect to any Mortgage Loan, as of any date of
determination, a fraction expressed as a percentage, the numerator of which is
the then current principal amount of the Mortgage Loan, and the denominator of
which is the lesser of the purchase price or the Appraised Value of the related
Mortgaged Property.

     "Loan Year": With respect to any Mortgage Loan, the one year period
commencing on the day succeeding the origination of such Mortgage Loan and
ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.

     "Majority Certificateholders": The Holders of Certificates evidencing at
least 51% of the Voting Rights.

                                       30

<PAGE>

     "Master REMIC": The REMIC established pursuant to Section 2.09 hereof. The
assets of the Master REMIC shall be the REMIC IV Regular Interests.

     "Master REMIC Regular Interests": As defined in Section 2.09 hereof.

     "Maximum Collateral Amount": The sum of the Principal Balance as of the
Cut-off Date of the Initial Mortgage Loans and the Original Pre-Funded Amount.

     "Maximum Mortgage Rate": With respect to each Adjustable Rate Mortgage
Loan, the percentage set forth in the related Mortgage Note as the maximum
Mortgage Rate thereunder.

     "MERS": Mortgage Electronic Registration Systems, Inc., a corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.

     "MERS System": The system of recording transfers of Mortgages
electronically maintained by MERS.

     "Mezzanine Certificate": Any Class M-1 Certificate, Class M-2 Certificate
or Class M-3 Certificate.

     "MI Insurance Agreement": A private mortgage insurance agreement issued by
the MI Insurer pursuant to which MI Policies are issued on individual Mortgage
Loans.

     "MI Insurance Proceeds": Proceeds paid by the MI Insurer pursuant to an MI
Policy.

     "MI Insurer": Each of (i) PMI Mortgage Insurance Co., an Arizona mortgage
insurance company and (ii) Mortgage Guaranty Insurance Corporation, a Wisconsin
private mortgage insurance company and their successors and assigns.

     "MI Insurer Insolvency Event": (A) The determination by the applicable
regulatory or supervisory agency having jurisdiction over the MI Insurer that
such MI Insurer is insolvent or unable to pay its obligations as they mature,
(B) following the failure of the MI Insurer to pay under the related MI Policy,
the determination by the Servicer that such MI Insurer is insolvent or unable to
pay its obligations as they become due, (C) the long-term rating on the claims
paying ability of the MI Insurer shall be lowered by Moody's below A-2, if such
MI Insurer is then rated by Moody's, or shall be lowered by S&P below AA, if
such MI Insurer is then rated by S&P.

     "MI Policy": A private mortgage insurance policy underwritten by the MI
Insurer with respect to an individual Mortgage Loan, issued pursuant to the MI
Insurance Agreement.

     "MI Premium": The primary mortgage insurance premium for each MI Policy,
payable annually to an MI Insurer, as specified in the MI Insurance Agreement,
and with respect to each monthly premium payment, 1/12 of the annual premium.

     "MIN": The Mortgage Identification Number for Mortgage Loans registered
with MERS on the MERS System.

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     "Minimum Mortgage Rate": With respect to each Adjustable Rate Mortgage
Loan, the percentage set forth in the related Mortgage Note as the minimum
Mortgage Rate thereunder.

     "MOM Loan": With respect to any Mortgage Loan, MERS acting as the mortgagee
of such Mortgage Loan, solely as nominee for the originator of such Mortgage
Loan and its successors and assigns, at the origination thereof.

     "Monthly Interest Distributable Amount": For any Distribution Date and any
Class of Underwritten Certificates, the sum of (1) the Unpaid Interest Shortfall
Amount for that Class and Distribution Date and (2) the Current Interest for
that Class and Distribution Date. In the event of a shortfall in the full amount
necessary to pay both the Unpaid Interest Shortfall Amount and the Current
Interest for a Class, the money will first be applied to the Unpaid Interest
Shortfall Amount and then to the Current Interest.

     "Monthly Payment": With respect to any Mortgage Loan (including any REO
Property) and any Due Date, the payment of principal and interest due thereon in
accordance with the amortization schedule at the time applicable thereto (after
adjustment, if any, for partial Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).

     "Moody's": Moody's Investors Service, Inc. or its successor in interest.

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

     "Mortgage File": The mortgage documents listed in Section 2.01 pertaining
to a particular Mortgage Loan and any additional documents required to be added
to the Mortgage File pursuant to this Agreement.

     "Mortgage Loan Schedule": With respect to any date, the schedule of
Mortgage Loans subject to this Agreement on such date. The schedule of Initial
Mortgage Loans as of the Cut-off Date is the schedule set forth in Exhibit B
hereto and the schedule or schedules of Subsequent Mortgage Loans, if any, as of
the Subsequent Cut-off Date, which schedules set forth as to each Mortgage Loan:

     (i)     the loan number and name of the Mortgagor;

     (ii)    the street address, city, state and zip code of the Mortgaged
Property;

     (iii)   the Mortgage Rate at origination;

     (iv)    with respect to an Adjustable Rate Mortgage Loan, the Maximum Rate
and the Minimum Rate;

     (v)     the maturity date;

     (vi)    the original Principal Balance;

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     (vii)   the first due date;

     (viii)  the type of Mortgaged Property;

     (ix)    the Monthly Payment in effect as of the Cut-off Date (with respect
to a Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to a
Subsequent Mortgage Loan);

     (x)     the Principal Balance as of the Cut-off Date (with respect to a
Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to a Subsequent
Mortgage Loan);

     (xi)    with respect to an Adjustable Rate Mortgage Loan, the Index, the
Gross Margin; the Lifetime Rate Cap and the Periodic Rate Cap;

     (xii)   with respect to an Adjustable Rate Mortgage Loan, the first
Adjustment Date and next Adjustment Date, if any;

     (xiii)  with respect to an Adjustable Rate Mortgage Loan, the Adjustment
Date frequency and Distribution Date frequency;

     (xiv)   the occupancy status;

     (xv)    the purpose of the Mortgage Loan;

     (xvi)   the Appraised Value of the Mortgaged Property;

     (xvii)  the original term to maturity;

     (xviii) the paid-through date of the Mortgage Loan;

     (xix)   the Loan-to-Value Ratio;

     (xx)    whether the Mortgage Loan is an Adjustable Rate Mortgage Loan or a
Fixed Rate Mortgage Loan;

     (xxi)   whether or not the Mortgage Loan was underwritten pursuant to a
limited documentation program;

     (xxii)  whether or not the Mortgage Loan is a Convertible Mortgage Loan;

     (xxiii) whether the Mortgage Loan is covered by an MI Policy;

     (xxiv)  if the Mortgage Loan is registered with MERS on the MERS System,
the MIN; and

     (xxv)   whether the Mortgage Loan is in Group I, Group II or Group III.

     The Mortgage Loan Schedule shall set forth the total of the amounts
described under (x) above for all of the Mortgage Loans.

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     "Mortgage Loans": At any time, collectively, all Mortgage Loans that have
been transferred and conveyed to the Trust, in each case together with the
Related Documents, and that remain subject to the terms of the Agreement. As
applicable, Mortgage Loan shall be deemed to refer to the related REO Property
and both Initial Mortgage Loans and Subsequent Mortgage Loans.

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

     "Mortgage Rate": With respect to any Mortgage Loan, the annual rate at
which interest accrues on such Mortgage Loan.

     "Mortgage Pool": The pool of Mortgage Loans, identified on Exhibit B from
time to time, and any REO Properties acquired in respect thereof and as
supplemented by any Subsequent Mortgage Loans identified on each schedule of
Subsequent Mortgage Loans attached to a Subsequent Transfer Instrument.

     "Mortgaged Property": The underlying property, including real property and
improvements thereon, securing a Mortgage Loan.

     "Mortgagor": The obligor on a Mortgage Note.

     "Net Liquidation Proceeds": With respect to any Liquidated Mortgage Loan,
Liquidation Proceeds net of Liquidation Expenses.

     "Net Mortgage Rate": With respect to any Mortgage Loan and any day, the
related Mortgage Rate less the Administrative Fee Rate.

     "Net Prepayment Interest Shortfall": On any Distribution Date, the excess,
if any of (i) any Prepayment Interest Shortfall and (ii) any payments of
Compensating Interest made by the Servicer.

     "Net WAC": The weighted average Net Mortgage Rate on the Mortgage Loans.

     "NCFC": NovaStar Certificates Financing Corporation, a Delaware
corporation, and its successors and assigns.

     "NFI": NovaStar Financial, Inc., a Maryland corporation, and its successors
and assigns.

     "Non-REMIC Accounts": The Pre-Funding Account and the Supplemental Interest
Accounts held by the related Supplemental Interest Trusts.

     "Nonrecoverable Advance": With respect to any Mortgage Loan, any Advance
(i) which was previously made or is proposed to be made by the Servicer; and
(ii) which, in the good faith judgment of the Servicer, will not or, in the case
of a proposed Advance, would not, be ultimately recoverable by the Servicer from
Liquidation Proceeds, Repurchase Price or future payments on such Mortgage Loan.

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     "Notional Amount Test Event": Occurs when the Trustee determines, pursuant
to Section 4.03(f), that the related scheduled notional amount that would be
used to calculate the Group I/Group II Class I Monthly Interest Distributable
Amount or the Group III Class I Monthly Interest Distributable Amount exceeds
the portion of the aggregate Certificate Principal Balance of the Underwritten
Certificates on such Distribution Date related to such Group or Groups.

     "Novation Agreement": The Novation Agreement, dated as of November 20,
2003, among NovaStar Mortgage, Inc., as transferor, the Trustee on behalf of the
Trust, as transferee and Wachovia Bank, N.A. as cap counterparty.

     "Offered Certificates": Collectively, the Class A Certificates, the
Mezzanine Certificates, the Class B Certificates, and the Class P Certificates.

     "Officer's Certificate": A Certificate signed by the Chairman of the Board,
the Vice Chairman of the Board, the President or any vice president (however
denominated), and by the Treasurer, the Secretary, or any assistant treasurer or
assistant secretary of the applicable Person.

     "Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be a salaried counsel for the Company or the Servicer, acceptable to
the Trustee, except that any opinion of counsel relating to (a) the
qualification of any REMIC as a REMIC or (b) compliance with the REMIC
Provisions which must be an opinion of Independent counsel.

     "Optional Termination Date": The first Distribution Date on which the
Servicer may opt to terminate the Trust Fund pursuant to Section 11.01.

     "Original Pre-Funded Amount": The amount deposited by the Company in the
Pre-Funding Account on the Closing Date, which amount is $480,078,053.21
($398,655,374.28 related to Group I Mortgage Loans, $57,194,111.12 related to
Group II Mortgage Loans and $24,228,567.81 related to Group III Mortgage Loans).

     "Original Value": Except in the case of a refinanced Mortgage Loan, the
lesser of the Appraised Value or sales price of the Mortgaged Property at the
time a Mortgage Loan is closed, and for a refinanced Mortgage Loan, the Original
Value is the value of such property set forth in an appraisal acceptable to the
Servicer.

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

     "Overcollateralization Amount": For any Distribution Date, is equal to (a)
the sum of (i) the Pool Balance, after giving effect to distributions of
principal on the Mortgage Loans, and (ii) any outstanding Pre-Funded Amount,
minus (b) the aggregate Certificate Principal Balance of the Offered
Certificates, after giving effect to principal distributions to be made on the
Offered Certificates on such Distribution Date.

     "Overcollateralization Deficiency Amount": With respect to any Distribution
Date equals the amount, if any, by which the Required Overcollateralization
Amount exceeds the

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<PAGE>

Overcollateralization Amount on such Distribution Date (after giving effect to
distributions in respect of the Group I Basic Principal Distribution Amount, the
Group II Basic Principal Distribution Amount and the Group III Basic Principal
Distribution Amount on such Distribution Date).

     "Overcollateralization Release Amount": With respect to any Distribution
Date, the lesser of (x) the Principal Remittance Amount for such Distribution
Date and (y) the excess, if any, of (i) the Overcollateralization Amount for
such Distribution Date (assuming that 100% of the Principal Remittance Amount is
applied as a principal payment on such Distribution Date) over (ii) the Required
Overcollateralization Amount for such Distribution Date.

     "Pass-Through Rate": For any Distribution Date and any of the Class A,
Class M and Class B Certificates, the lesser of (1) the Formula Rate for such
Class for such Distribution Date and (2) the related Available Funds Cap for
such Distribution Date.

     "Paying Agent": Any paying agent appointed pursuant to Section 5.05.

     "Percentage Interest": With respect to any Underwritten Certificate, a
fraction, expressed as a percentage, the numerator of which is the Initial
Certificate Principal Balance represented by such Certificate and the
denominator of which is the Initial Certificate Principal Balance of the related
Class. With respect to a Class I Certificate, Class X Certificate, Class P
Certificate, Class O Certificate or Residual Certificate, the portion of the
Class evidenced thereby, expressed as a percentage, as stated on the face of
such Certificate; provided, however, that the sum of all such percentages for
each such Class totals 100%.

     "Periodic Rate Cap": With respect to each Adjustable Rate Mortgage Loan and
any Adjustment Date therefor, the fixed percentage set forth in the related
Mortgage Note, which is the maximum amount by which the Mortgage Rate for such
Mortgage Loan may increase or decrease (without regard to the Maximum Mortgage
Rate or the Minimum Mortgage Rate) on such Adjustment Date from the Mortgage
Rate in effect immediately prior to such Adjustment Date.

     "Permitted Transferee": Any transferee of a Residual Certificate other than
a Disqualified Organization or a non-U.S. Person.

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

     "Plan": Any employee benefit plan or certain other retirement plans and
arrangements, including individual retirement accounts and annuities, Keogh
plans and bank collective investment funds and insurance company general or
separate accounts in which such plans, accounts or arrangements are invested,
that are subject to ERISA or Section 4975 of the Code.

     "Pool Balance": As of any date of determination, the aggregate unpaid
Principal Balance of the related Mortgage Loans as of such date.

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<PAGE>

     "Pre-Funded Amount": With respect to any date of determination, the amount
on deposit in the Pre-Funding Account.

     "Pre-Funding Account": The account established and maintained pursuant to
Section 4.05, as defined herein, and which must be an Eligible Account.

     "Pre-Funding Period": The period beginning on the Closing Date and ending
on the earlier to occur of (a) the date upon which (a) the date on which the
amount on deposit in the Pre-Funding Account is less than $10,000 and (b)
February 17, 2004.

     "Prepayment Assumption": As defined in the Prospectus Supplement.

     "Prepayment Charge": With respect to any Mortgage Loan, the charges or
premiums, if any, due in connection with a full or partial Principal Prepayment
of such Mortgage Loan in accordance with the terms thereof.

     "Prepayment Interest Shortfall": As to any Distribution Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, but in the prior calendar month an amount equal to the excess of
interest accrued during the prior calendar month at the Mortgage Rate (net of
the Servicing Fee) on the Principal Balance of such Mortgage Loan over the
amount of interest (adjusted to the Mortgage Rate (net of the Servicing Fee))
paid by the Mortgagor for such Prepayment Period to the date of such Principal
Prepayment in full or (b) a partial Principal Prepayment during the prior
calendar month, an amount equal to interest accrued during the related prior
calendar month at the Mortgage Rate (net of the Servicing Fee) on the amount of
such partial Principal Prepayment.

     "Prepayment Period": For any Distribution Date, the period commencing on
the day after the Determination Date in the month preceding the month in which
such Distribution Date falls (or, in the case of the first Distribution Date,
from the Cut-off Date) and ending on the Determination Date of the calendar
month in which such Distribution Date falls.

     "Principal Balance": With respect to any Mortgage Loan or related REO
Property, at any given time, (i) the Principal Balance of the Mortgage Loan as
of the Cut-off Date or Subsequent Cut-off Date, as applicable, minus (ii) the
sum of (a) the principal portion of the Monthly Payments due with respect to
such Mortgage Loan or REO Property during each Due Period ending prior to the
most recent Distribution Date which were received or with respect to which an
Advance was made, and (b) all Principal Prepayments with respect to such
Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds
and REO Proceeds, to the extent applied by the Servicer as recoveries of
principal in accordance with Section 3.13 hereof with respect to such Mortgage
Loan or REO Property, and (c) the principal portion of any Realized Loss with
respect thereto for any previous Distribution Date.

     "Principal Prepayment": Any payment of principal made by the Mortgagor on a
Mortgage Loan which is received in advance of its scheduled Due Date and which
is not accompanied by an amount of interest representing the full amount of
scheduled interest due on any Due Date in any month or months subsequent to the
month of prepayment.

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     "Principal Remittance Amount": With respect to any Distribution Date, the
sum of (i) each scheduled payment of principal collected or advanced on the
Mortgage Loans by the Servicer that were due during the related Due Period, (ii)
the principal portion of all partial and full Principal Prepayments of the
Mortgage Loans applied by the Servicer during the related Prepayment Period,
(iii) the principal portion of all related Net Liquidation Proceeds and
Insurance Proceeds received during such Prepayment Period, (iv) that portion of
the Repurchase Price, representing principal of any repurchased Mortgage Loan,
deposited to the Collection Account during such Prepayment Period, (v) the
principal portion of any related Substitution Adjustment Amounts deposited in
the Collection Account during such Prepayment Period, (vi) in the case of the
Distribution Date immediately following the end of the Pre-Funding Period, any
remaining amounts of the Original Pre-Funded Amount on deposit in the
Pre-Funding Account, and (vii) on the Distribution Date on which the Trust Fund
is to be terminated pursuant to Section 11.01, that portion of the Termination
Price, in respect of principal.

     "Prospectus": The Prospectus Supplement together with the Base Prospectus
attached thereto with respect to the Offered Certificates.

     "Prospectus Supplement": That certain Prospectus Supplement dated November
17, 2003 relating to the public offering of the Offered Certificates.

     "Purchase Agreement": The agreement, dated as of November 1, 2003, between
the Seller, the Company, the Trustee and the Custodian, regarding the transfer
of the Mortgage Loans by the Seller to or at the direction of the Company.

     "Qualified Liquidation": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(4) of the Code and applicable to the
Trust.

     "Qualified Mortgage": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code and applicable to the
Trust.

     "Qualified Replacement Mortgage": A Mortgage Loan substituted for another
pursuant to Section 3.01 of the Purchase Agreement and that satisfies all of the
criteria set forth from time to time in the definition thereof at Section
860G(a)(4) of the Code and applicable to the Trust, all as evidenced by an
Officer's Certificate of the Seller delivered to the Trustee prior to any such
substitution.

     "Rate Step-up Date": The first Distribution Date to occur after the
Optional Termination Date has occurred.

     "Rating Agency": Any nationally recognized statistical rating organization,
or its successor, that rated the Offered Certificates at the request of the
Company at the time of the initial issuance of the Offered Certificates.
Initially such rating agencies shall consist of Moody's and Standard & Poor's.
If such organization or a successor is no longer in existence, "Rating Agency"
shall be such nationally recognized statistical rating organization, or other
comparable Person, designated by the Company, notice of which designation shall
be given to the Trustee. References herein to the highest short-term unsecured
rating category of a Rating Agency shall mean A-1 or better in the case of
Standard & Poor's, P-1 or better in the case of Moody's and in the case of any
other Rating Agency shall mean such equivalent rating. References herein to the

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highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Standard & Poor's and "Aaa" in the case of Moody's and in the case of
any other Rating Agency, such equivalent rating.

     "Realized Loss": With respect to each Mortgage Loan (or REO Property) as to
which a Cash Liquidation or REO Disposition has occurred, an amount (not less
than zero) equal to (i) the Principal Balance of the Mortgage Loan (or REO
Property) as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the
Due Date as to which interest was last paid or advanced to Certificateholders up
to the last day of the month in which the Cash Liquidation (or REO Disposition)
occurred on the Principal Balance of such Mortgage Loan (or REO Property)
outstanding during each Due Period that such interest was not paid or advanced,
minus (iii) Net Liquidation Proceeds (after giving effect to coverage provided
by any MI policy), if any, received with respect to such Cash Liquidation (or
REO Disposition), minus the portion thereof reimbursable to the Servicer or any
Subservicer with respect to related Advances or expenses as to which the
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
Principal Balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the Principal Balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
object of a Debt Service Reduction, the amount of such Debt Service Reduction.

     "Record Date": With respect to each Distribution Date, the Close of
Business on the Business Day immediately preceding the related Distribution
Date.

     "Reference Banks": Deutsche Bank, Barclay's Bank PLC, The Bank of
Tokyo-Mitsubishi, LTD. and National Westminster Bank PLC and their successors in
interest; provided that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Trustee which are
engaged in transactions in Eurodollar deposits in the international Eurocurrency
market (i) with an established place of business in London, (ii) not
controlling, under the control of or under common control with the Seller or any
Affiliate thereof, (iii) whose quotations appear on the Reuters Screen LIBOR
Page on the relevant Interest Determination Date and (iv) which have been
designated as such by the Trustee.

     "Regular Certificate": Any of the Class A Certificates, Mezzanine
Certificates, Class B Certificates, Class I Certificates, Class O Certificates,
Class X Certificates or Class P Certificates.

     "Related Documents": With respect to each Mortgage Loan, the documents
specified in Section 2.01 hereof and any documents required to be added to such
documents pursuant to this Agreement, the Purchase Agreement or any Subsequent
Transfer Instrument.

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

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     "Relief Act Shortfall": As to any Distribution Date and any Mortgage Loan
(other than a Mortgage Loan relating to an REO Property), any shortfalls
relating to the Relief Act or similar legislation or regulations.

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

     "REMIC Available Funds Cap": For each Distribution Date (a) for the Class
A-1 Certificates and Class A-2 Certificates, the Group I/Group II REMIC
Available Funds Cap, (b) for the Class A-3 Certificates, the Group III REMIC
Available Funds Cap and (c) for the Class M Certificates and Class B
Certificates, the Subordinate REMIC Available Funds Cap.

     "REMIC Interests Sale Agreement": The REMIC Interests Sale Agreement, dated
as November 1, 2003, between the Company and NCFC.

     "REMIC Pass-Through Rate": As defined in Section 2.09 hereof.

     "REMIC I Pass-Through Rate": As to each of the respective REMIC I Regular
Interests, the applicable "REMIC I Pass-Through Rate" set forth in Section 2.09
hereof.

     "REMIC II Pass-Through Rate": As to each of the respective REMIC II Regular
Interests, the applicable "REMIC II Pass-Through Rate" set forth in Section 2.09
hereof.

     "REMIC III Pass-Through Rate": As to each of the respective REMIC III
Regular Interests, the applicable "REMIC III Pass-Through Rate" set forth in
Section 2.09 hereof.

     "REMIC IV Pass-Through Rate": As to each of the respective REMIC IV Regular
Interests, the applicable "REMIC IV Pass-Through Rate set forth in Section 2.09
hereof.

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

     "REMIC Regular Interests": The REMIC I Regular Interests, the REMIC II
Regular Interests, the REMIC III Regular Interests, the REMIC IV Regular
Interests and the Master REMIC Regular Interests.

     "REMIC I Regular Interests": As defined in Section 2.09 hereof.

     "REMIC II Regular Interests": As defined in Section 2.09 hereof.

     "REMIC III Regular Interests": As defined in Section 2.09 hereof.

     "REMIC IV Regular Interests": As defined in Section 2.09 hereof.

     "REO Acquisition": The acquisition by the Servicer on behalf of the Trustee
for the benefit of the Certificateholders of any REO Property pursuant to
Section 3.13 hereof.

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     "REO Disposition": As to any REO Property, a determination by the Servicer
that it has received substantially all Insurance Proceeds, Liquidation Proceeds,
REO Proceeds and other payments and recoveries (including proceeds of a final
sale) which the Servicer expects to be finally recoverable from the sale or
other disposition of the REO Property.

     "REO Imputed Interest": As to any REO Property, for any period, an amount
equivalent to interest (at the Net Mortgage Rate that would have been applicable
to the related Mortgage Loan had it been outstanding net, with respect to a
negative amortization loan, of amounts that would have been Deferred Interest,
if any) on the unpaid Principal Balance of the Mortgage Loan as of the date of
acquisition thereof for such period as such balance is reduced pursuant to
Section 3.13 hereof by any income from the REO Property treated as a recovery of
principal and with respect to a negative amortization loan, as such balance is
increased by the addition of Deferred Interest.

     "REO Proceeds": Proceeds, net of expenses, received in respect of any REO
Property (including, without limitation, proceeds from the rental of the related
Mortgaged Property), which proceeds are required to be deposited into the
Collection Account within two days of receipt by the Servicer.

     "REO Property": A Mortgaged Property that is acquired by the Trust by
foreclosure or by deed in lieu of foreclosure.

     "Repurchase Event": With respect to any Mortgage Loan, either (i) a
discovery that, as of the Closing Date the related Mortgage was not a valid lien
on the related Mortgaged Property subject only to (A) the lien of real property
taxes and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted and (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.

     "Repurchase Price": With respect to any Mortgage Loan (i) required to be
repurchased on any date by the Seller pursuant to the Purchase Agreement, (ii)
permitted to be purchased by the Servicer pursuant to Article III hereof or
(iii) required to be purchased by the Converted Loan Purchaser pursuant to the
Converted Loan Purchase Agreement, an amount equal to the sum, without
duplication, of (i) 100% of the Principal Balance thereof (without reduction for
any amounts charged off) and (ii) unpaid accrued interest at the Mortgage Rate
on the outstanding principal balance thereof from the Due Date to which interest
was last paid by the Mortgagor (or with respect to which an Advance was last
made by the Servicer) to the first day of the month following the month of
purchase plus (iii) the amount of any unreimbursed Servicing Advances or
unreimbursed Advances made with respect to such Mortgage Loan plus (iv) any
other amounts owed to the Servicer or the Subservicer pursuant to Section 3.07
hereof and not included in clause (iii) of this definition plus (v) any costs
and damages incurred by the Trust

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<PAGE>

Fund in connection with any violation by any Mortgage Loan of any predatory or
abusive lending law.

     "Request for Release": A request for release in substantially the form of
Exhibit E hereto.

     "Required Overcollateralization Amount": For any Distribution Date is equal
to:

     (i)  prior to the Crossover Date, 1.20% of the sum of (i) the Pool Balance
of the Initial Mortgage Loans as of the Cut-Off Date, and (ii) the Original
Pre-Funded Amount.

     (ii) on or after the Crossover Date, the greater of:

          a.   0.50% of the sum of (x) the Pool Balance of the Initial Mortgage
     Loans as of the Cut-Off Date and (y) the Original Pre-Funded Amount; and

          b.   the lesser of:

               (1)  1.20% of the sum of (x) the Pool Balance of the Initial
          Mortgage Loans as of the related Cut-Off Date and (y) the Original
          Pre-Funded Amount; and

               (2)  2.40% of the current Pool Balance (after giving effect to
          distributions of principal on the Mortgage Loans) as of the end of the
          related Due Period.

     On any Distribution Date on which a Trigger Event is in effect, the
Required Overcollateralization Amount will be equal to the Required
Overcollateralization Amount as of the preceding Distribution Date.

     "Residual Certificate": The Class R Certificates representing beneficial
ownership of the Class R-I, Class R-II, Class R-III, Class R-IV and Class R-V
Interests.

     "Residual Interest": The sole Class of "residual interests" in a REMIC
within the meaning of Section 860G(a)(2) of the Code.

     "Responsible Officer": With respect to the Trustee, any officer working in
the Corporate Trust Office with direct responsibility for the administration of
this Agreement and also, with respect to a particular matter, any other officer
to whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject.

     "Retained Certificates": The Class I Certificates, Class O Certificates,
the Class P Certificates, the Class R Certificates and the Class X Certificates.

     "Rolling 60-Day Delinquency Percentage": For any Distribution Date, the
average of the 60-Day Delinquency Percentages for the Mortgage Loans as of the
last day of each of the three (or 1 and 2 in the case of the first two
Distribution Dates, as applicable) most recently ended Due Periods.

                                       42

<PAGE>

     "Rolling 90-Day Delinquency Percentage": For any Distribution Date, the
average of the 90-Day Delinquency Percentages for the Mortgage Loans as of the
last day of each of the three (or 1 and 2 in the case of the first two
Distribution Dates, as applicable) most recently ended Due Periods.

     "Seller": NovaStar Mortgage, Inc., a Virginia corporation, and its
successors and assigns.

     "Servicer": NovaStar Mortgage, Inc., a Virginia corporation, and its
successors and assigns.

     "Servicer Remittance Date": The third Business Day prior to each
Distribution Date.

     "Servicing Account": The separate trust account created and maintained by
the Servicer or each Subservicer with respect to the Mortgage Loans or REO
Property, which shall be an Eligible Account, for collection of taxes,
assessments, insurance premiums and comparable items as described in Section
3.08 hereof.

     "Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event in the performance by the Servicer of its servicing
obligations, including, without duplication, but not limited to, the cost of (i)
the preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property, (iv) compliance with the
obligations under Section 3.13 hereof, and (v) expenses incurred in connection
with any Mortgage Loan being registered on the MERS System.

     "Servicing Default": The meaning assigned in Section 7.01 hereof.

     "Servicing Fee": With respect to the Mortgage Loans and any Distribution
Date, the product of (i) the Servicing Fee Rate divided by 12 and (ii) the Pool
Balance as of the first day of the related Due Period.

     "Servicing Fee Rate": With respect to any Mortgage Loan, 0.50% per annum.

     "Servicing Officer": Any officer of the Servicer involved in, or
responsible for, the administration and servicing of the Mortgage Loans whose
name and specimen signature appear on a list of servicing officers furnished to
the Trustee by the Servicer or a Subservicer, as such list may be amended from
time to time.

     "Servicing Transfer Costs": Reasonable and necessary costs and expenses
incurred, by or on behalf of the Trustee or successor Servicer in connection
with the transfer of servicing in the event of termination of the Servicer as
servicer hereunder and the resulting transfer to the successor Servicer.

     "Standard & Poor's": Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., or its successor in interest.

     "Startup Day": As defined in Section 10.01(a) hereof.

                                       43

<PAGE>

     "Subordinate Available Funds Cap": For each Distribution Date, a rate equal
to the weighted average of (1) the Group I/Group II Available Funds Cap and (2)
the Group III Available Funds Cap, weighted on the basis of the related
Subordinated Amount, all for such Distribution Date.

     "Subordinate REMIC Available Funds Cap": The weighted average pass-through
rate on the Class IV-M1, Class IV-M2, Class IV-M3, Class IV-B1, Class IV-B2,
Class IV-B3 and Class IV-O Interests.

     "Subordinated Amount": For each Distribution Date, either the Group I/Group
II Subordinated Amount or the Group III Subordinated Amount, as applicable.

     "Subsequent Cut-off Date": With respect to those Subsequent Mortgage Loans
which are sold to the Trust pursuant to a Subsequent Transfer Instrument, the
later of (i) the first day of the month in which such Subsequent Mortgage Loan
was acquired by the Trust and (ii) the date of origination of such Subsequent
Mortgage Loan.

     "Subsequent Mortgage Loan": A Mortgage Loan sold by the Company to the
Trust Fund pursuant to Section 2.08, such Mortgage Loan being identified on the
Mortgage Loan Schedule attached to a Subsequent Transfer Instrument.

     "Subsequent Transfer Date": With respect to each Subsequent Transfer
Instrument, the date on which the related Subsequent Mortgage Loans are sold to
the Trust Fund.

     "Subsequent Transfer Instrument": Each Subsequent Transfer Instrument,
dated as of a Subsequent Transfer Date, executed by the Trustee and the Company
substantially in the form attached hereto as Exhibit D, by which Subsequent
Mortgage Loans are transferred to the Trust Fund.

     "Subservicer": Any Person with which either Servicer has entered into a
Subservicing Agreement and which meets the qualifications of a Subservicer
pursuant to Section 3.02 hereof.

     "Subservicing Account": An account established by a Subservicer which meets
the requirements set forth in Section 3.06(e) and is otherwise acceptable to the
Servicer.

     "Subservicing Agreement": The written contract between either Servicer and
a Subservicer relating to servicing and administration of certain Mortgage Loans
as provided in Section 3.02 hereof.

     "Subservicing Fee": With respect to each Mortgage Loan and any Distribution
Date, the portion of the Servicing Fee paid to a Subservicer.

     "Substitution Adjustment Amount": As defined in Section 2.03 hereof.

     "Supplemental Interest Account": An account established by the Trustee
pursuant to Section 4.04 and is otherwise acceptable to the applicable Servicer.

                                       44

<PAGE>

     "Supplemental Interest Amount Due": With respect to any Class of
Underwritten Certificates and any Distribution Date, the sum of (x) the
Available Funds Cap Shortfall Amount for such Class of Certificates and such
Distribution Date and (y) the Available Funds Cap Carryforward Amount for such
Class and Distribution Date.

     "Supplemental Interest Payment": With respect to any Distribution Date:

     (i)    for the Class A-1 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-1 Certificates and (y) the amounts on
deposit and available for distribution to the Class A-1 Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (ii)   for the Class A-2A Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-2A Certificates and (y) the amounts on
deposit and available for distribution to the Class A-2A Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (iii)  for the Class A-2B Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-2B Certificates and (y) the amounts on
deposit and available for distribution to the Class A-2B Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (iv)   for the Class A-2C Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-2C Certificates and (y) the amounts on
deposit and available for distribution to the Class A-2C Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (v)    for the Class M-1 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class M-1 Certificates and (y) the amounts on
deposit and available for distribution to the Class M-1 Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (vi)   for the Class M-2 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class M-2 Certificates and (y) the amounts on
deposit and available for distribution to the Class M-2 Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (v)    for the Class M-3 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class M-3 Certificates and (y) the amounts on
deposit and available for distribution to the Class M-3 Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (vi)   for the Class B-1 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class B-1 Certificates and (y) the amounts on
deposit and available for distribution to the Class B-1 Certificates from the
Supplemental Interest Trusts on that Distribution Date;

     (vii)  for the Class B-2 Certificates, the lesser of (x) the Supplemental
Interest Payment Amount Due for the Class B-2 Certificates and (y) the amounts
on deposit and available for distribution to the Class B-2 Certificates from the
Supplemental Interest Trusts on that Distribution Date; and

                                       45

<PAGE>

     (viii) for the Class B-3 Certificates, the lesser of (x) the Supplemental
Interest Payment Amount due for the Class B-3 Certificates and (y) the amounts
on deposit and available for distribution to the Class B-3 Certificates from the
Supplemental Interest Trusts on that Distribution Date.

     "Supplemental Interest Trust": Each of Supplemental Interest Trust I,
Supplemental Interest Trust II and Supplemental Interest Trust III.

     "Supplemental Interest Trust I" One of the three trusts established and
maintained pursuant to Section 4.04 and designated as such.

     "Supplemental Interest Trust II" One of the three trusts established and
maintained pursuant to Section 4.04 and designated as such.

     "Supplemental Interest Trust III" One of the three trusts established and
maintained pursuant to Section 4.04 and designated as such.

     "Swap Agreement": Any of the ten interest rate Swap Agreements between the
Trustee, on behalf of the Trust and a Swap Counterparty which are deemed to be
assets of the Supplemental Interest Trust I and not an asset of any one of the
REMICs created hereunder.

     "Swap Amount": The calculation of the Swap Amount is subject to the
verification and confirmation of the Swap Counterparties who are calculation
agents for the Swap Agreements. Swap Amount shall mean, on each Distribution
Date on or prior to the Class I Termination Date, the excess of (x) the product
of (i) the related fixed rate of interest, (ii) 30 divided by 360 and (iii) the
related notional amount over (y) the product of (i) LIBOR, (ii) the actual
number of days elapsed in the related Accrual Period divided by 360 and (iii)
the related notional amount (so long as such calculation results in a positive
number) which after the occurrence of a Notional Amount Test Event, shall be
calculated pursuant to Section 4.03(f).

     "Swap Counterparty": Greenwich Capital Derivatives, Inc. or Wachovia Bank,
N.A., as applicable.

     "Swap Interest Rate Schedule": As set forth in Appendix B.

     "Swap Termination Payment": The termination payment pursuant to a Swap
Agreement, which would be payable out of the Supplemental Interest Trust I if
the Supplemental Interest Trust I fails to pay the related Swap Amount on a
prior Distribution Date.

     "Tax Matters Person": The tax matters person appointed pursuant to Section
10.01(e) hereof.

     "Tax Returns": The federal income tax return on Internal Revenue Service
Form 1066, U.S. Real Estate Mortgage Investment Conduit (REMIC) Income Tax
Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed by the Trustee, on behalf of each REMIC, together with any and all
other information reports, forms or returns that may be required to be furnished
to the Certificateholders or filed with the Internal Revenue Service or

                                       46

<PAGE>

any other governmental taxing authority under any applicable provisions of
federal, state or local tax laws.

     "Termination Price": As defined in Section 11.01(a) hereof.

     "Telerate Page 3750": The display page currently so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices).

     "Treasury Regulations": Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.

     "Trigger Event": A Trigger Event is in effect with respect to any
Distribution Date, on or after the Crossover Date, if either (i) the Rolling
60-Day Delinquency Percentage exceeds 17% of the Pool Balance at the end of the
related Due Period, or (ii) the Cumulative Loss Percentage for such Distribution
Date is greater than the applicable percentage set forth below with respect to
such Distribution Date:

Distribution Date Occurring In:   Percentage
-------------------------------   ----------

December 2006                           4.00%
January 2007                            4.07%
February 2007                           4.13%
March 2007                              4.20%
April 2007                              4.26%
May 2007                                4.33%
June 2007                               4.39%
July 2007                               4.46%
August 2007                             4.52%
September 2007                          4.59%
October 2007                            4.65%
November 2007                           4.72%
December 2007                           4.78%
January 2008                            4.85%
February 2008                           4.91%
March 2008                              4.98%
April 2008                              5.04%
May 2008                                5.11%
June 2008                               5.17%
July 2008                               5.24%
August 2008                             5.30%
September 2008                          5.37%
October 2008                            5.43%
November 2008                           5.50%
December 2008                           5.54%
January 2009                            5.58%
February 2009                           5.63%
March 2009                              5.67%
April 2009                              5.71%
May 2009                                5.75%
June 2009                               5.79%
July 2009                               5.83%
August 2009                             5.88%
September 2009                          5.92%
October 2009                            5.96%
November 2009 and thereafter            6.00%

                                       47

<PAGE>

     "Trust": NovaStar Mortgage Funding Trust 2003-4, the trust created
hereunder.

     "Trust Fund": All of the assets of the Trust, which is the trust created
hereunder consisting of the REMIC I, REMIC II, REMIC III, REMIC IV, the Master
REMIC, the Pre-Funding Account and the Supplemental Interest Trusts.

     "Trustee": JPMorgan Chase Bank, a New York banking corporation, and its
successors and assigns or any successor Agreement trustee appointed pursuant to
the terms of the Agreement.

     "Trustee Fee": With respect to each Distribution Date, the product of (i)
the Trustee Fee Rate divided by 12 and (ii) the sum of the Principal Balance of
the Mortgage Loans and the Pre-Funded Amount as of the first day of the related
Due Period.

     "Trustee Fee Rate": 0.0035% per annum.

     "Underwriters": Greenwich Capital Markets, Inc., Wachovia Capital Markets,
LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. Incorporated, and their
successors and assigns.

     "Underwriting Agreement": The Underwriting Agreement dated November 17,
2003 among the Underwriters, the Company and the Seller with respect to the
offer and sale of the Underwritten Certificates, as the same may be amended from
time to time.

     "Underwriting Guidelines": The underwriting guidelines set forth in the
Prospectus Supplement under the heading "Description of the Mortgage
Pool--Underwriting Standards for Mortgage Loans".

     "Underwritten Certificates" means, collectively, the Class A Certificates,
the Class B Certificates and the Mezzanine Certificates.

     "United States Person" or "U.S. Person": A citizen or resident of the
United States, a corporation, partnership or other entity treated as a
corporation or partnership for federal income tax purposes (other than a
partnership that is not treated as a U.S. Person pursuant to any applicable
Treasury regulations) created or organized in, or under the laws of, the United
States, any state thereof or the District of Columbia, or an estate the income
of which from sources without the United States is includible in gross income
for United States federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, or a trust if a
court within the United States is able to exercise primary supervision over

                                       48

<PAGE>

the administration of the trust and one or more United States persons have
authority to control all substantial decisions of the trust.

     "Unpaid Interest Shortfall Amount": With respect to each Class of
Underwritten Certificates and (i) the first Distribution Date, zero, and (ii)
any Distribution Date after the first Distribution Date, the sum of (a) the
Unpaid Interest Shortfall Amount for that Class as of the prior Distribution
Date, (b) the excess of the amount of the Current Interest due with respect to
that Class on the prior Distribution Date over the amount actually distributed
to the Holders of that Class on account of the Current Interest on the prior
Distribution Date and (c) interest on the sum of (a) and (b) to the extent
permitted by law, at the Pass-Through Rate for such Class for the related
Accrual Period.

     "Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. At all times the Class A
Certificates, the Mezzanine Certificates and the Class B Certificates shall have
95% of the Voting Rights (allocated among the Holders of the Class A
Certificates, the Mezzanine Certificates and the Class B Certificates in
proportion to the then outstanding Certificate Principal Balances of their
respective Certificates), the Class X Certificates shall have 1% of the Voting
Rights, the Class O Certificates shall have 1% of the Voting Rights, the Class I
Certificates shall have 1% of the Voting Rights, the Class P Certificates shall
have 1% of the Voting Rights and the Class R Certificates shall have 1% of the
Voting Rights. The Voting Rights allocated to any Class of Certificates (other
than the Class X Certificates, Class O Certificates, Class P Certificates, Class
I Certificates and the Class R Certificates) shall be allocated among all
Holders of each such Class in proportion to the outstanding Certificate
Principal Balance of such Certificates and the Voting Rights allocated to the
Class X Certificates, Class O Certificates, Class I Certificates, Class P
Certificates and the Class R Certificates shall be allocated among all Holders
of each such Class in proportion to such Holders' respective Percentage
Interest; provided, however that when none of the Regular Certificates are
outstanding, 100% of the Voting Rights shall be allocated among Holders of the
Class R Certificates in accordance with such Holders' respective Percentage
Interests in the Certificates of such Class.

     "Weighted Average Mortgage Rate": With respect to any Distribution Date,
the weighted average of the Mortgage Rates of the Mortgage Loans (weighted by
the Principal Balances of the Mortgage Loans).

                                       49<PAGE>

                                                                    EXHIBIT 10.1

                                                               EXECUTION VERSION
                                                               -----------------

                             NOVASTAR MORTGAGE, INC.
                                   as Seller,

                      NOVASTAR MORTGAGE FUNDING CORPORATION
                                   as Company,

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                                  as Custodian

                                       and

                               JPMORGAN CHASE BANK
                                   as Trustee

                        MORTGAGE LOAN PURCHASE AGREEMENT

                          Dated as of November 1, 2003

                   Fixed and Adjustable Rate Mortgage Loans

                 NovaStar Mortgage Funding Trust, Series 2003-4
        NovaStar Home Equity Loan Asset-Backed Certificate, Series 2003-4

<PAGE>

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

                                                                         Page(s)

ARTICLE I DEFINITIONS..........................................................1

   Section 1.01  Definitions.................................................. 1

ARTICLE II SALE OF MORTGAGE LOANS AND RELATED PROVISIONS...................... 2

   Section 2.01  Sale of Initial Mortgage Loans and MI Policies............... 2
   Section 2.02  Conveyance of the Subsequent Mortgage Loans.................. 5
   Section 2.03  Pre-Funding Account.......................................... 9

ARTICLE III REPRESENTATIONS AND WARRANTIES;  REMEDIES FOR BREACH.............. 9

   Section 3.01  Seller Representations and Warranties........................ 9
   Section 3.02  Company Representations and Warranties.......................26

ARTICLE IV SELLER'S COVENANTS.................................................27

   Section 4.01  Covenants of the Seller......................................27
   Section 4.02  Payment of Expenses..........................................27

ARTICLE V CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE........................28

   Section 5.01  Conditions of Company's Obligations..........................28

ARTICLE VI INDEMNIFICATION BY THE SELLER  WITH RESPECT TO THE MORTGAGE
            LOANS ............................................................28

   Section 6.01  Indemnification With Respect to the Mortgage Loans...........28
   Section 6.02  Limitation on Liability of the Seller........................29

ARTICLE VII TERMINATION ......................................................29

   Section 7.01  Termination..................................................29

ARTICLE VIII MISCELLANEOUS PROVISIONS.........................................30

   Section 8.01  Amendment....................................................30
   Section 8.02  Governing Law................................................30
   Section 8.03  Notices......................................................31
   Section 8.04  Severability of Provisions...................................32
   Section 8.05  Relationship of Parties......................................32
   Section 8.06  Counterparts.................................................32
   Section 8.07  Further Agreements...........................................32
   Section 8.08  Intention of the Parties.....................................32

                                       i

<PAGE>

   Section 8.09  Successors and Assigns; Assignment of Purchase Agreement.....33
   Section 8.10  Survival.....................................................33
   Section 8.11  Liability of the Trustee.....................................33

EXHIBIT 1        Initial Mortgage Loan Schedule
EXHIBIT 2(A)     Seller's Subsequent Transfer Instrument
EXHIBIT 2(B)     Company's Subsequent Transfer Instrument

                                       ii

<PAGE>

          THIS MORTGAGE LOAN PURCHASE AGREEMENT (this "Purchase Agreement"),
dated as of November 1, 2003, is made among NovaStar Mortgage, Inc. (the
"Seller"), NovaStar Mortgage Funding Corporation (the "Company"), Wachovia Bank,
National Association (the "Custodian") and JPMorgan Chase Bank (the "Trustee").

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

          WHEREAS, pursuant to the terms of this Purchase Agreement, the Seller
will sell the Initial Mortgage Loans and the related MI Policies to the Company
on the Closing Date;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Company will transfer the Initial Mortgage Loans and the related MI
Policies, and assign all of its rights under the Purchase Agreement, to the
Trustee, without recourse, on the Closing Date;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Trustee will issue the Certificates;

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Trustee will transfer to the Company the Certificates;

          WHEREAS, pursuant to the terms of the Underwriting Agreement, the
Company will sell the Underwritten Certificates to the Underwriters;

          WHEREAS, pursuant to the terms of the REMIC Interests Sale Agreement,
the Company will sell the Class X Certificates (including the net value
represented by the Class I Certificates), Class O Certificates, the Class P
Certificates and the Residual Certificates to NovaStar Certificates Financing
Corporation ("NCFC");

          WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement,
the Servicer will service the Mortgage Loans; and

          WHEREAS, pursuant to the terms of the Converted Loan Purchase
Agreement, the Converted Loan Purchaser will purchase the Converted Mortgage
Loans from the Trustee.

                                    ARTICLE I

                                   DEFINITIONS

          Section 1.01  Definitions.
                        ------------

          For all purposes of this Purchase 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 Pooling and Servicing
Agreement, dated as of November 1, 2003, among the Custodian, the Trustee, the
Company and NovaStar Mortgage, Inc. as seller and servicer (the "Servicer")
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.

                                       1

<PAGE>

                                   ARTICLE II

                  SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

          Section 2.01  Sale of Initial Mortgage Loans and MI Policies.
                        -----------------------------------------------

          (a)  The Seller hereby sells, and the Company hereby purchases on the
Closing Date the Initial Mortgage Loans identified (and the related MI Policies)
on the Mortgage Loan Schedule annexed hereto as Exhibit 1, the proceeds thereof
and all rights under the Related Documents (including the related Mortgage
Files). The Initial Mortgage Loans consist of a pool of two groups of
conventional, residential first lien mortgage loans with fixed and adjustable
interest rates, the Group I Mortgage Loans and the Group II Mortgage Loans, and
a group of residential first and second lien mortgage loans with fixed and
adjustable interest rates, the Group III Mortgage Loans. The Initial Mortgage
Loans will have a Principal Balance as of the close of business on the Cut-off
Date, after giving effect to any payments due on or before such date whether or
not received, of approximately $1,019,921,947. The sale of the Initial Mortgage
Loans will take place on the Closing Date, subject to and simultaneously with
the deposit of the Initial Mortgage Loans and the Original Pre-Funded Amount
into the Trust Fund, the issuance of the Certificates by the Trustee and the
sale of the Underwritten Certificates pursuant to the Underwriting Agreement.
The purchase price (the "Purchase Price") for the Initial Mortgage Loans to be
paid by the Company to the Seller on the Closing Date is the unpaid principal
balance of the Initial Mortgage Loans less any unreimbursed advances plus
accrued and unpaid interest plus any costs and damages incurred in connection
with the violation of any Initial Mortgage Loan of any predatory or abusive
lending law. The Purchase Price shall consist of the following:

               (i)   a payment in an amount equal to $1,477,448,044 representing
the net proceeds of the sale of the Underwritten Certificates, which payment
shall be paid to the Seller by wire transfer in immediately available funds on
the Closing Date by or on behalf of the Company, or as otherwise agreed by the
Company; and

               (ii)  a payment in an amount equal to $15,000,000 representing
the proceeds of the sale of the Class O Certificates, the Class P and Class X
Certificates (including the net value represented by the Class I Certificates)
by the Company to NCFC pursuant to the REMIC Interests Sale Agreement, which
payment shall be paid to the Seller by wire transfer in immediately available
funds on the Closing Date by or on behalf of the Company, or as otherwise agreed
by the Company.

          (b)  [Reserved]

          (c)  In connection with such conveyances by the Seller, the Seller
shall on behalf of and at the direction of the Company deliver to, and deposit
with the Custodian on behalf of the Trustee, on or before the Closing Date in
the case of a Initial Mortgage Loan and two Business Days prior to the related
Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the
following documents or instruments with respect to each Mortgage Loan (the
"Mortgage File"):

                                       2

<PAGE>

               (i)   the original Mortgage Note endorsed to "JPMorgan Chase
Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2003-4, relating
to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-4";

               (ii)  the original Mortgage with evidence of recording thereon,
or, if the original Mortgage has not yet been returned from the public recording
office, a copy of the original Mortgage certified by the Seller or the public
recording office in which such original Mortgage has been recorded and if the
Mortgage Loan is registered on the MERS System, such Mortgage shall include
thereon a statement that it is a MOM Loan and shall include the MIN for such
Mortgage Loan;

               (iii) unless the Mortgage Loan is registered on the MERS System,
an original assignment (which may be included in one or more blanket assignments
if permitted by applicable law) of the Mortgage endorsed to "JPMorgan Chase
Bank, as Trustee of the NovaStar Mortgage Funding Trust, Series 2003-4, relating
to the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2003-4", and
otherwise in recordable form;

               (iv)  originals of any intervening assignments of the Mortgage
showing an unbroken chain of title from the originator thereof to the Person
assigning it to the Trustee (or to MERS, if the Mortgage Loan is registered on
the MERS System, and noting the presence of a MIN, if the Mortgage Loan is
registered on the MERS System), with evidence of recording thereon, or, if the
original of any such intervening assignment has not yet been returned from the
public recording office, a copy of such original intervening assignment
certified by the Seller or the public recording office in which such original
intervening assignment has been recorded;

               (v)   the original policy of title insurance (or a commitment for
title insurance, if the policy is being held by the title insurance company
pending recordation of the Mortgage);

               (vi)  true and correct copy of each assumption, modification,
consolidation or substitution agreement, if any, relating to the Mortgage Loan;
and

               (vii) an executed copy of the notice of assignment and
acknowledgement of assignment with respect to the Mortgage Loans covered by the
MI Policies.

          If a material defect in any Mortgage File is discovered which may
materially and adversely affect the value of the related Mortgage Loan, or the
interests of the Trustee (as pledgee of the Mortgage Loans), or the
Certificateholders in such Mortgage Loan, including if any document required to
be delivered to the Custodian has not been delivered (provided that a Mortgage
File will not be deemed to contain a defect for an unrecorded assignment under
clause (i) above for 180 days following submission of the assignment if the
Seller has submitted such assignment for recording pursuant to the terms of the
following paragraph), the Seller shall cure such defect, repurchase the related
Mortgage Loan at the Repurchase Price or substitute an Eligible Substitute
Mortgage Loan for the related Mortgage Loan upon the same terms and conditions
set forth in Section 3.01 hereof as to the Initial Mortgage Loans and the
Subsequent Mortgage Loans and Section 2.02(c) hereof as to the Subsequent
Mortgage Loans for breaches of representations and warranties.

                                       3

<PAGE>

          Promptly after the Closing Date in the case of a Initial Mortgage Loan
or, in the case of a Subsequent Mortgage Loan, promptly after the Subsequent
Transfer Date (or after the date of transfer of any Eligible Substitute Mortgage
Loan), the Seller at its own expense shall complete and submit for recording in
the appropriate public office for real property records each of the assignments
referred to in clause (i) above, with such assignment completed in favor of the
Trustee, excluding any Mortgage Loan that is registered on the MERS System if
MERS is identified on the Mortgage or on a properly recorded assignment of
Mortgage as the mortgagee of record. While such assignment to be recorded is
being recorded, the Custodian shall retain a photocopy of such assignment. If
any assignment is lost or returned unrecorded to the Custodian because of any
defect therein, the Seller is required to prepare a substitute assignment or
cure such defect, as the case may be, and the Seller shall cause such substitute
assignment to be recorded in accordance with this paragraph.

          In instances where an original Mortgage or any original intervening
assignment of Mortgage is not, in accordance with clause (ii) or (iv) above,
delivered by the Seller to the Custodian, on behalf of the Trustee, prior to or
on the Closing Date in the case of a Initial Mortgage Loan or, in the case of a
Subsequent Mortgage Loan, prior to or on the Subsequent Transfer Date, the
Seller will deliver or cause to be delivered the originals of such documents to
the Custodian, on behalf of the Trustee, promptly upon receipt thereof.

          In connection with the assignment of any Initial Mortgage Loan
registered on the MERS System, promptly after the Closing Date, the Seller
further agrees that it will cause, at the Seller's own expense, the MERS System
to indicate that such Initial Mortgage Loan has been assigned by the Seller to
the Trustee in accordance with this Agreement for the benefit of the
Certificateholders by including in such computer files (a) the applicable
Trustee code in the field "Trustee" which identifies the Trustee and (b) the
code "NovaStar 2003-4" (or its equivalent) in the field "Pool Field" which
identifies the series of the Certificates issued in connection with such
Mortgage Loans.

          Effective on the Closing Date, the Company hereby acknowledges its
acceptance of all right, title and interest to the Initial Mortgage Loans and
other property, existing on the Closing Date and thereafter created and conveyed
to it pursuant to this Section 2.01.

          The Trustee, as assignee or transferee of the Company, shall be
entitled to all scheduled principal payments due after the Cut-off Date, all
other payments of principal due and collected after the Cut-off Date, and all
payments of interest on the Initial Mortgage Loans. No scheduled payments of
principal due on or before the Cut-off Date and collected after the Cut-off Date
shall belong to the Company pursuant to the terms of this Purchase Agreement.
The Pooling and Servicing Agreement shall provide that any late payment charges
collected in connection with a Mortgage Loan shall be paid to the Servicer as
provided therein.

          (d)  The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Closing Date of all the
Seller's right, title and interest in and to the Initial Mortgage Loans and
other property as and to the extent described above. In the event the
transactions set forth herein shall be deemed not to be a sale, the Seller
hereby grants to the Company as of the Closing Date a security interest in all
of the Seller's right, title and interest in, to and under the Initial Mortgage
Loans and such other property, to secure all of the Seller's

                                       4

<PAGE>

obligations hereunder and this Purchase Agreement shall constitute a security
agreement under applicable law and in such event, the parties hereto acknowledge
that the Custodian, in addition to holding the Initial Mortgage Loans on behalf
of the Trustee for the benefit of the Certificateholders, holds the Initial
Mortgage Loans as designee of the Company. The Seller agrees to take or cause to
be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements filed in the
Commonwealth of Virginia (which shall have been submitted for filing as of the
Closing Date and each Subsequent Transfer Date, as applicable), any continuation
statements with respect thereto and any amendments thereto required to reflect a
change in the name or corporate structure of the Seller, as are necessary to
perfect and protect the interests of the Company and their respective assignees
in each Initial Mortgage Loan and the proceeds thereof and the interests of the
Trustee and its assignees in each Subsequent Mortgage Loan and the proceeds
thereof. The Company agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements, and continuation statements with respect thereto and
any amendments thereto as are necessary to perfect and protect the interests of
the Trustee and its assignees in each Initial Mortgage Loan.

          Section 2.02  Conveyance of the Subsequent Mortgage Loans.
                        -------------------------------------------

          (a)  Subject to the conditions set forth in paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
of all or a portion of the balance of funds in the Pre-Funding Account, the
Seller shall on any Subsequent Transfer Date sell, transfer, assign, set over
and convey, without recourse, to the Company, who shall then sell, transfer,
assign, set over and convey, without recourse, to the Trustee, but subject to
the other terms and provisions of this Purchase Agreement, all of the right,
title and interest of the Seller in and to (i) the Subsequent Mortgage Loans
(and the related MI Policies) identified on the related Mortgage Loan Schedule
attached to the related Subsequent Transfer Instrument delivered by the Seller
on such Subsequent Transfer Date, (ii) principal due and interest accruing on
the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (i)
with respect to such Subsequent Mortgage Loans all items to be delivered
pursuant to Section 2.01(c) above and the other items in the related Mortgage
Files; provided, however, that the Seller reserves and retains all right, title
and interest in and to principal received and interest accruing on the
Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
transfer by the Seller to the Company, and by the Company to the Trustee, of the
Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to
the related Subsequent Transfer Instrument shall be absolute and is intended by
the Trustee, the Company and the Seller to constitute and to be treated as a
sale of the Subsequent Mortgage Loans by the Seller to the Company, and a sale
of the Subsequent Mortgage Loans by the Company to the Trustee.

          In the event such transactions shall be deemed not to be a sale, the
Seller hereby grants to the Company as of each Subsequent Transfer Date a
security interest in all of the Seller's right, title and interest in, to and
under the related Subsequent Mortgage Loans and such other property, to secure
all of the Seller's obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable law, and in such event, the
parties hereto acknowledge that the Custodian, in addition to holding the
Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee
for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans
and the related MI Policies as designee of the Company. The Seller

                                       5

<PAGE>

agrees to take or cause to be taken such actions and to execute such documents,
including without limitation the filing of all necessary UCC-1 financing
statements filed in the Commonwealth of Virginia (which shall be submitted for
filing as of the related Subsequent Transfer Date), any continuation statements
with respect thereto and any amendments thereto required to reflect a change in
the name or corporate structure of the Seller or the filing of any additional
UCC-1 financing statements due to a change in the state of incorporation of the
Seller as are necessary to perfect and protect the interests of the Company and
its assignees in the Subsequent Mortgage Loans.

          In the event such transactions shall be deemed not to be a sale, the
Company hereby grants to the Trustee as of each Subsequent Transfer Date a
security interest in all of the Company's right, title and interest in, to and
under the related Subsequent Mortgage Loans and such other property, to secure
all of the Company's obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable law, and in such event, the
parties hereto acknowledge that the Custodian, in addition to holding the
Subsequent Mortgage Loans and the related MI Policies on behalf of the Trustee
for the benefit of the Certificateholders, holds the Subsequent Mortgage Loans
and the related MI Policies as designee of the Trustee. The Company agrees to
take or cause to be taken such actions and to execute such documents, including
without limitation, the filing of all necessary UCC-1 financing statements filed
in the State of Delaware (which shall be submitted for filing as of the related
Subsequent Transfer Date), any continuation statements with respect thereto and
any amendments thereto required to reflect a change in the name or corporate
structure of the Company or the filing of any additional UCC-1 financing
statements due to a change in the state of incorporation of the Company as are
necessary to perfect and protect the interests of the Trustee and its assignees
in Subsequent Mortgage Loans.

          The related Mortgage File for each Subsequent Mortgage Loan shall be
delivered to the Custodian, on behalf of the Trustee, prior to the related
Subsequent Transfer Date.

          The Trustee on each Subsequent Transfer Date shall acknowledge by
signing receipt thereof its acceptance of all right, title and interest to the
related Subsequent Mortgage Loans and other property, existing on the Subsequent
Transfer Date and thereafter created, conveyed to it pursuant to this Section
2.02.

          The Trustee, as trustee of the Trust Fund, shall be entitled to all
scheduled principal payments due after each Subsequent Cut-off Date, all other
payments of principal due and collected after each related Subsequent Cut-off
Date, and all payments of interest on the Subsequent Mortgage Loans, minus that
portion of any such payment which is allocable to the period prior to the
related Subsequent Cut-off Date. No scheduled payments of principal due on or
before the related Subsequent Cut-off Date and collected after the related
Subsequent Cut-off Date shall belong to the Trust Fund pursuant to the terms of
this Purchase Agreement.

          The purchase price paid by the Trustee, at the direction of the
Servicer and on behalf of the Trustee, from amounts released from the
Pre-Funding Account shall be one-hundred percent (100%) of the aggregate
Principal Balances of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule attached to the related Subsequent
Transfer Instrument provided by the Seller).

                                       6

<PAGE>

          (b)  The Seller shall transfer to the Company, who shall transfer to
the Trustee, the Subsequent Mortgage Loans and the other property and rights
related thereto described in Section 2.02(a) above, and the Trustee shall cause
to be released funds from the related Pre-Funding Account, only upon the
satisfaction of each of the following conditions on or prior to the related
Subsequent Transfer Date:

               (i)   the Seller shall have provided the Company, and the Company
shall have provided the Trustee, with a timely Addition Notice, which notice
shall be given no fewer than four Business Days prior to the related Subsequent
Transfer Date and shall designate the Subsequent Mortgage Loans to be sold to
the Company and then to the Trustee and the aggregate Principal Balances of such
Subsequent Mortgage Loans as of the related Subsequent Cut-off Date and any
other information reasonably requested by the Trustee with respect to the
Subsequent Mortgage Loans;

               (ii)  the Seller shall have delivered to the Company, who shall
have delivered to the Trustee, who shall have delivered to the Custodian, a duly
executed Subsequent Transfer Instrument substantially in the form of Exhibit
2(A) or 2(B), as applicable, (A) confirming the satisfaction of each condition
precedent and representations specified in this Section 2.02(b), Section 2.02(c)
and in the related Subsequent Transfer Instrument and (B) including a Mortgage
Loan Schedule attached thereto listing the Subsequent Mortgage Loans;

               (iii) as of each Subsequent Transfer Date, as evidenced by
delivery of the Seller's Subsequent Transfer Instrument in the form of Exhibit
2(A) and the Company's Subsequent Transfer Instrument is the form of Exhibit
2(B), neither the Seller nor the Company shall be insolvent or have been made
insolvent by such transfers, nor shall they be aware of any pending insolvency;

               (iv)  such sale and transfer (i) does not cause any REMIC created
under the Pooling and Servicing Agreement to fail to qualify as a REMIC and (ii)
is not a prohibited transaction within the meaning of Section 860F(a)(2) of the
Code or a contribution resulting in a tax under Section 860G(d) of the Code,
both as evidenced by an Opinion of Counsel provided for the Trustee at the
expense of the Seller;

               (v)   the Pre-Funding Period shall not have terminated; and

               (vi)  the Seller shall have delivered to the Custodian, the
Trustee, and the Rating Agencies Opinions of Counsel addressed to the Rating
Agencies, the Trustee and the Custodian with respect to the transfers of the
Subsequent Mortgage Loans substantially in the form of the Opinion of Counsel
delivered to the Custodian, the Trustee and the Rating Agencies on the Closing
Date (1) regarding certain corporate matters and (2) confirming the existence of
a true sale which may be contained in such opinion delivered on the Closing
Date.

          The obligation of the Trustee to purchase a Subsequent Mortgage Loan
on any Subsequent Transfer Date is subject to the following conditions: (1) each
such Subsequent Mortgage Loan shall satisfy the representations and warranties
specified in the related Subsequent Transfer Instrument and this Purchase
Agreement; (2) the Seller shall not select such

                                       7

<PAGE>

Subsequent Mortgage Loans in a manner that it reasonably believes is adverse to
the interests of the Majority Certificateholders; (3) the Seller shall have
delivered certain Opinions of Counsel required pursuant to Section 2.02(b)(iv)
and (vi) hereof; (4) as of the related Subsequent Cut-off Date, the Subsequent
Mortgage Loans shall satisfy the following criteria: (i) each Subsequent
Mortgage Loan shall not be 60 or more days contractually delinquent as of the
related Subsequent Cut-off Date; (ii) the remaining stated term to maturity of
each Subsequent Mortgage Loan shall not exceed 360 months; (iii) no less than
approximately 97.80% of the Subsequent Mortgage Loans are secured by first liens
on the related Mortgaged Property; (iv) each Subsequent Mortgage Loan shall have
an outstanding Principal Balance of at least $10,000; (v) each Subsequent
Mortgage Loan shall be underwritten in accordance with the Underwriting
Guidelines; (vi) each Subsequent Mortgage Loan shall have a Loan-to-Value Ratio
of no more than 100%; (vii) each Subsequent Mortgage Loan shall have a stated
maturity of no later than February 1, 2034; (viii) no Subsequent Mortgage Loan
shall permit negative amortization; (ix) each Subsequent Mortgage Loan shall
either have a fixed Mortgage Rate of at least 4.00% or, if an adjustable loan, a
Gross Margin of at least 1.00%; (x) a minimum of 65% of the Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall have an adjustable
Mortgage Rate; (xi) the weighted average Loan-to-Value Ratio of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be no more
than 80.65%; (xii) no less than 35.50% of the Subsequent Mortgage Loans shall
either (A) have a Loan-to Value Ratio of no more than 60% or (B) have a
Loan-to-Value Ratio of greater than 60% and be covered by an MI Policy which
will insure losses to the extent that the uninsured exposure of the related
Subsequent Mortgage Loan is reduced to an amount equal to 55% or 51% of the
lesser of the appraised value or purchase price, as the case may be, of the
related Mortgaged Property, in each case, at the time of the applicable
effective date of the MI Policy; (xiii) the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall have a weighted average coupon
of at least 7.35%; (xiv) pursuant to the Underwriting Guidelines, no fewer than
50% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall be AAA, A+, ALT-A, AA and M1 credit risks, no fewer than 10% of
the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance)
shall be A, A- and M2 credit risks, and no more than 15% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall be B, B-, C,
C-, M3 and M4 credit risks; (xv) the Subsequent Mortgage Loans (by Subsequent
Cut-off Date Principal Balance) shall have a weighted average FICO score issued
by a consumer credit rating agency of at least 625; (xvi) at least 87% of such
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall
be loans for primary residences; (xvii) no more than 45% of the Subsequent
Mortgage Loans (by Subsequent Cut-off Date Principal Balance) shall have stated
loan documentation, and no more than 15% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance shall have no loan documentation;
(xviii) at least 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be loans for single family residences; (xix) no
more than 70% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall be loans that are the subject of cash-out refinances;
(xx) the ratings agencies shall have consented either in writing or verbally to
the transfer of the Subsequent Mortgage Loans; (xxi) at least 67% of the
Subsequent Mortgage Loans shall have prepayment penalties; and (xxii) none of
the Subsequent Mortgage Loans will have a Loan-to-Value Ratio or a combined
Loan-to-Value Ratio in excess of 100%.

          The acceptance of the Subsequent Mortgage Loans by the Trustee is
subject to the Seller receiving a written or verbal consent from each of the
Rating Agencies that states that the

                                       8

<PAGE>

addition of such Subsequent Mortgage Loans will not cause the Rating Agencies to
downgrade any of their ratings on the Underwritten Certificates.

          Notwithstanding the foregoing, Subsequent Mortgage Loans with
characteristics varying from those set forth above may be purchased by the
Trustee and included in the Trust Fund, if (i) the Trustee is provided with
written confirmation that the aggregate credit risk of such Subsequent Mortgage
Loans is similar to that of the Initial Mortgage Loans and (ii) the Seller
receives and provides to the Trustee a written consent from each of the Rating
Agencies that states that the addition of such Subsequent Mortgage Loans will
not cause the Rating Agencies to downgrade any of their ratings of the
Underwritten Certificates.

          (c)  Within five Business Days after the end of the Pre-Funding
Period, the Seller shall deliver to the Rating Agencies, the Trustee and the
Custodian a copy of the updated Mortgage Loan Schedule including the Subsequent
Mortgage Loans in electronic format.

          Section 2.03  Pre-Funding Account.
                        --------------------

          (a)  No later than the Closing Date, the Trustee will establish and
maintain the Pre-Funding Account pursuant to the Pooling and Servicing
Agreement. On the Closing Date, the Seller will deposit in the Pre-Funding
Account the Original Pre-Funded Amount from the net proceeds of the sale of the
Underwritten Certificates.

                                   ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                               REMEDIES FOR BREACH

          Section 3.01  Seller Representations and Warranties.
                        --------------------------------------

          The Seller hereby represents and warrants to the Company and the
Trustee as of the date hereof, as of the Closing Date (or if otherwise specified
below, as of the date so specified) and as of each Subsequent Transfer Date:

          (a)  As to the Seller:

               (i)   The Seller (i) is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia and
(ii) is qualified and in good standing as a foreign corporation to do business
in each jurisdiction where such qualification is necessary, except where the
failure so to qualify would not have a material adverse effect on the Seller's
ability to enter into this Purchase Agreement and each Seller's Subsequent
Transfer Instrument and to consummate the transactions contemplated hereby and
thereby;

               (ii)  The Seller has the power and authority to make, execute,
deliver and perform its obligations under this Purchase Agreement and each
Seller's Subsequent Transfer Instrument and all of the transactions contemplated
under this Purchase Agreement and each Seller's Subsequent Transfer Instrument,
and has taken all necessary corporate action to

                                       9

<PAGE>

authorize the execution, delivery and performance of this Purchase Agreement
each Seller's Subsequent Transfer Instrument;

               (iii)  The Seller is not required to obtain the consent of any
other Person or any consent, 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
Purchase Agreement or any Seller's Subsequent Transfer Instrument, except for
such consents, approvals 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 Purchase Agreement and
each Seller's Subsequent Transfer Instrument and the performance of the
transactions contemplated hereby by the Seller will not violate any provision of
any existing law or regulation or any order or decree of any court applicable to
the Seller or any provision of the certificate of incorporation or bylaws of the
Seller, or constitute a material breach of any mortgage, indenture, contract or
other agreement to which the Seller is a party or by which the Seller may be
bound;

               (v)    No litigation or administrative proceeding of or before
any court, tribunal or governmental body is currently pending, or to the
knowledge of the Seller threatened, against the Seller or any of its properties
or with respect to this Purchase Agreement or any Seller's Subsequent Transfer
Instrument, the Certificates which in the opinion of the Seller has a reasonable
likelihood of resulting in a material adverse effect on the transactions
contemplated by this Purchase Agreement or any Seller's Subsequent Transfer
Instrument;

               (vi)   This Purchase Agreement and each Seller's Subsequent
Transfer Instrument constitute the legal, valid and binding obligations of the
Seller, enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);

               (vii)  This Purchase Agreement constitutes a valid transfer and
assignment to the Company of all right, title and interest of the Seller in and
to the Cut-off Date Principal Balance of the Initial Mortgage Loans, all monies
due or to become due with respect thereto, and all proceeds of such Cut-off Date
Principal Balance of the Initial Mortgage Loans, and this Purchase Agreement and
the related Seller's Subsequent Transfer Instrument constitutes a valid transfer
and assignment to the Trustee of all right, title and interest of the Seller in
and to the Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage
Loans, all monies due or to become due with respect thereto, and all proceeds of
such Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage Loans;

               (viii) The Seller is not in default with respect to any order or
decree of any court or any order or regulation of any federal, state or
governmental agency, which default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of the
Seller or its properties or might have consequences that would materially
adversely affect its performance hereunder; and

                                       10

<PAGE>

               (ix)   The Servicer or any Subservicer who will be servicing any
Mortgage Loan pursuant to the Pooling and Servicing Agreement or a Subservicing
Agreement is qualified to do business in all jurisdictions in which its
activities as Servicer or Subservicer of the Mortgage Loans serviced by it
require such qualifications except where failure to be so qualified will not
have a material adverse effect on such servicing activities.

          (b)  As to each Initial Mortgage Loan as of the Closing Date and with
respect to each Subsequent Mortgage Loan as of the Subsequent Transfer Date,
except as otherwise expressly stated:

               (i)        The information set forth on the Mortgage Loan
Schedule with respect to each Initial Mortgage Loan is true and correct in all
material respects as of the Closing Date, and with respect to each Subsequent
Mortgage Loan is true and correct in all material respects as of the related
Subsequent Transfer Date, and the information regarding the Initial Mortgage
Loans and the Subsequent Mortgage Loans on the computer diskette or tape
delivered to the Trustee prior to the Closing Date or Subsequent Transfer Date,
as applicable, is true and accurate in all material respects and describes the
same Mortgage Loans as the Mortgage Loans on the Mortgage Loan Schedule;

               (ii)       The Mortgage Loans are not being transferred with any
intent to hinder, delay or defraud any creditors;

               (iii)      No more than 6.22%, 4.42% and 5.34% of the Initial
Mortgage Loans in Group I, Initial Mortgage Loans in Group II and Initial
Mortgage Loans in Group III, respectively, (by Cut-off Date Principal Balance)
were secured by condominium units; and no more than 12.92%, 14.92% and 17.60% of
the Initial Mortgage Loans in Group I, Initial Mortgage Loans in Group II and
the Initial Mortgage Loans in Group III, respectively, (by Cut-off Date
Principal Balance) were secured by properties in planned unit developments;

               (iv)       As of the Cut-off Date, the remaining term of each
Group I Initial Mortgage Loan is not more than 360 months and not less than 118
months, the remaining term of each Group II Initial Mortgage Loan is not more
than 360 months and not less than 119 months and the remaining term of each
Group III Initial Mortgage Loan is not more than 360 months and not less than
175 months;

               (v)        No more than 64.74%, 69.41% and 41.36% of the Initial
Mortgage Loans in Group I, Initial Mortgage Loans in Group II and Initial
Mortgage Loans in Group III, respectively, (by Cut-off Date Principal Balance)
have been the subject of cash-out refinances;

               (vi)       No more than 8.13%, 7.61% and 6.57% of the Initial
Mortgage Loans in Group I, Initial Mortgage Loans in Group II and Initial
Mortgage Loans in Group III, respectively, (by Cut-off Date Principal Balance)
respectively, have been the subject of rate and term (no cash-out) refinances;

               (vii)      No fewer than 27.13%, 22.99% and 52.07% of the Initial
Mortgage Loans in Group I Initial Mortgage Loans in Group III and Initial
Mortgage Loans in Group III, respectively, (by Cut-off Date Principal Balance)
are purchase money loans;

                                       11

<PAGE>

               (viii)     No more than 23.24%, 41.22% and 33.48% of the Initial
Mortgage Loans in Group I, the Initial Mortgage Loans in Group II and Initial
Mortgage Loans in Group III, respectively, (by Cut-off Date Principal Balance)
are secured by Mortgaged Properties located in the State of California; no more
than 17.84%, 8.58% and 8.49% of the Initial Mortgage Loans in Group I, Initial
Mortgage Loans in Group II and the Initial Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) are secured by Mortgaged
Properties located in the State of Florida; no more than 6.85% of the Initial
Mortgage Loans in Group II (by Cut-off Date Principal Balance) are secured by
Mortgaged Properties located in the State of New York; no more than 5.23% of the
Initial Mortgage Loans in Group III (by Cut-off Date Principal Balance) are
secured by Mortgaged Properties located in the State of Nevada; and no more than
4.29%, 3.50% and 4.09% of the Initial Mortgage Loans in Group I, Initial
Mortgage Loans in Group II and the Initial Mortgage Loans in Group III,
respectively, (by Cut-off Date Principal Balance) are located in any other
state;

               (ix)       The outstanding Principal Balances of the Initial
Mortgage Loans in Group I (by Cut-off Date Principal Balance) ranged from
$32,000 to $490,000, the average outstanding Principal Balance of the Initial
Mortgage Loans in Group I is approximately $141,803; the outstanding Principal
Balances of the Initial Mortgage Loans in Group II (by Cut-off Date Principal
Balance) ranged from $39,984 to $776,423, the average outstanding Principal
Balance of the Initial Mortgage Loans in Group II is approximately $245,642, the
outstanding Principal Balance of the Initial Mortgage Loans in Group III (by
Cut-off Date Principal Balance) ranged from $10,980 to $1,120,000 and the
average outstanding Principal Balance of the Initial Mortgage Loans in Group III
is approximately $69,265;

               (x)        Approximately 75.23%, 79.40% and 39.70% of the Initial
Mortgage Loans in Group I, Initial Mortgage Loans in Group II and Initial
Mortgage Loans in Group III, respectively (by Cut-off Date Principal Balance)
were secured by a first lien on a parcel of real property improved by a detached
single family residence; no more than 5.63%, 1.27% and 3.76% of the Initial
Mortgage Loans in Group I, the Initial Mortgage Loans in Group II and the
Initial Mortgage Loans in Group III, respectively, (by Cut-off Date Principal
Balance) were secured by a first lien on a parcel of real estate improved by a
multi-unit residence;

               (xi)       All points and fees related to each Mortgage Loan were
disclosed in writing to the borrower in accordance with applicable state and
federal law. No borrower was charged "points and fees" (whether or not financed)
in an amount greater than 5% of the principal amount of any such loan originated
by the Seller, such 5% limitation calculated in accordance with the Lender
Letter. All fees and charges (including finance charges) and whether or not
financed, assessed, collected or to be collected with the origination and
servicing of each Mortgage Loan has been disclosed in writing to the borrower in
accordance with applicable state and federal law and regulation;

               (xii)      The Mortgage Rates borne by the adjustable rate
Initial Mortgage Loans in Group I as of the Closing Date range from 4.750% and
per annum to 10.875% per annum, and the weighted average Mortgage Rate (by
Cut-off Date Principal Balance) of the adjustable rate Initial Mortgage Loans in
Group I was 7.392%, per annum; the Mortgage Rates borne by fixed rate Initial
Mortgage Loans in Group I as of the Closing Date range from 4.250% per annum to
11.850% per annum, and the weighted average Mortgage Rate

                                       12

<PAGE>

(by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I was
7.313% per annum; the Mortgage Rates borne by adjustable rate Initial Mortgage
Loans in Group II as of the Closing Date range from 4.750% per annum to 12.550%
per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the adjustable rate Initial Mortgage Loans in Group II was 7.580%,
per annum; the Mortgage Rates borne by fixed rate Initial Mortgage Loans in
Group II as of the Closing Date range from 4.990% per annum to 9.375% per annum,
and the weighted average Mortgage Rate (by Cut-off Date Principal Balance) of
the Initial Mortgage Loans in Group II was 7.262% per annum; the Mortgage Rates
borne by adjustable rate Initial Mortgage Loans in Group III as of the Closing
Date range from 5.350% per annum to 11.800% per annum, and the weighted average
Mortgage Rate (by Cut-off Date Principal Balance) of the adjustable rate Initial
Mortgage Loans in Group III was 7.387% per annum; the Mortgage Rates borne by
fixed rate Initial Mortgage Loans in Group III as of the Closing Date range from
5.250% per annum to 13.375% per annum and the weighted average Mortgage Rate (by
Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group III was
8.889% per annum.

               (xiii)     Approximately 43.53%, 44.88% and 70.05% of the Initial
Mortgage Loans in Group I, the Initial Mortgage Loans in Group II, and the
Initial Mortgage Loans in Group III, respectively, (by Cut-off Date Principal
Balance) have a Loan-to-Value Ratio in excess of 80%; no Group I Initial
Mortgage Loan, Group II Initial Mortgage Loan or Group III Initial Mortgage Loan
in the Mortgage Pool had a Loan-to-Value Ratio or combined Loan-to-Value Ratio
at origination in excess of 100%; and the weighted average Loan-to-Value Ratio
(by Cut-off Date Principal Balance) of the Initial Mortgage Loans in Group I,
the Group II Mortgage Initial Mortgage Loans and the Initial Mortgage Loans in
Group III was equal to or less than [79.42]%, [80.20]% and [87.56]%,
respectively;

               (xiv)      Approximately 100.00%, 100.00% and 51.71% of the
Initial Mortgage Loans in Group I, the Initial Mortgage Loans in Group II and
the Initial Mortgage Loans in Group III, respectively, are secured by first
liens on the related Mortgaged Property; and approximately 48.29% of the Initial
Mortgage Loans in Group III are secured by second liens on the related Mortgaged
Property;

               (xv)       The weighted average Loan-to-Value Ratio of the
Initial Mortgage Loans in Group I secured by first liens is approximately
79.42%; the weighted average Loan-to-Value Ratio of the Initial Mortgage Loans
in Group II secured by first liens is approximately 80.20%; the weighted average
Loan-to-Value Ratio of the Initial Mortgage Loans in Group III secured by first
liens is approximately 76.56%; the weighted average combined Loan-to-Value Ratio
of the Initial Mortgage Loans in Group III secured by first and second liens is
approximately 88.41%; the weighted average combined Loan-to-Value Ratio of all
of the Initial Mortgage Loans in both Group I, Group II and Group III is
approximately 79.91%; the gross weighted average coupon of the Initial Mortgage
Loans is approximately 7.386%;

               (xvi)      There is no valid offset, right of rescission,
defense, claim or counterclaim of any obligor under any Mortgage Note or
Mortgage, including the obligation of the Mortgagor to pay the unpaid principal
of or interest on such Mortgage Note, and any applicable right of rescission has
expired, nor will the operation of any of the terms of such Mortgage Note or
Mortgage, or the exercise of any right thereunder, render either the Mortgage

                                       13

<PAGE>

Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off,
recoupment, counterclaim or defense has been asserted with respect thereto, and,
to the best of Seller's knowledge, no Mortgagor of the applicable Mortgage was a
debtor in any state or federal bankruptcy or insolvency proceeding;

               (xvii)     There are no mechanics' liens or claims for work,
labor or material affecting any Mortgaged Property which are or may be a lien
prior to, or equal with, the lien of such Mortgage, except those which are
insured against by the title insurance policy referred to in clause (xix) below;

               (xviii)    As of the Closing Date in the case of an Cut-off Date
Mortgage Loan or as of the related Subsequent Cut-off Date in the case of a
Subsequent Mortgage Loan, each Mortgaged Property is free of material damage and
is in good repair and there is no proceeding pending or threatened for the total
or partial condemnation of any Mortgage Property;

               (xix)      Each Mortgage is a valid and enforceable first or
second lien on the Mortgaged Property securing the related Mortgage Note and
each Mortgaged Property is owned by the Mortgagor in fee simple (except with
respect to common areas in the case of condominiums, PUDs and de minimis PUTDs)
subject only to (1) the lien of nondelinquent current real property taxes and
assessments, (2) covenants, conditions and restrictions, rights of way,
easements and other matters of public record as of the date of recording of such
Mortgage, such exceptions appearing of record being acceptable to mortgage
lending institutions generally or specifically reflected in the appraisal made
in connection with the origination of the related Mortgage Loan or referred to
in the lender's title insurance policy delivered to the originator of the
related Mortgage Loan and (3) other matters to which like properties are
commonly subject that do not materially interfere with the benefits of the
security intended to be provided by such Mortgage. Immediately prior to the sale
of such Mortgage Loan to the Company in the case of a Initial Mortgage Loan and
to the Trustee in the case of a Subsequent Mortgage Loan pursuant to this
Purchase Agreement, the Seller had full right to sell and assign the same to the
Company or the Trustee, as the case may be. Immediately following the sale of
such Mortgage Loan to the Company and the Company's assignment and sale thereof
of such Mortgage Loan to the Trustee in the case of a Initial Mortgage Loan, the
Trustee will have good title thereto subject to no claims or liens, including
delinquent tax or assessment liens. Immediately following the sale of such
Mortgage Loan to the Company and the Company's assignment and sale thereof to
the Trustee in the case of a Subsequent Mortgage Loan, the Trustee will have
good title thereto subject to no claims or liens;

               (xx)       Each Mortgage Loan at origination complied in all
material respects with applicable local, state and federal laws, including,
without limitation, usury, equal credit opportunity, real estate settlement
procedures, the Truth In Lending Act of 1968, as amended, all applicable
predatory and abusive lending laws and disclosure laws and consummation of the
transactions contemplated hereby, including without limitation, the receipt of
interest by the owner of such Mortgage Loan or the Holders of Certificates
secured thereby, will not violate any such laws. Each Mortgage Loan is being
serviced in all material respects in accordance with applicable state and
federal laws, including, without limitation, the Truth In

                                       14

<PAGE>

Lending Act of 1968, as amended, and other consumer protection laws, real estate
settlement procedures, usury, equal credit opportunity and disclosure laws;

               (xxi)      Neither the Seller nor any prior holder of any
Mortgage has impaired, waived, altered or modified the Mortgage or Mortgage
Notes in any material respect (except that a Mortgage Loan may have been
modified by a written instrument which has been recorded, if necessary to
protect the interests of the owner of such Mortgage Loan or the Certificates,
and which has been delivered to the Trustee); satisfied, canceled or
subordinated such Mortgage in whole or in part; released the applicable
Mortgaged Property in whole or in part from the lien of such Mortgage; or
executed any instrument of release, cancellation or satisfaction with respect
thereto;

               (xxii)     A lender's policy of title insurance (on an ALTA or
CLTA form) or binder, or other assurance of title customary in the relevant
jurisdiction insuring the first lien priority of the Mortgage Loan in an amount
at least equal to the original Principal Balance of each such Mortgage Loan or a
commitment binder or commitment to issue the same was effective on the date of
the origination of each Mortgage Loan, each such policy is valid and remains in
full force and effect, and each such policy was issued by a title insurer
qualified to do business in the jurisdiction where the Mortgaged Property is
located, which policy insures the Seller and successor owners of indebtedness
secured by the insured Mortgage as to the first priority lien of the Mortgage as
applicable. The Seller is, and such successor owners will be, the sole insured
under such lender's title insurance policy; no claims have been made under such
mortgage title insurance policy; no prior holder of the applicable Mortgage,
including the Seller, has done, by act or omission, anything which would impair
the coverage of such mortgage title insurance policy; and each such policy,
binder or assurance contains all applicable endorsements;

               (xxiii)    All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property lie wholly
within the boundaries and building restriction lines of such property and no
improvements on adjoining properties encroach upon the Mortgaged Property;

               (xxiv)     No improvement located on or being part of the
Mortgaged Property is in violation of any applicable zoning law or regulation,
subdivision law or ordinance, except where the failure to comply would not have
a material adverse effect on the market value of the Mortgaged Property. All
inspections, licenses and certificates required to be made or issued with
respect to all occupied portions of the Mortgaged Property and, with respect to
the use and occupancy and fire underwriting certificates, have been made or
obtained from the appropriate authorities and the Mortgaged Property is lawfully
occupied under applicable law except where the failure to comply would not have
a material adverse effect on the market value of the Mortgaged Property;

               (xxv)      Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium, receivership and other
similar laws relating to creditors' rights generally or by equitable principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). All parties to the Mortgage Note and the Mortgage had legal capacity
to

                                       15

<PAGE>

execute the Mortgage Note and the Mortgage and each Mortgage Note and Mortgage
has been duly and properly executed by such parties;

               (xxvi)     The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursement of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making, closing or recording the Mortgage Loans
were paid and the Mortgagor is not entitled to any refund of amounts paid or due
under the Mortgage Note;

               (xxvii)    Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including (i) in the case of a Mortgage designated as a deed of trust,
by trustee's sale, and (ii) otherwise by judicial foreclosure or if applicable,
non-judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and
foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the
proper procedures, the holder of the Mortgage Loan will be able to deliver good
and merchantable title to the property, subject to any applicable rights of
redemption;

               (xxviii)   With respect to each Mortgage constituting a deed of
trust, either a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in such
Mortgage or if no duly qualified trustee has been properly designated and so
serves, the Mortgage contains satisfactory provisions for the appointment of
such trustee by the holder of the Mortgage at no cost or expense to such holder,
and no fees or expenses are or will become payable by the Certificateholders to
the trustee under the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor;

               (xxix)     There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof cannot be made, and no escrow deficits or payments of
other charges or payments due the Seller have been capitalized under the
Mortgage or the applicable Mortgage Note;

               (xxx)      The Mortgage Note is not and has not been secured by
any collateral, pledged account or other security other than real estate
securing the Mortgagor's obligations and no Mortgage Loan is secured by more
than one Mortgaged Property;

               (xxxi)     As of the Closing Date in the case of a Initial
Mortgage Loan and as of the related Subsequent Transfer Date in the case of a
Subsequent Mortgage Loan, the improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy substantially acceptable
to FNMA and acceptable to the Seller which policy provides for fire extended
coverage and such other hazards as are customary in the area where the Mortgaged
Property is located representing coverage in an amount not less than the lesser
of (A) the maximum insurable value of the improvements securing such Mortgage
Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if
the improvement on the Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium project. All
individual insurance policies contain a standard mortgagee clause naming the
Seller or the original holder of the Mortgage, and its successors in

                                       16

<PAGE>

interest, as mortgagee, and the Seller has received no notice that any premiums
due and payable thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor's cost and expense,
and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage
to obtain and maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from the Mortgagor. There has been no act or
omission which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either;

               (xxxii)    If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance Administration is
in effect with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (A) the
outstanding Principal Balance of the Mortgage Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis and (C)
the maximum amount of flood coverage that is available under federal law;

               (xxxiii)   Except for the Mortgage Loan referred to in clause
(xii) as being delinquent, there is no material monetary default, breach,
violation or event of acceleration existing under the Mortgage or the applicable
Mortgage Note; and no material event which, with the passage of time or with
notice and the expiration of any grace or cure period, would constitute a
material default, breach, violation or event of acceleration, and neither the
Seller, any of its affiliates nor any servicer or subservicer of any related
Mortgage Loan has waived any default, breach, violation or event of
acceleration; no foreclosure action is threatened or has been commenced with
respect to the Mortgage Loan;

               (xxxiv)    Each Mortgage Loan is being serviced by the Servicer;

               (xxxv)     There is no obligation on the part of the Seller or
any other party to make any payments with respect to the related Mortgage Loan
in addition to the Monthly Payments required to be made by the applicable
Mortgagor;

               (xxxvi)    Any future advances made prior to the Cut-off Date in
the case of a Initial Mortgage Loan and as of the related Subsequent Transfer
Date in the case of a Subsequent Mortgage Loan, with respect to any Mortgage
Loan have been consolidated with the outstanding principal amount secured by
such Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the Mortgage Loan Schedule.
The consolidated principal amount does not exceed the original principal amount
of the Mortgage Loan. The Mortgage Note with respect to any Mortgage Loan does
not permit or obligate the Servicer to make future advances to the Mortgagor at
the option of the Mortgagor;

               (xxxvii)   The Seller has caused or will cause to be performed
any and all acts required to preserve the rights and remedies of the Company and
the Trustee evidencing an interest in the Mortgage Loans in any insurance
policies applicable to the Mortgage Loans including, without limitation, any
necessary notifications of insurers,

                                       17

<PAGE>

assignments of policies or interests therein, and establishments of coinsured,
joint loss payee and mortgagee rights in favor of Trustee;

               (xxxviii)  Except as set forth in clause (xlii), there are no
defaults by the Mortgagor in complying with the terms of any Mortgage, and all
taxes, governmental assessments, insurance premiums, water, sewer and municipal
charges which previously became due and owing have been paid, or, if required by
the terms of the Mortgage Loan, an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed, but is not yet due and payable. Except for (A) payments in the
nature of escrow payments and (B) interest accruing from the date of the
Mortgage Note or date of disbursement of the Mortgage proceeds to the day which
precedes by one month the Due Date of the first installment of principal and
interest, including, without limitation, taxes and insurance payments, the
Servicer has not advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required by the Mortgage;

               (xxxix)    At the time of origination, each Mortgaged Property
was the subject of an appraisal which conforms to the underwriting requirements
of the related originator; and the Mortgage File contains an appraisal of the
applicable Mortgaged Property;

               (xl)       None of the Mortgage Loans are graduated payment
Mortgage Loans or growth equity Mortgage Loans;

               (xli)      49.64%, 45.22% and 55.71% of the adjustable rate
Group I Closing Date ARM Mortgage Loans, the adjustable rate Group II Closing
Date ARM Mortgage Loans and the adjustable rate Group III Closing Date ARM
Mortgage Loans, respectively, (by Cut-off Date Principal Balance) are
Convertible Mortgage Loans;

               (xlii)     (a) Except with respect to no more than 0.01%, 0.00%
and 0.00% of the Initial Mortgage Loans in Group I, the Initial Mortgage Loans
in Group II and the Initial Mortgage Loans in Group III, respectively, none of
the payments of principal of or interest on or in respect of any Initial
Mortgage Loans (by Cut-off Date Principal Balance) shall be 30 days or more but
less than 60 days past due as of the Cut-off Date; none of the payments of
principal or interest on or in respect of any Initial Mortgage Loans shall be 60
days or more but less than 90 days past due as of the Cut-off Date; and no
Initial Mortgage Loan was 90 days or more past due as of the Cut-off Date; (b)
except as set forth in clause (a) above, all payments required to be made by the
Mortgagor under the terms of the Mortgage Note have been made and credited; and
(c) to the Seller's knowledge, there was no delinquent recording, tax or
assessment lien against the property subject to any Mortgage, except where such
lien was being contested in good faith and a stay had been granted against
levying on the property;

               (xliii)    Upon payment of the Purchase Price for the Mortgage
Loans by the Company or the Trustee, as applicable, pursuant to this Purchase
Agreement, the Seller has transferred to the Company in the case of a Initial
Mortgage Loan and to the Trustee in the case of a Subsequent Mortgage Loan, good
and marketable title to each Mortgage Note and Mortgage free and clear of any
and all liens, claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature and has or had full right and

                                       18

<PAGE>

authority, subject to no participation of or agreement with any other person, to
sell and assign the same, and following the sale of each Initial Mortgage Loan,
the Company or the Trustee, as applicable, will own such Mortgage Loan free and
clear of any encumbrance, equity interest, participation interest, lien, pledge,
charge, claim or security interest;

               (xliv)     The Seller acquired any right, title and interest in
and to the Mortgage Loans in good faith and without notice of any adverse claim;

               (xlv)      The Mortgage Note, the Mortgage, the related
Assignment of Mortgage and any other documents required to be delivered by the
Seller have been delivered to the Custodian. The Custodian is in possession of a
complete, true and accurate Mortgage File in accordance with Section 2.01
hereof. Substantially all Mortgage Loans have monthly payments due on the first
day of each month and each Mortgage Loan had an original term to maturity of no
greater than 30 years;

               (xlvi)     Each Mortgage Loan contains a due-on-sale provision,
although each Mortgage Loan may be assumable if permitted by the Servicer under
certain circumstances;

               (xlvii)    Each of the Mortgage and the Assignment of Mortgage is
in recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located;

               (xlviii)   The Mortgagor has not notified the Seller, and the
Seller has no knowledge of any relief requested or allowed to the Mortgagor
under the Soldiers' and Sailors' Civil Relief Act of 1940 other than as
disclosed pursuant to the Prospectus Supplement;

               (xlix)     To the best of the Seller's knowledge, there exists no
violation of any local, state, or federal environmental law, rule or regulation
in respect of the Mortgaged Property which violation has or could have a
material adverse effect on the market value of such Mortgaged Property. The
Seller has no knowledge of any pending action or proceeding directly involving
the related Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue; and, to the best of the Seller's knowledge,
nothing further remains to be done to satisfy in full all requirements of each
such law, rule or regulation constituting a prerequisite to the use and
employment of such Mortgaged Property;

               (l)        Each Mortgage Loan conforms, and all such Mortgage
Loans in the aggregate conform, to the description thereof set forth in the
Prospectus and Prospectus Supplement in all material respects;

               (li)       Each Mortgage Loan is in compliance with the
anti-predatory lending eligibility requirements of Fannie Mae's Selling Guide;

               (lii)      Immediately prior to the transfer to the Company or
the Trustee, as applicable, the Seller had good and marketable title thereto,
and the Seller is the sole owner of beneficial title to and holder of the
Mortgage Loan. The Seller is conveying the same to the Company or the Trustee,
as applicable, free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security interests of any

                                       19

<PAGE>

nature and has full right and authority to sell and assign the same pursuant to
this Purchase Agreement, except for liens which will be released simultaneously
with such conveyance;

               (liii)     For each Mortgage Loan, the related Mortgage File
contains a true, accurate and correct copy of each of the documents and
instruments required to be included therein;

               (liv)      The Servicer meets all applicable requirements under
the Pooling and Servicing Agreement, is properly qualified to service each
Mortgage Loan and has been servicing each Mortgage Loan prior to the Cut-off
Date or the related Subsequent Cut-off Date, as the case may be;

               (lv)       No instrument of release or waiver has been executed
in connection with the Mortgage Loans, and no Mortgagor has been released, in
whole or in part from its obligations in connection with a Mortgage Loan except
in connection with an assumption agreement which has been delivered to the
Trustee;

               (lvi)      On the basis of a representation by the Mortgagor at
the time of origination of the Mortgage Loans, at least 95.13%, 97.54% and
98.15% of the Initial Mortgage Loans in Group I, Initial Mortgage Loans in Group
II and Initial Mortgage Loans in Group III, respectively, (by Cut-off Date
Principal Balance) will be secured by Mortgages on owner-occupied primary
residence properties;

               (lvii)     0.28%, 0.27% and 37.84% of the Initial Mortgage Loans
in Group I, Initial Mortgage Loans in Group II and the Initial Mortgage Loans in
Group III, respectively, (by Cut-off Date Principal Balance) provide for a
balloon payment and each Mortgage Note with respect to each such Mortgage Loan
requires monthly payments of principal based on 30 year amortization schedules
and have scheduled maturity dates of 15 years from the due date of the first
monthly payment;

               (lviii)    No Mortgage Loan was originated based on an appraisal
of the related Mortgaged Property made prior to completion of construction of
the improvements thereon;

               (lix)      None of the Mortgage Loans is a "buy down" mortgage
loan;

               (lx)       [Reserved]

               (lxi)      No Mortgage Loan is a "High Cost Home Loan" as defined
in the Georgia Fair Lending Act, as amended (the "Georgia Act"). No Mortgage
Loan secured by owner occupied real property or an owner occupied manufactured
home located in the State of Georgia was originated (or modified) on or after
October 1, 2002 through and including March 6, 2003;

               (lxii)     None of the Mortgage Loans are subject to the
requirements of the Home Ownership and Equity Protection Act of 1994, as
amended, or any comparable state law; none of the Mortgage Loans are "section
32" loans or "high cost" loans as

                                       20

<PAGE>

defined by applicable predatory and abusive lending laws; no proceeds from any
Mortgage Loan were used to finance any single premium credit insurance policies;
none of the Mortgage Loans (by Cut-off Date Principal Balance) require a
mortgagor to pay a Prepayment Charge if the mortgagor prepays a Mortgage Loan
more than five years after the date the Mortgage Loan was originated;

               (lxiii)    No Mortgage Loan is a "High-Cost Home Loan" as defined
in New York Banking Law 6-1;

               (lxiv)     No Mortgage Loan is a "High-Cost Home Loan" as defined
in the Arkansas Home Loan Protection Act effective July 16, 2003 (Act 1340 of
2003);

               (lxv)      No Mortgage Loan is a "High-Cost Home Loan" as defined
in the Kentucky high-cost home loan statute effective June 24, 2003 (Ky. Rev.
Stat. Section 360.100);

               (lxvi)     No Mortgage Loan is a "High-Cost Home Loan" as defined
in the New Jersey Home Ownership Act effective November 27, 2003 (N.J.S.A.
46:10B-22 et seq.);

               (lxvii)    No Mortgage Loan is a "High-Cost Home Loan" as defined
in the New Mexico Home Loan Protection Act effective January 1, 2004 (N.M. Stat.
Ann. Sections 58-21A-1 et seq.);

               (lxviii)   No Mortgage Loan is a "High-Risk Home Loan" as defined
in the Illinois High-Risk Home Loan Act effective January 1, 2004 (815 Ill.
Comp. Stat. 137/1 et seq.);

               (lxix)     No borrower was encouraged or required to select a
Mortgage Loan product offered by the Mortgage Loan's originator which is a
higher cost product designed for less creditworthy borrowers, unless at the time
of the Mortgage Loan's origination, such borrower did not qualify taking into
account credit history and debt to income ratios for a lower cost credit product
then offered by the Mortgage Loan's originator or any affiliate of the Mortgage
Loan's originator;

               (lxx)      The methodology used in underwriting the extension of
credit for each Mortgage Loan employs objective mathematical principles which
relate the borrower's income, assets and liabilities to the proposed payment and
such underwriting methodology does not rely on the extent of the borrower's
equity in the collateral as the principal determining factor in approving such
credit extension. Such underwriting methodology confirmed that at the time of
origination (application/approval) the borrower had a reasonable ability to make
timely payments on the Mortgage Loan;

               (lxxi)     Approximately 76.71% of the Initial Mortgage Loans are
subject to prepayment penalty charges as of the Cut-off Date;

               (lxxii)    With respect to any Mortgage Loan that contains a
provision permitting imposition of a premium upon a prepayment prior to
maturity: (i) prior to the loan's origination, the borrower agreed to such
premium in exchange for a monetary benefit,

                                       21

<PAGE>

including but not limited to a rate or fee reduction, (ii) prior to the loan's
origination, the borrower was offered the option of obtaining a mortgage loan
that did not require payment of such a premium, (iii) the prepayment premium is
disclosed to the borrower in the loan documents pursuant to applicable state and
federal law, and (iv) notwithstanding any state or federal law to the contrary,
the Servicer shall not impose such prepayment premium in any instance when the
mortgage debt is accelerated as the result of the borrower's default in making
the loan payments;

               (lxxiii)   No borrower was required to purchase any credit life,
disability, accident or health insurance product as a condition of obtaining the
extension of credit. No borrower obtained a prepaid single premium credit life,
disability, accident or health insurance policy in connection with the
origination of the Mortgage Loan; No proceeds from any Mortgage Loan were used
to purchase single premium credit insurance policies as part of the origination
of, or as a condition to closing, such Mortgage Loan;

               (lxxiv)    All points and fees related to each Mortgage Loan in
Group I were disclosed in writing to the borrower in accordance with applicable
state and federal law and regulation. Except in the case of a Mortgage Loan in
Group I in an original principal amount of less than $60,000 which would have
resulted in an unprofitable origination, no borrower was charged "points and
fees" (whether or not financed) in an amount greater than 5% of the principal
amount of such loan, such 5% limitation is calculated in accordance with Fannie
Mae's anti-predatory lending requirements as set forth in the Fannie Mae Selling
Guide;

               (lxxv)     All fees and charges (including finance charges) and
whether or not financed, assessed, collected or to be collected in connection
with the origination and servicing of each Mortgage Loan has been disclosed in
writing to the borrower in accordance with applicable state and federal law and
regulation;

               (lxxvi)    The Servicer will transmit full-file credit reporting
data for each Mortgage Loan in Group I pursuant to Fannie Mae Guide Announcement
95-19 and that for each Mortgage Loan in Group I, Servicer agrees it shall
report one of the following statuses each month as follows: new origination,
current, delinquent (30-, 60-, 90-days, etc.), foreclosed, or charged-off;

               (lxxvii)   No Group I Mortgage Loan secured by a single-family
residence has a Principal Balance at origination in excess of $322,700; no Group
I Mortgage Loan secured by a two-family residence has a Principal Balance at
origination in excess of $405,000; no Group I Mortgage Loan secured by a
three-family residence has a Principal Balance at origination in excess of
$499,300; and no Group I Mortgage Loan secured by a four-family residence has a
Principal Balance at origination in excess of $490,000;

               (lxxviii)  No selection procedure reasonably believed by the
Seller to be adverse to the interests of the Certificateholders was utilized in
selecting the Mortgage Loans;

               (lxxix)    The terms of the Mortgage Note related to each
Adjustable Rate Mortgage Loan provide that, following an initial period of two
or three years following the

                                       22

<PAGE>

month in which such Mortgage Loan was originated and semiannually or annually
thereafter (each such date, an "Adjustment Date"), the Mortgage Rate on such
Mortgage Loan will be adjusted to equal the sum of (a) the related Index and (b)
a fixed percentage amount specified in the related Mortgage Note (each, a "Gross
Margin"); provided, however, that the Mortgage Rate generally will not increase
or decrease by the related Periodic Rate Cap, and will not increase above a
specified maximum Mortgage Rate over the life of the Adjustable Rate Mortgage
Loan (the "Maximum Mortgage Rate") or decrease below a specified minimum
Mortgage Rate over the life of the Adjustable Rate Mortgage Loan (the "Minimum
Mortgage Rate");

               (lxxx)     None of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) are negative amortization loans, and none of the Subsequent
Mortgage Loans shall be negative amortization loans;

               (lxxxi)    No material misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of the
Seller, its affiliates or employees or any other person involved in the
origination of the Mortgage Loan or in the application for any insurance,
including, but not limited to the MI Policy, in relation to such Mortgage Loan;

               (lxxxii)   Each Mortgage Loan was originated by a mortgagee
approved by the Secretary of Housing and Urban Development pursuant to Sections
203 and 211 of the Act, a savings and loan association, a savings bank, a
commercial bank, credit union, insurance company or similar institution which is
supervised and examined by a federal or state authority;

               (lxxxiii)  With respect to each Mortgage Loan secured by
manufactured housing, such manufactured housing is permanently affixed to a
foundation and constitutes real estate under applicable state law;

               (lxxxiv)   No Mortgage Loans are date of payment or simple
interest loans;

               (lxxxv)    The sale, transfer, assignment and conveyance of
Mortgage Loans by the Seller pursuant to this Purchase Agreement is not subject
to and will not result in any tax, fee or governmental charge payable by the
Company, the Custodian or the Trustee to any federal, state or local government
("Transfer Taxes") other than Transfer Taxes which have or will be paid by the
Seller as due;

               (lxxxvi)   Each Mortgage Loan is a "qualified mortgage" within
Section 860G(a)(3) of the Code;

               (lxxxvii)  Approximately 30.58% of the Initial Mortgage Loans (by
Cut-off Date Principal Balance) with a Loan-to-Value Ratio greater than 60% are
covered by an MI Policy issued by an MI Insurer;

               (lxxxviii) Approximately 28.08% of the Initial Mortgage Loans
that are identified on Exhibit 1 hereto are covered by a MI Policy issued by the
MI Insurer;

                                       23

<PAGE>

               (lxxxix)   All requirements for the valid transfer of each MI
Policy, including any assignments or notices required in each MI Policy, have
been satisfied;

               (xc)       As of the Closing Date with respect to each Initial
Mortgage Loan that is subject to a MI Policy and as of each Subsequent Transfer
Date with respect to each Subsequent Mortgage Loan that is subject to a MI
Policy, the Seller is unaware of any existing circumstances which would cause
the MI Insurer to deny a claim with respect to such Mortgage Loan;

               (xci)      All appraisals of the Mortgage Loans by the Seller are
full URAR/1004 appraisals; and

               (xcii)     All Prepayment Charges are enforceable and were
originated in compliance with all applicable federal, state, and local laws.

          Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Custodian, as applicable, of a breach of any representation or
warranty in subsection (a) of this Section which materially and adversely
affects the interests of the Certificateholders the Seller shall, within 45 days
of its discovery or its receipt of notice of such breach, either (i) cure such
breach in all material respects or (ii) to the extent that such breach is with
respect to a Mortgage Loan or a Related Document, either (A) repurchase such
Mortgage Loan from the Trustee at the Repurchase Price, or (B) substitute one or
more Eligible Substitute Mortgage Loans for such Mortgage Loan, in each case in
the manner and subject to the conditions and limitations set forth below.

          Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Custodian, as applicable, of a breach of any representation or
warranty in this subsection (b) with respect to any Mortgage Loan or upon the
occurrence of a Repurchase Event, which materially and adversely affects the
value of the related Mortgage Loan or the interests of any Certificateholders or
of the Company or the Trustee in such Mortgage Loan (notice of which shall be
given to the Company and the Trustee by the Seller, if it discovers the same)
the Seller shall, within 90 days after the earlier of its discovery or receipt
of notice thereof, either cure such breach or Repurchase Event in all material
respects or either (i) repurchase such Mortgage Loan from the Trustee at the
Repurchase Price, or (ii) substitute one or more Eligible Substitute Mortgage
Loans for such Mortgage Loan, in each case in the manner and subject to the
conditions set forth below. The Repurchase Price for any such Mortgage Loan
repurchased by the Seller shall be deposited or caused to be deposited by the
Servicer in the Collection Account maintained by it pursuant to Section 3.06 of
the Pooling and Servicing Agreement.

          In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this
Section 3.01, the Seller shall deliver to the Custodian on behalf of the
Trustee, with respect to such Eligible Substitute Mortgage Loan or Loans, the
original Mortgage Note and all other documents and agreements as are required by
Section 2.01 hereof, with the Mortgage Note endorsed as required by such Section
2.01 hereof. No substitution will be made in any calendar month after the
Determination Date for such month. Monthly Payments due with respect to Eligible
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Servicer and remitted

                                       24

<PAGE>

by the Servicer to the Seller on the next succeeding Payment Date. For the month
of substitution, distributions to the Payment Account pursuant to the Pooling
and Servicing Agreement will include the Monthly Payment due on a Deleted
Mortgage Loan for such month and thereafter the Seller shall be entitled to
retain all amounts received in respect of such Deleted Mortgage Loan. The
Servicer shall amend or cause to be amended the Mortgage Loan Schedule to
reflect the removal of such Deleted Mortgage Loan and the substitution of the
Eligible Substitute Mortgage Loan or Loans and the Servicer shall deliver the
amended Mortgage Loan Schedule to the Custodian and the Trustee. Upon such
substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to
the terms of this Purchase Agreement and the Pooling and Servicing Agreement in
all respects, the Seller shall be deemed to have made the representations and
warranties with respect to the Eligible Substitute Mortgage Loan contained
herein set forth in this Section 3.01(b), to the extent set forth in the
definition of "Eligible Substitute Mortgage Loan", as of the date of
substitution, and the Seller shall be obligated to repurchase or substitute for
any Eligible Substitute Mortgage Loan as to which a Repurchase Event has
occurred as provided herein. In connection with the substitution of one or more
Eligible Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the
Servicer will determine the amount (such amount, a "Substitution Adjustment
Amount"), if any, by which the aggregate principal balance of all such Eligible
Substitute Mortgage Loans as of the date of substitution is less than the
aggregate principal balance of all such Deleted Mortgage Loans (after
application of the principal portion of the Monthly Payments due in the month of
substitution that are to be distributed to the Payment Account in the month of
substitution). The Seller shall pay the amount of such shortfall to the Servicer
for deposit into the Collection Account on the day of substitution, without any
reimbursement therefor.

          Upon receipt by the Trustee of written notification, signed by a
Servicing Officer, of the deposit of such Repurchase Price or of such
substitution of an Eligible Substitute Mortgage Loan and deposit of any
applicable Substitution Adjustment Amount as provided above, the Custodian
shall, on behalf of the Trustee, cause to be released to the Seller the related
Mortgage File for the Mortgage Loan being repurchased or substituted for and the
Trustee shall execute and deliver such instruments of transfer or assignment
prepared by the Servicer, in each case without recourse, as shall be necessary
to vest in the Seller or its designee such Mortgage Loan released pursuant
hereto and thereafter such Mortgage Loan shall not be an asset of the Trustee.

          It is understood and agreed that the obligation of the Seller to cure
any breach with respect to or to repurchase or substitute for, any Mortgage Loan
as to which such a breach has occurred and is continuing shall, except to the
extent provided in Section 6.01 of this Purchase Agreement, constitute the sole
remedy respecting such breach available to the Company, the Trustee, the
Certificateholders or the Custodian against the Seller.

          It is understood and agreed that the representations and warranties
set forth in this Section 3.01 shall survive delivery of the respective Mortgage
Files to the Custodian on behalf of the Trustee.

                                       25

<PAGE>

          Section 3.02 Company Representations and Warranties.
                       ---------------------------------------

          The Company hereby represents and warrants to the Seller and the
Trustee as of the date hereof and as of the Closing Date that:

          (a)  The Company is duly organized and validly existing as a
corporation in good standing under the laws of the State of Delaware, with power
and authority to own its properties and to conduct its business as such
properties are currently owned and such business is presently conducted.

          (b)  The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications 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 Company and the
ability of the Company to perform under this Purchase Agreement.

          (c)  The Company has the power and authority to execute and deliver
this Purchase Agreement and to carry out its terms; the Company has full power
and authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Purchase Agreement have been
duly authorized by the Company by all necessary corporate action.

          (d)  The consummation of the transactions contemplated by this
Purchase Agreement and the fulfillment of the terms hereof do not conflict with,
result in any breach of any of the terms and provisions of, or constitute (with
or without notice or lapse of time) a default under, the articles of
incorporation or bylaws of the Company, or any indenture, agreement or other
instrument to which the Company is a party or by which it is bound; nor result
in the creation or imposition of any Lien upon any of its properties pursuant to
the terms of any such indenture, agreement or other instrument (other than
pursuant to the Basic Documents); nor violate any law or, to the best of the
Company's knowledge, any order, rule or regulation applicable to the Company of
any court or of any federal or state regulatory body, administrative agency or
other governmental instrumentality having jurisdiction over the Company or its
properties.

          (e)  The Company (A) is a solvent entity and is paying its debts as
they become due and (B) after giving effect to the transfer of the Mortgage
Loans, will be a solvent entity and will have sufficient resources to pay its
debts as they become due.

                                       26

<PAGE>

                                   ARTICLE IV

                               SELLER'S COVENANTS

          Section 4.01 Covenants of the Seller.
                       ------------------------

          The Seller hereby covenants as of the date hereof and as of the
Closing Date that, except for the transfer hereunder, on and after the Closing
Date, the Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur or assume any Lien on, any Mortgage Loan, whether now
existing or hereafter created, or any interest therein; the Seller will notify
the Custodian and the Trustee of the existence of any such Lien on any Mortgage
Loan immediately upon discovery thereof; and the Seller will defend the right,
title and interest of the Trustee, on its own behalf and as assignee of the
Company, in, to and under the Mortgage Loans, whether now existing or hereafter
created, against all claims of third parties claiming through or under the
Seller.

          In the event that the Custodian or the Trustee receives actual notice
of any Transfer Taxes arising out of the transfer, assignment and conveyance of
the Mortgage Loans, on written demand by the Custodian, or upon the Seller's
otherwise being given notice thereof by the Custodian, the Seller shall pay any
and all such Transfer Taxes (it being understood that the Holders of the
Certificates, the Company, the Custodian and the Trustee shall have no
obligation to pay such Transfer Taxes).

          Section 4.02 Payment of Expenses.
                       --------------------

          (a)  The Seller will pay on the Closing Date all expenses incident to
the performance of its obligations under this Purchase Agreement and the
Underwriting Agreement, including (i) the preparation, printing and any filing
of the preliminary prospectus, Prospectus Supplement and Prospectus (including
any schedules or exhibits and any document incorporated therein by reference)
originally filed and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Underwriters of this Purchase
Agreement and the Underwriting Agreement, the Pooling and Servicing Agreement
and such other documents as may be required in connection with the offering,
purchase, sale and delivery of the Certificates, (iii) the preparation, issuance
and delivery of the certificates for the Class A Certificates, Mezzanine
Certificates and Class B Certificates to the Underwriters, including any charges
of DTC, CEDEL, S.A. and the Euroclear System in connection therewith; (iv) the
qualification of the Class A Certificates, Mezzanine Certificates and Class B
Certificates under securities laws in accordance with the provisions of Section
3(f) of the Underwriting Agreement, including filing fees and the reasonable
fees and disbursements of counsel for the Underwriters in connection therewith
and in connection with the preparation of the Blue Sky Survey and any supplement
thereto for delivery to potential investors, (v) in addition to the initial
printing and filing costs under (i) above, the printing and delivery to the
Underwriters of copies of each preliminary prospectus and of the Prospectus and
any amendments or supplements thereto for delivery to potential investors, (vi)
the fees and expenses of the Trustee and the Custodian, including the fees and
disbursements of counsel for the Trustee and the Custodian in connection with
the

                                       27

<PAGE>

Pooling and Servicing Agreement, the Purchase Agreement and the Certificates
and (vii) any fees payable in connection with the rating of the Certificates.

          (b)  If the Underwriting Agreement is terminated by the Underwriters
in accordance with the provisions of Section 5 or Section 9(a)(i) thereof, the
Seller shall reimburse the Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriters.

                                    ARTICLE V

                  CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE

          Section 5.01 Conditions of Company's Obligations.
                       ------------------------------------

          The Company's obligations to purchase the Initial Mortgage Loans which
each accepts for purchase hereunder shall be subject to each of the following
conditions:

               (i)   the Mortgage File for each Initial Mortgage Loan shall have
been delivered in accordance with this Purchase Agreement;

               (ii)  the representations and warranties set forth in Section
3.01(b) hereof with respect to each Initial Mortgage Loan shall be true as of
the Closing Date;

               (iii) the Underwriters or their affiliates shall have had an
opportunity to perform a due diligence review of each Mortgage Loan; and

               (iv)  the Seller shall have provided to the Underwriters or their
affiliates such other documents which are then required to have been delivered
under this Purchase Agreement or which are reasonably requested by the
Underwriters or their affiliates, which other documents may include UCC
financing statements, a favorable opinion or opinions of counsel with respect to
matters which are reasonably requested by the Underwriters, and/or an Officers'
Certificate.

                                   ARTICLE VI

                          INDEMNIFICATION BY THE SELLER
                       WITH RESPECT TO THE MORTGAGE LOANS

          Section 6.01 Indemnification With Respect to the Mortgage Loans.
                       ---------------------------------------------------

          The Seller shall indemnify and hold harmless the Company, Trustee and
the Custodian from and against any loss, liability or expense arising from the
breach by the Seller of its representations and warranties in Section 3.01 of
this Purchase Agreement which materially and adversely affects the value of any
Mortgage Loan or the Company's assignees' interest in any Mortgage Loan or from
the failure by the Seller to perform its obligations under this Purchase
Agreement in any material respect.

                                       28

<PAGE>

          Section 6.02 Limitation on Liability of the Seller.
                       --------------------------------------

          None of the directors, officers, employees or agents of the Seller
shall be under any liability to the Company, it being expressly understood that
all such liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Purchase Agreement. Except as and to
the extent expressly provided in the Basic Documents, the Seller shall not be
under any liability to the Trustee, the Custodian or the Certificateholders. The
Seller and any director, officer, employee or agent of the Seller may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.

                                   ARTICLE VII

                                   TERMINATION

          Section 7.01 Termination.
                       ------------

          (a)  Except as provided in Section 7.01(b) hereof, the respective
obligations and responsibilities of the Seller, the Company, the Trustee and the
Custodian created hereby shall terminate, except for the Seller's indemnity
obligations as provided herein, upon the termination of the Trust Fund pursuant
to the terms of the Pooling and Servicing Agreement.

          (b)  The Company may terminate this Purchase Agreement, by notice to
the Seller, at any time at or prior to the Closing Date:

               (i)   if the Underwriting Agreement is terminated by the
Underwriters pursuant to the terms of the Underwriting Agreement or if there has
been, since the time of execution of this Purchase Agreement or since the
respective dates as of which information is given in the Prospectus, any
material adverse change in the financial condition, earnings, business affairs
or business prospects of the Seller, whether or not arising in the ordinary
course of business, or

               (ii)  if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Underwriters, impracticable to market the Class A
Certificates, Mezzanine Certificates and Class B Certificates or to enforce
contracts for the sale of the Class A Certificates, Mezzanine Certificates and
Class B Certificates, or

               (iii) if trading in any securities of the Seller has been
suspended or limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock Exchange
or in the NASDAQ National Market System has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices have been required, by any of said exchanges or by such system or by
order of the Commission, the National Association of Securities Dealers, Inc. or
any other governmental authority,

                                       29

<PAGE>

               (iv)  if a banking moratorium has been declared by either federal
or New York authorities,

               (v)   either (A) a change in control of the Seller shall have
occurred other than in connection with and as a result of the issuance and sale
by the Seller or registered, publicly offered common stock; or (B) the
Underwriters determine in their sole discretion that any material adverse change
has occurred in the management of the Seller,

               (vi)  there is (A) a material breach by the Seller of any
representation and warranty contained in this Purchase Agreement or the
Underwriting Agreement other than a representation or warranty relating to
particular Mortgage Loans, and the Underwriters have reason to believe in good
faith either that such breach is not curable within two (2) days or that such
breach may not have been cured in all material respects at the expiration of two
(2) days following discovery thereof by the Seller or (B) a failure by the
Seller to make any payment payable by it under this Purchase Agreement or (C)
any other failure by the Seller to observe and perform in any material respect
its material covenants, agreements and obligations with the Company, including
without limitation those contained in this Purchase Agreement, and the Company
has reason to believe in good faith that such failure may not have been cured in
all material respects at the expiration of two (2) days following discovery
thereof by the Seller, or

               (vii) the Seller fails to provide written notification to the
Underwriters of any change in its loan origination, acquisition or appraisal
guidelines or practices, or the Seller, without the prior consent of the
Underwriters (which shall not be unreasonably withheld), amends in any material
respect its loan origination, acquisition or appraisal guidelines or practices.

          If this Purchase Agreement is terminated pursuant to this Section
7.01(b), such termination shall be without liability of any party to any other
party except as provided in Section 4.02 hereof.

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

          Section 8.01 Amendment.
                       ----------

          This Purchase Agreement may be amended from time to time by the
Seller, the Company, the Trustee and the Custodian by written agreement signed
by the Seller, the Company, the Trustee and the Custodian.

          Section 8.02 Governing Law.
                       --------------

          This Purchase Agreement shall be governed by and construed in
accordance with the laws of the State of New York and the obligations, rights
and remedies of the parties hereunder shall be determined in accordance with
such laws.

                                       30

<PAGE>

          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 registered mail, postage prepaid, addressed as follows:

               (i)    if to the Seller:

                      NovaStar Mortgage, Inc.
                      8140 Ward Parkway
                      Suite 300
                      Kansas City, Missouri 64114
                      Attention: Scott F. Hartman

or, such other address as may hereafter be furnished to the Company in writing
by the Seller.

               (ii)   if to the Company:

                      NovaStar Mortgage Funding Corporation
                      8140 Ward Parkway
                      Suite 300
                      Kansas City, Missouri 64114
                      Attention: Matt Kaltenrieder

or such other address as may hereafter be furnished to the Seller in writing by
the Company.

               (iii)  if to the Custodian:

                      Wachovia Bank, National Association
                      4527 Metropolitan Court, Suite C
                      Frederick, Maryland 21704
                      Attention: Edward Aquino

or such other address as may hereafter be furnished to the Seller in writing by
the Custodian.

               (iv)   if to the Trustee:

                      JPMorgan Chase Bank
                      4 New York Plaza, 6/th/ Floor
                      New York, NY 10004-2477
                      Attention: Institutional Trust Services (NovaStar Mortgage
                                 Funding Trust, Series 2003-4)

or such other address as may hereafter be furnished to the Seller in writing by
the Trustee.

                                       31

<PAGE>

          Section 8.04 Severability of Provisions.
                       ---------------------------

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

          Section 8.05 Relationship of Parties.
                       ------------------------

          Nothing herein contained shall be deemed or construed to create a
partnership or joint venture between the parties hereto, and the services of the
Seller shall be rendered as an independent contractor and not as agent for the
Company.

          Section 8.06 Counterparts.
                       -------------

          This Purchase Agreement may be executed in two or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original and such counterparts
together shall constitute one and the same agreement.

          Section 8.07 Further Agreements.
                       -------------------

          The Company and the Seller each agree to execute and deliver to the
other such additional documents, instruments or agreements as may be necessary
or appropriate to effectuate the purposes of this Purchase Agreement. Each of
the Company and the Seller agrees to use its best reasonable efforts to take all
actions necessary to be taken by it to cause the Class A-1 Certificates to be
rated "Aaa" by Moody's and "AAA" by S&P, the Class A-2A Certificates to be rated
"Aaa" by Moody's and "AAA" by S&P, the Class A-2B Certificates to be rated "Aaa"
by Moody's and "AAA" by S&P, the Class A-2C Certificates to be rated "Aaa" by
Moody's and "AAA" by S&P, the Class A-3 Certificates to be rated "Aa1" by
Moody's and "AAA" by S&P, the Class M-1 Certificates to be rated "Aa2" by
Moody's and "AA" by S&P, the Class M-2 Certificates to be rated "A2" by Moody's
and "A" by S&P, the Class M-3 Certificates to be rated "A3" by Moody's and "A-"
by S&P, the Class B-1 Certificates to be rated "Baa1" by Moody's and "BBB+" by
S&P, the Class B-2 Certificates to be rated "Baa2" by Moody's and "BBB" by S&P,
the Class B-3 Certificates to be rated "Baa3" by Moody's and "BBB-" by S&P and
the Class P Certificates to be rated "AAA" by S&P, and each party will cooperate
with the other in connection therewith.

          Section 8.08 Intention of the Parties.
                       -------------------------

          It is the intention of the parties that (i) the Company is purchasing
on the Closing Date, and the Seller is selling on the Closing Date, the Initial
Mortgage Loans, rather than the Company providing to the Seller a loan secured
by the Initial Mortgage Loans on the Closing Date, and (ii) the Trustee is
purchasing on the Closing Date, and the Company is selling on the Closing Date,
the Initial Mortgage Loans, rather than the Trustee providing to the Company a
loan secured by the Initial Mortgage Loans, (iii) the Company will be purchasing
on each Subsequent Transfer Date, and the Seller will be selling on each
Subsequent Transfer Date, the

                                       32

<PAGE>

related Subsequent Mortgage Loans, rather than the Company providing to the
Seller a loan secured by the related Subsequent Mortgage Loans on each
Subsequent Transfer Date, and (iv) the Trustee will be purchasing on each
Subsequent Transfer Date, and the Company will be selling on each Subsequent
Transfer Date, the related Subsequent Mortgage Loans, rather than the Trustee
providing to the Company a loan secured by the related Subsequent Mortgage Loans
on each Subsequent Transfer Date. Accordingly, the parties hereto each intend to
treat these transactions as (i) a sale by the Seller, and a purchase by the
Company, of the Initial Mortgage Loans on the Closing Date, and (ii) a sale by
the Company, and a purchase by the Trustee, of the Initial Mortgage Loans on the
Closing Date, (iii) a sale by the Seller, and a purchase by the Company, of the
related Subsequent Mortgage Loans on each Subsequent Transfer Date, and (iv) a
sale by the Company, and a purchase by the Trustee, of the related Subsequent
Mortgage Loans on each Subsequent Transfer Date.

          Section 8.09 Successors and Assigns; Assignment of Purchase Agreement.
                       ---------------------------------------------------------

          This Purchase Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Company, the Trustee, the Custodian, and their
respective successors and assigns. The obligations of the Seller under this
Purchase Agreement cannot be assigned or delegated to a third party without the
consent of the Company, which consent shall be at the Company's discretion. The
parties hereto acknowledge that (i) the Company is acquiring the Initial
Mortgage Loans for the purpose of selling them to the Trustee, who will hold the
Initial Mortgage Loans in trust for the benefit of the Certificateholders and
(ii) the Company is acquiring the Subsequent Mortgage Loans for the purpose of
selling them to the Trustee, who will hold the Subsequent Mortgage Loans for the
benefit of the Certificateholders. As an inducement to the Company and the
Trustee to purchase the Mortgage Loans, the Seller acknowledges and consents to
(i) the assignment by the Company to the Trustee of all of the Company's rights
or remedies against the Seller pursuant to this Purchase Agreement and to (ii)
the enforcement or exercise of any rights against the Seller pursuant to this
Purchase Agreement by the Company and the Trustee. Such enforcement of a right
or remedy by the Trustee, shall have the same force and effect as if the right
or remedy had been enforced or exercised by the Company directly.

          Section 8.10 Survival.
                       ---------

          The representations and warranties made herein by the Seller and the
provisions of Article V hereof shall survive the purchase of the Mortgage Loans
hereunder.

          Section 8.11 Liability of the Trustee.
                       -------------------------

          The Trustee is entering into the Basic Documents to which it is a
party solely as Trustee, hereunder and thereunder, and not in its individual
capacity, and all persons having any claim against the Trustee by reason of the
transactions contemplated by this Agreement or any other Basic Document shall
look only to the Trust Fund for payment or satisfaction thereof.

                                       33

<PAGE>

          IN WITNESS WHEREOF, the Seller, the Company, the Custodian and the
Trustee have caused their names to be signed to this Mortgage Loan Purchase
Agreement by their respective officers thereunto duly authorized as of the day
and year first above written.

                                        NOVASTAR MORTGAGE, INC.
                                        as Seller

                                        By: /s/ Matt Kaltenrieder
                                            ------------------------------------
                                        Name:  Matt Kaltenrieder
                                        Title: Vice President

                                        NOVASTAR MORTGAGE FUNDING CORPORATION
                                        as Company

                                        By: /s/ Matt Kaltenrieder
                                            ------------------------------------
                                        Name:  Matt Kaltenrieder
                                        Title: Vice President

                                        WACHOVIA BANK, NATIONAL ASSOCIATION
                                        as Custodian

                                        By: /s/ Edwin Aquino
                                            ------------------------------------
                                        Name:  Edwin Aquino
                                        Title: Vice President

                                        JPMORGAN CHASE BANK,
                                        not in its individual capacity,
                                        but solely as Trustee

                                        By: /s/ Jennifer H. McCourt
                                            ------------------------------------
                                        Name:  Jennifer H. McCourt
                                        Title: Vice President

              [Signature Page to Mortgage Loan Purchase Agreement]

<PAGE>

                                    EXHIBIT 1

                         INITIAL MORTGAGE LOAN SCHEDULE

                       [On File with Dewey Ballantine LLP]

                                        2

<PAGE>

                                  EXHIBIT 2(A)

                     SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

          Pursuant to this Seller's Subsequent Transfer Instrument (the
"Seller's Instrument"), dated as of November 1, 2003, between NovaStar Mortgage,
Inc. as seller (the "Seller"), and NovaStar Mortgage Funding Corporation, as
company (the "Company"), and pursuant to the Mortgage Loan Purchase Agreement,
dated as of November 1, 2003 (the "Purchase Agreement"), among the Seller, the
Company, Wachovia Bank, National Association, as Custodian (the "Custodian") and
JPMorgan Chase Bank, as Trustee (the "Trustee"), the Seller and the Company
agree to the sale by the Seller and the purchase by the Company of the
subsequent Mortgage Loans listed on the attached Mortgage Loan Schedule (the
"Subsequent Mortgage Loans") and the related MI Policies.

          Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of November 1, 2003 (the "Pooling and Servicing Agreement"),
between the Trustee, the Custodian, the Company and the Seller/Servicer which
definitions are incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.

          Section 1. Conveyance of Subsequent Mortgage Loans.
                     ---------------------------------------

          (a) The Seller does hereby sell, transfer, assign, set over and convey
to the Company, without recourse, all of its right, title and interest in and to
the Subsequent Mortgage Loans and the related MI Policies, all scheduled
payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on
the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus
that portion of any such payment which is allocable to the period prior to the
Subsequent Cut-off Date); provided, however, that no scheduled payments of
principal and interest due on or before the Subsequent Cut-off Date and
collected after the Subsequent Cut-off Date shall belong to the Company pursuant
to the terms of this Seller's Instrument. The Seller, contemporaneously with the
delivery of this Seller's Instrument, has delivered or caused to be delivered to
the Custodian, at the direction of the Company, each item set forth in Section
2.02(b) of the Purchase Agreement with respect to such Subsequent Mortgage Loans
and the related MI Policies. The transfer to the Company by the Seller of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule
shall be absolute and is intended by the Seller, the Company, the Custodian, the
Trustee and the Certificateholders to constitute and to be treated as a sale by
the Seller.

          The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Subsequent Transfer Date
of all the Seller's right, title and interest in and to the Subsequent Mortgage
Loans and the related MI Policies, and other property as and to the extent
described above. In the event the transactions set forth herein shall be deemed
not to be a sale, the Seller hereby grants to the Company as of the Subsequent
Transfer Date a security interest in all of the Seller's right, title and
interest in, to and under the Subsequent Mortgage Loans, and such other
property, to secure all of the Seller's obligations hereunder, and this Purchase
Agreement shall constitute a security agreement under applicable

<PAGE>

law, and in such event, the parties hereto acknowledge that the Custodian, in
addition to holding the Subsequent Mortgage Loans and the related MI Policies on
behalf of the Trustee for the benefit of the Certificateholders, holds the
Subsequent Mortgage Loans and the related MI Policies as designee and agent of
the Company. The Seller agrees to take or cause to be taken such actions and to
execute such documents, including without limitation the filing of all necessary
UCC-1 financing statements filed in the State of Maryland (which shall be
submitted for filing as of the Subsequent Transfer Date), any continuation
statements with respect thereto and any amendments thereto required to reflect a
change in the name or corporate structure of the Seller or the filing of any
additional UCC-1 financing statements due to the change in the state of
incorporation of the Seller as are necessary to perfect and protect the
interests of the Company and its assignees in each Subsequent Mortgage Loan, the
related MI Policies and the proceeds thereof.

          (b)  The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Seller's Instrument and such other items required under the
Mortgage Loan Purchase Agreement shall be borne by the Seller.

          (c)  Additional terms of the sale are set forth on Attachment A
hereto.

          Section 2. Representations and Warranties; Conditions Precedent.
                     ----------------------------------------------------

          (a)  The Seller hereby affirms the representations and warranties set
forth in Section 3.01 of the Purchase Agreement that relate to the Seller and
the Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms
that each of the conditions set forth in Section 2.02(b) of the Purchase
Agreement are satisfied as of the date hereof and further represents and
warrants that each Subsequent Mortgage Loan complies with the requirements of
this Seller's Instrument and Section 2.02(c) of the Purchase Agreement.

          (b)  The Seller is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Seller's Instrument or by the performance of its obligations hereunder nor
is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Seller prior to the date
hereof;

          (c)  All terms and conditions of the Purchase Agreement are hereby
ratified and confirmed; provided, however, that in the event of any conflict the
provisions of this Seller's Instrument shall control over the conflicting
provisions of the Purchase Agreement.

          Section 3. Recordation of the Seller's Instrument.
                     --------------------------------------

          To the extent permitted by applicable law, this Seller's Instrument,
or a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer, but only when accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

                                        2

<PAGE>

          Section 4. Governing Law.
                     -------------

          This Seller's Instrument 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, without
giving effect to principles of conflicts of law.

          Section 5. Counterparts.
                     ------------

          This Seller's Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.

          Section 6. Successors and Assigns.
                     ----------------------

          This Seller's Instrument shall inure to the benefit of and be binding
upon the Seller and the Company and their respective successors and assigns. The
Custodian and the Trustee shall be express third party beneficiaries hereto.

          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Seller's Instrument as of the day and year first written above.

                                        NOVASTAR MORTGAGE, INC.,
                                        as Seller

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

                                        NOVASTAR MORTGAGE FUNDING CORPORATION,
                                        as Company

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

                                        3

<PAGE>

       NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2003-4

             ATTACHMENT A TO SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

                               __________ __, 2003

A.   Profile of Subsequent Mortgage Loans:

            1.   Subsequent Cut-off Date: _________ __, 2003

            2.   Subsequent Transfer Date: ________ __, 2003

            3.   Aggregate Principal Balance of the Subsequent Mortgage Loans as
of the Subsequent Cut-off Date: $____________

            4.   Purchase Price: 100.00%

B.   As to all the Subsequent Mortgage Loans the subject of this Instrument:

     I.     Longest stated term to maturity:                       360 months
     II.    Minimum Mortgage Rate:                                 ____%
     III.   Maximum Mortgage Rate:                                 ____%
     IV.    WAC of all Mortgage Loans:                             ____%
     V.     WAM of all Mortgage Loans:                             ____%
     VI.    Largest Principal Balance:                             $______
     VII.   Non-owner occupied Mortgaged Properties:               ____%
     VIII.  California zip code concentration:                     ____%
     IX.    Condominiums:                                          ____%
     X.     Single-family:                                         ____%
     XI.    Weighted average term since origination:               ___ month
     XII.   Mortgage Loans Covered by MI Policies:                 ____%

<PAGE>

                                  EXHIBIT 2(B)

                    COMPANY'S SUBSEQUENT TRANSFER INSTRUMENT

          Pursuant to this Company's Subsequent Transfer Instrument (the
"Company's Instrument"), dated as of _________ __, 2003, between NovaStar
Mortgage Funding Corporation, as company (the "Company"), and JPMorgan Chase
Bank, as trustee (the "Trustee"), and pursuant to the Mortgage Loan Purchase
Agreement, dated as of November 1, 2003 (the "Purchase Agreement"), among
NovaStar Mortgage, Inc., as seller (the "Seller"), the Company, Wachovia Bank,
National Association, as Custodian ("Custodian"), and JPMorgan Chase Bank, as
Trustee (the "Trustee"), the Company and the Trustee agree to the sale by the
Company and the purchase by the Trustee of the subsequent Mortgage Loans listed
on the attached Mortgage Loan Schedule (the "Subsequent Mortgage Loans") and the
related MI Policies, and the pledge of the Subsequent Mortgage Loans by the
Trustee.

          Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of November 1, 2003 (the "Pooling and Servicing Agreement"),
between the Custodian, the Trustee, the Company and the Servicer which
definitions are incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.

          Section 1. Conveyance of Subsequent Mortgage Loans.
                     ---------------------------------------

          (a)  The Company does hereby sell, transfer, assign, set over and
convey to the Trustee, without recourse, (i) all of its right, title and
interest in and to the Subsequent Mortgage Loans and the related MI Policies,
all scheduled payments of principal and interest on the Subsequent Mortgage
Loans due after the Subsequent Cut-off Date, and all other payments of principal
and interest on the Subsequent Mortgage Loans collected after the Subsequent
Cut-off Date (minus that portion of any such payment which is allocable to the
period prior to the Subsequent Cut-off Date); provided, however, that no
scheduled payments of principal and interest due on or before the Subsequent
Cut-off Date and collected after the Subsequent Cut-off Date shall belong to the
Trustee pursuant to the terms of this Company's Instrument and (ii) all of its
right, title and interest in and to the Seller's Subsequent Transfer Instrument,
dated as of ______ __, 2003 (the "Seller's Instrument"), between the Seller and
the Company. The Company, contemporaneously with the delivery of this Company's
Instrument, has delivered or caused to be delivered to the Custodian each item
set forth in Section 2.02(b) of the Purchase Agreement with respect to such
Subsequent Mortgage Loans. The transfer to the Trustee by the Company of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule and
the related MI Policies shall be absolute and is intended by the Company, the
Trustee, the Custodian and the Certificateholders to constitute and to be
treated as a sale by the Company.

          The parties hereto intend that the transactions set forth herein
constitute a sale by the Company to the Trustee on the Subsequent Transfer Date
of all the Company's right, title and interest in and to the Subsequent Mortgage
Loans and the related MI Policies, and other property as and to the extent
described above. In the event the transactions set forth herein shall be deemed
not to be a sale, the Company hereby grants to the Trustee as of the Subsequent
Transfer Date a security interest in all of the Company's right, title and
interest in, to and under the

<PAGE>

Subsequent Mortgage Loans, and such other property, to secure all of the
Company's obligations hereunder, and this Company's Instrument shall constitute
a security agreement under applicable law, and in such event, the parties hereto
acknowledge that the Custodian on behalf of the Trustee, in addition to holding
the Subsequent Mortgage Loans and the related MI Policies for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI
Policies as designee and agent of the Trustee. The Company agrees to take or
cause to be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements filed in the
State of Delaware (which shall be submitted for filing as of the Subsequent
Transfer Date), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate
structure of the Company or the filing of any additional UCC-1 financing
statements due to the change in the state of incorporation of the Company as are
necessary to perfect and protect the interests of the Trustee and its assignees
in each Subsequent Mortgage Loan, the related MI Policies and the proceeds
thereof.

          (b)  The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Company's Instrument and such other items required under
the Purchase Agreement shall be borne by the Company.

          Section 2. Representations and Warranties; Conditions Precedent.
                     ----------------------------------------------------

          (a)  The Company hereby affirms the representations and warranties set
forth in Section 3.02 of the Purchase Agreement that relate to the Company as of
the date hereof.

          (b)  The Company is solvent, is able to pay its debts as they become
due and has capital sufficient to carry on its business and its obligations
hereunder; it will not be rendered insolvent by the execution and delivery of
this Company's Instrument or by the performance of its obligations hereunder nor
is it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Company prior to the
date hereof;

          (c)  All terms and conditions of the Purchase Agreement are hereby
ratified and confirmed; provided, however, that in the event of any conflict the
provisions of this Company's Instrument shall control over the conflicting
provisions of the Mortgage Loan Purchase Agreement.

          Section 3. Recordation of Instrument.
                     -------------------------

          To the extent permitted by applicable law, this Company's Instrument,
or a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer, but only when accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

          Section 4. Governing Law.
                     -------------

<PAGE>

          This Company's Instrument 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, without
giving effect to principles of conflicts of law.

          Section 5. Counterparts.
                     ------------

          This Company's Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.

          Section 6. Successors and Assigns.
                     ----------------------

          This Company's instrument shall inure to the benefit of and be binding
upon the Company, the Custodian and the Trustee and their respective successors
and assigns.

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Company's Instrument as of the day and year first written above.

                                        NOVASTAR MORTGAGE FUNDING CORPORATION,
                                        as Company

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

                                        JPMORGAN CHASE BANK, not in its
                                        individual capacity but solely
                                        as Trustee

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

                                        WACHOVIA BANK, NATIONAL ASSOCIATION,
                                        as Custodian

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

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