Document:

FIRST HORIZON ASSET SECURITIES INC.

                                    Depositor

                       FIRST HORIZON HOME LOAN CORPORATION

                                 Master Servicer

                                       and

                              THE BANK OF NEW YORK,

                                     Trustee

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

                         POOLING AND SERVICING AGREEMENT

                          Dated as of December 1, 2004

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

                        FIRST HORIZON ABS TRUST 2004-HE4

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2004-HE4

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                                TABLE OF CONTENTS

                                                                                                                Page

<S>                                                                                                              <C>
ARTICLE I DEFINITIONS.............................................................................................5

ARTICLE II CONVEYANCE OF MORTGAGE LOANS;  REPRESENTATIONS AND WARRANTIES.........................................20
   SECTION 2.1 Conveyance of Mortgage Loans......................................................................20
   SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.......................................................20
   SECTION 2.3 Representations and Warranties of the Master Servicer;  Covenants of the Seller...................20
   SECTION 2.4 Representations and Warranties of the Depositor as to the Mortgage Loans..........................20
   SECTION 2.5 Delivery of Opinion of Counsel in Connection with Substitutions...................................20
   SECTION 2.6 Execution and Delivery of Certificates............................................................20
   SECTION 2.7 REMIC Matters.....................................................................................20
   SECTION 2.8 Covenants of the Master Servicer..................................................................20

ARTICLE III ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.......................................................20
   SECTION 3.1 Master Servicer to Service Mortgage Loans.........................................................20
   SECTION 3.2 Subservicing; Enforcement of the Obligations of Servicers.........................................20
   SECTION 3.3 Rights of the Depositor and the Trustee in Respect of the Master Servicer.........................20
   SECTION 3.4 Trustee to Act as Master Servicer.................................................................20
   SECTION 3.5 Collection of Mortgage Loan Payments; Certificate Account; Distribution Account...................20
   SECTION 3.6 [RESERVED]........................................................................................20
   SECTION 3.7 Access to Certain Documentation and Information Regarding the Mortgage Loans......................20
   SECTION 3.8 Permitted Withdrawals from the Certificate Account and Distribution Account.......................20
   SECTION 3.9 Maintenance of Hazard Insurance...................................................................20
   SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption Agreements........................................20
   SECTION 3.11 Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans..................20
   SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files..................................................20
   SECTION 3.13 Documents Records and Funds in Possession of Master Servicer to be Held for the Trustee..........20
   SECTION 3.14 Master Servicing Compensation....................................................................20
   SECTION 3.15 Access to Certain Documentation..................................................................20
   SECTION 3.16 Annual Statement as to Compliance................................................................20
   SECTION 3.17 Annual Independent Public Accountants' Servicing Statement; Financial Statements.................20
   SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds...................................................20

ARTICLE IV DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER.....................................................20
   SECTION 4.1 Advances..........................................................................................20
   SECTION 4.2 Priorities of Distribution........................................................................20
   SECTION 4.3 Method of Distribution............................................................................20
   SECTION 4.4 [Reserved]........................................................................................20
   SECTION 4.5 Determination of Pass-Through Rates for LIBOR Certificates........................................20
   SECTION 4.6 Monthly Statements to Certificateholders..........................................................20
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<S>                                                                                                             <C>
ARTICLE V THE CERTIFICATES.......................................................................................20
   SECTION 5.1 The Certificates..................................................................................20
   SECTION 5.2 Certificate Register; Registration of Transfer and Exchange of Certificates.......................20
   SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.................................................20
   SECTION 5.4 Persons Deemed Owners.............................................................................20
   SECTION 5.5 Access to List of Certificateholders' Names and Addresses.........................................20
   SECTION 5.6 Maintenance of Office or Agency...................................................................20

ARTICLE VI THE DEPOSITOR AND THE MASTER SERVICER.................................................................20
   SECTION 6.1 Respective Liabilities of the Depositor and the Master Servicer...................................20
   SECTION 6.2 Merger or Consolidation of the Depositor or the Master Servicer...................................20
   SECTION 6.3 Limitation on Liability of the Depositor, the Master Servicer and Others..........................20
   SECTION 6.4 Limitation on Resignation of Master Servicer......................................................20

ARTICLE VII DEFAULT..............................................................................................20
   SECTION 7.1 Events of Default.................................................................................20
   SECTION 7.2 Trustee to Act; Appointment of Successor..........................................................20
   SECTION 7.3 Notification to Certificateholders................................................................20

ARTICLE VIII CONCERNING THE TRUSTEE..............................................................................20
   SECTION 8.1 Duties of Trustee.................................................................................20
   SECTION 8.2 Certain Matters Affecting the Trustee.............................................................20
   SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans.............................................20
   SECTION 8.4 Trustee May Own Certificates......................................................................20
   SECTION 8.5 Trustee's Fees and Expenses.......................................................................20
   SECTION 8.6 Eligibility Requirements for Trustee..............................................................20
   SECTION 8.7 Resignation and Removal of Trustee................................................................20
   SECTION 8.8 Successor Trustee.................................................................................20
   SECTION 8.9 Merger or Consolidation of Trustee................................................................20
   SECTION 8.10 Appointment of Co-Trustee or Separate Trustee....................................................20
   SECTION 8.11 Tax Matters......................................................................................20
   SECTION 8.12 Periodic Filings.................................................................................20

ARTICLE IX TERMINATION...........................................................................................20
   SECTION 9.1 Termination upon Liquidation or Purchase of all Mortgage Loans....................................20
   SECTION 9.2 Final Distribution on the Certificates............................................................20
   SECTION 9.3 Additional Termination Requirements...............................................................20

ARTICLE X THE INSURER............................................................................................20
   SECTION 10.1 Claims upon the Policy...........................................................................20
   SECTION 10.2 Preference for Claims Under the Policy...........................................................20
   SECTION 10.3 Subrogation and Cooperation......................................................................20
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<S>                                                                                                             <C>
ARTICLE XI MISCELLANEOUS PROVISIONS..............................................................................20
   SECTION 11.1 Amendment........................................................................................20
   SECTION 11.2 Recordation of Agreement; Counterparts...........................................................20
   SECTION 11.3 Governing Law....................................................................................20
   SECTION 11.4 Intention of Parties.............................................................................20
   SECTION 11.5 Notices..........................................................................................20
   SECTION 11.6 Severability of Provisions.......................................................................20
   SECTION 11.7 Assignment.......................................................................................20
   SECTION 11.8 Rights of the Insurer to Exercise Rights of Class A Certificateholders...........................20
   SECTION 11.9 Reports to Insurer...............................................................................20
   SECTION 11.10 Limitation on Rights of Certificateholders......................................................20
   SECTION 11.11 Inspection and Audit Rights.....................................................................20
   SECTION 11.12 Certificates Nonassessable and Fully Paid.......................................................20
   SECTION 11.13 Limitations on Actions; No Proceedings..........................................................20
   SECTION 11.14 Acknowledgment of Seller........................................................................20

                                    SCHEDULES

Schedule I:           Mortgage Loan Schedule                                                                 S-I-1
Schedule II:          Representations and Warranties of the Master Servicer                                 S-II-1
Schedule III:         Form of Monthly Master Servicer Report                                               S-III-1

                                    EXHIBITS

Exhibit A:            Form of Class A Certificate                                                              A-1
Exhibit B:            Form of Class C Certificate                                                              B-1
Exhibit C:            Form of Residual Certificate                                                             C-1
Exhibit D:            Form of Reverse of Certificates                                                          D-1
Exhibit E:            Form of Initial Certification                                                            E-1
Exhibit F:            [Reserved]                                                                               F-1
Exhibit G:            Form of Final Certification of Custodian                                                 G-1
Exhibit H:            Transfer Affidavit                                                                       H-1
Exhibit I:            Form of Transferor Certificate                                                           I-1
Exhibit J:            Form of Investment Letter [Non-Rule 144A]                                                J-1
Exhibit K:            Form of Rule 144A Letter                                                                 K-1
Exhibit L:            Request for Release (for Trustee)                                                        L-1
Exhibit M:            Request for Release (Mortgage Loan)                                                      M-1
Exhibit N:            Form of Policy                                                                           N-1
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      THIS POOLING AND SERVICING AGREEMENT,  dated as of December 1, 2004, among
FIRST HORIZON ASSET SECURITIES INC., a Delaware  corporation,  as depositor (the
"Depositor"),  FIRST HORIZON HOME LOAN  CORPORATION,  a Kansas  corporation,  as
master  servicer  (the "Master  Servicer"),  and THE BANK OF NEW YORK, a banking
corporation  organized  under the laws of the State of New York, as trustee (the
"Trustee").

                                 WITNESSETH THAT

      In consideration of the mutual agreements  herein  contained,  the parties
hereto agree as follows:

                              PRELIMINARY STATEMENT

      The  Depositor  is the owner of the Trust Fund that is hereby  conveyed to
the Trustee in return for the  Certificates.  The Trust Fund for federal  income
tax  purposes  will  consist  of two  separate  REMICs.  The  Certificates  will
represent  the entire  beneficial  ownership  interest  in the Trust  Fund.  The
Regular  Certificates will represent "regular interests" in the Upper REMIC. The
Class R Certificates  will  represent the residual  interests in the Lower REMIC
and Upper REMIC,  as described  in Section  2.7. The "latest  possible  maturity
date" for federal  income tax purposes of all REMIC  regular  interests  created
hereby will be the Latest Possible Maturity Date.

The following table sets forth  characteristics  of the  Certificates,  together
with the minimum denominations and integral multiples in excess thereof in which
such Classes  shall be issuable  (except that one  Certificate  of each Class of
Certificates may be issued in a different amount and, in addition,  one Residual
Certificate  representing the Tax Matters Person  Certificate may be issued in a
different amount):

                  [Remainder of Page Intentionally Left Blank]

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                             Initial Class                                     Minimum          Integral Multiples
   Class Designation      Certificate Balance      Pass-Through Rate        Denominations      in Excess of Minimum
   -----------------      -------------------      -----------------        -------------      --------------------

     <S>                      <C>                      <C>                    <C>              <C>
       Class A-1             $   132,632,000.00       Variable (1)           $   25,000         $ 1,000
       Class A-2             $    58,022,000.00           4.070%             $   25,000         $ 1,000
       Class A-3             $    14,267,000.00           4.685%             $   25,000         $ 1,000
       Class A-4             $    16,384,000.00           5.303%             $   25,000         $ 1,000
       Class A-5             $    15,000,000.00           4.610%             $   25,000         $ 1,000
        Class C                             N/A             N/A                     N/A             N/A
        Class R                             N/A             N/A                     N/A             N/A
</TABLE>

(1) The pass-through rate for the Class A-1 Certificates will equal the least of
(x) LIBOR  plus the Class A-1  Certificate  Margin,  (y) the Net WAC Cap and (z)
7.15% per annum.  The initial  pass-through  rate for the Class A-1 Certificates
for the first interest accrual period will be approximately 2.55688% per annum.

                                       2
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<S>                                       <C>
Accrual Certificates..................     None.
Accrual Components....................     None.
Book-Entry Certificates...............     All Classes of Certificates other than the Physical Certificates.
Certificate Group.....................     Not applicable.
COFI Certificates.....................     None.
Component Certificates................     None.
Components............................     None.
Delay Certificates....................     All interest-bearing Classes of Certificates other than the Non-Delay
                                           Certificates, if any.
ERISA-Restricted                           Certificates......... The Class C
                                           Certificates, the Residual
                                           Certificates and Certificates of any
                                           Class that no longer satisfy the
                                           applicable requirement of the
                                           Underwriters' Exemption.
Floating Rate Certificates............     The Class A-1 Certificates.
Inverse Floating Rate Certificates....
                                           None.
LIBOR Certificates....................     The Class A-1 Certificates.
NAS Certificates......................     The Class A-5 Certificates.
Non-Delay Certificates................     The Class A-1 Certificates.
Notional Certificates.................     None.
Offered Certificates..................     The Class A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Certificates.
Physical Certificates.................     The Residual Certificates and the Class C Certificates.
Planned Principal Classes.............     None.
Principal Only Certificates...........     None.
Private Certificates..................     The Class C Certificates and the Class R Certificates.
Rating Agencies.......................     S&P and Moody's.
Regular Certificates..................     All Classes of Certificates, other than the Residual Certificates.
Residual Certificates.................     The Class R Certificates.
Scheduled Certificates................     None.
Senior Certificates...................     None.
Subordinated Certificates.............     None.
Support Classes.......................     None.
Targeted Principal Classes............     None.
Underwriter...........................     FTN Financial Capital Markets.
</TABLE>

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      With  respect  to  any of  the  foregoing  designations  as to  which  the
corresponding  reference  is "None," all  defined  terms and  provisions  herein
relating  solely to such  designations  shall be of no force or effect,  and any
calculations  herein  incorporating  references  to such  designations  shall be
interpreted  without reference to such  designations and amounts.  Defined terms
and provisions  herein  relating to statistical  rating  agencies not designated
above as Rating Agencies shall be of no force or effect.

                                       4
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                                    ARTICLE I
                                   DEFINITIONS

      Whenever used in this Agreement,  the following words and phrases,  unless
the context otherwise requires, shall have the following meanings:

      Accrued Certificate  Interest:  For any Class of Certificates  entitled to
distributions of interest for any Distribution Date, the interest accrued during
the related Interest Accrual Period at the applicable  Pass-Through  Rate on the
Class  Certificate  Balance of such Class of Certificates  immediately  prior to
such Distribution Date, less such Class' share of any Interest Shortfall.

      Adjusted Mortgage Rate: As to each Mortgage Loan, and at any time, the per
annum rate equal to the Mortgage Rate less the Master Servicing Fee Rate.

      Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any time, the
per annum rate equal to the Mortgage Rate less the related Expense Fee Rate.

      Advance:  A payment made by the Master Servicer,  at its option and in its
sole discretion,  with respect to any Distribution Date pursuant to Section 4.1,
the amount of any such  payment  being  equal to the  aggregate  of  payments of
principal  and  interest  (net of the  Master  Servicing  Fee and net of any net
income in the case of any REO  Property)  on the  Mortgage  Loans  that were due
during the related Due Period and not  received as of the end of the related Due
Period,  less the  aggregate  amount of any such  delinquent  payments  that the
Master  Servicer has determined  would  constitute a  Nonrecoverable  Advance if
advanced.

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

      Amount Held for Future  Distribution:  As to any  Distribution  Date,  the
aggregate amount held in the Certificate Account at the close of business on the
related  Determination  Date on account of (i)  Principal  Prepayments  received
after the related Prepayment Period and Net Liquidation Proceeds received in the
month of such Distribution Date and (ii) all Scheduled  Payments due on or after
the related Due Date.

      Appraised Value: With respect to any Mortgage Loan, the appraised value of
the  related  Mortgaged  Property  determined  in  the  appraisal  used  in  the
origination  of that Mortgage  Loan,  which may have been obtained at an earlier
time;  provided that if the Mortgage Loan was originated  simultaneously  with a
senior lien on the related Mortgaged Property,  the Appraised Value shall be the
lesser of the  appraised  value at the  origination  of the senior  lien and the
sales price for the related Mortgaged Property.

      Assignment  Event: (i) The long-term senior unsecured debt rating of First
Tennessee  Bank National  Association  is not rated at least "BBB" by Standard &
Poor's and at least  "Baa2" by Moody's,  or (ii) the  occurrence  of an Event of
Default which results in the termination of First Horizon Home Loan  Corporation
as Master Servicer hereunder.

                                       5
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      Available  Funds:  With  respect to a  Distribution  Date,  the sum of (a)
Interest  Collections for such Distribution Date, (b) Principal  Collections for
such  Distribution  Date,  and (c) solely with respect to  distributions  on the
Class A Certificates, any Insured Payments made by the Insurer under the Policy.

      Bankruptcy  Code:  The United  States  Bankruptcy  Reform Act of 1978,  as
amended.

      Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient  Valuation
or Debt Service Reduction;  provided,  however, that a Bankruptcy Loss shall not
be  deemed a  Bankruptcy  Loss  hereunder  so long as the  Master  Servicer  has
notified  the  Trustee and the  Insurer in writing  that the Master  Servicer is
diligently  pursuing any remedies that may exist in connection  with the related
Mortgage  Loan and either (A) the related  Mortgage  Loan is not in default with
regard to payments due  thereunder or (B)  delinquent  payments of principal and
interest  under the related  Mortgage  Loan and any related  escrow  payments in
respect  of such  Mortgage  Loan are being  advanced  on a current  basis by the
Master  Servicer,  in either  case  without  giving  effect to any Debt  Service
Reduction or Deficient Valuation.

      Base Specified Overcollateralization Amount: The sum of (i) the product of
(a) the Target  Percentage and (b) the Pool Principal  Balance as of the Closing
Date and (ii) the  aggregate  principal  balance of all Mortgage  Loans that are
both (a) 180 days or more contractually  delinquent and (b) in REO,  foreclosure
or bankruptcy.

      Blanket  Mortgage:  The mortgage or mortgages  encumbering the Cooperative
Property.

      Book-Entry Certificates: As specified in the Preliminary Statement.

      Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking  institutions in the States of New York or Texas or the city in
which the  Corporate  Trust Office of the Trustee is located are  authorized  or
obligated by law or executive order to be closed.

      Certificate:  Any  one of the  Certificates  executed  by the  Trustee  in
substantially the forms attached hereto as exhibits.

      Certificate Account: The separate Eligible Account or Accounts created and
maintained  by the Master  Servicer  pursuant to Section  3.5 with a  depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders  and the Insurer and designated "First Horizon Home
Loan Corporation in trust for the registered  holders of First Horizon ABS Trust
Mortgage Pass-Through Certificates, Series 2004-HE4."

      Certificate  Owner: With respect to a Book-Entry  Certificate,  the Person
who is the beneficial owner of such Book-Entry Certificate.

      Certificate  Principal Balance:  With respect to any Certificate and as of
any  Distribution  Date, the  Certificate  Principal  Balance on the date of the
initial issuance of such Certificate, as reduced by:

                                       6
<PAGE>

                  (a)   all amounts  distributed on previous  Distribution Dates
                        on such Certificate on account of principal, and

                  (b)   all  Liquidation  Loss Amounts  previously  allocated to
                        such Certificate.

      Certificate  Register:  The  register  maintained  pursuant to Section 5.2
hereof.

      Certificateholder  or Holder:  The person in whose name a  Certificate  is
registered in the Certificate  Register,  except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the  Depositor or the Seller or any  affiliate or agent of the Depositor
or the Seller shall be deemed not to be Outstanding and the Percentage  Interest
evidenced  thereby  shall not be taken into account in  determining  whether the
requisite  amount of Percentage  Interests  necessary to effect such consent has
been  obtained;  provided,  however,  that if any  such  Person  (including  the
Depositor)  owns  100% of the  Percentage  Interests  evidenced  by a  Class  of
Certificates,  such Certificates  shall be deemed to be Outstanding for purposes
of any provision hereof that requires the consent of the Holders of Certificates
of a particular Class as a condition to the taking of any action hereunder.  The
Trustee is entitled to rely  conclusively on a certification of the Depositor or
any affiliate of the Depositor in determining which  Certificates are registered
in the name of an affiliate of the Depositor. Notwithstanding the foregoing, the
Insurer shall be deemed to be the Holder of 100% of the Class A Certificates  so
long as no Insurer Default is then continuing.

      Class: All Certificates bearing the same class designation as set forth in
the Preliminary Statement.

      Class A  Certificates:  The Class A-1, Class A-2, Class A-3, Class A-4 and
Class A-5 Certificates, collectively.

      Class A Principal  Distribution  Amount:  With respect to any Distribution
Date, the lesser of (i) the aggregate Class  Certificate  Balance of the Class A
Certificates  prior to such  Distribution  Date and  (ii)  the  total  Principal
Collections for that Distribution Date less any Overcollateralization  Reduction
Amount for that Distribution Date.

      Class A-1 Certificate  Margin: With respect to the Class A-1 Certificates,
0.15%.

      Class A-1 Interest Carry Forward Amount: For any Distribution Date and the
Class A-1 Certificates, the sum of:

                  (1) if on that  Distribution Date the Pass-Through Rate on the
                  Class A-1  Certificates  is  limited  to the Net WAC Cap,  the
                  excess of:

                  (x) the  amount of  interest  that the Class A-1  Certificates
                  would have been entitled to receive on that  Distribution Date
                  had the applicable  Pass-Through Rate been calculated as a per
                  annum rate equal to the lesser of (a) LIBOR plus the Class A-1
                  Certificate Margin; and (b) 7.15%; over

                                       7
<PAGE>

                        (y)  the   amount  of   interest   that  the  Class  A-1
                        Certificates   were   entitled   to   receive   on  that
                        Distribution  Date because the  applicable  Pass-Through
                        Rate was calculated at the Net WAC Cap; and

                        (2) the Class A-1 Interest  Carry Forward Amount for all
                        previous   Distribution   Dates  not  previously   paid,
                        together  with  interest  thereon at a rate equal to the
                        applicable  Pass-Through  Rate, without giving effect to
                        the Net WAC Cap, for that Distribution Date.

      Class A-5 Lockout  Distribution  Amount:  With respect to any Distribution
Date, the product of (a) the Class A-5 Lockout  Percentage for that Distribution
Date and (b) the Class A-5 Pro Rata  Distribution  Amount for that  Distribution
Date.  In no event  shall  the  Class  A-5  Lockout  Distribution  Amount  for a
Distribution Date exceed the Class A Principal  Distribution Amount or the Class
Certificate  Balance  of the Class A-5  Certificates  immediately  prior to that
Distribution Date.

      Class A-5 Lockout Percentage:  With respect to each Distribution Date, the
applicable percentage set forth below:

                                                              CLASS A-5 LOCKOUT
         DISTRIBUTION DATES                                   PERCENTAGE

January 2005 through and including December 2007              0%
January 2008 through and including December 2009              45%
January 2010 through and including December 2010              80%
January 2011 through and including December 2011              100%
January 2012 and thereafter                                   300%

      Class A-5 Pro Rata Distribution  Amount:  With respect to any Distribution
Date,  an amount equal to the product of (a) a fraction,  the numerator of which
is the Class Certificate Balance of the Class A-5 Certificates immediately prior
to that  Distribution  Date and the  denominator of which is the aggregate Class
Certificate  Balance  of the  Class A  Certificates  immediately  prior  to that
Distribution Date and (b) the Class A Principal Distribution Amount.

      Class Certificate  Balance:  With respect to any Class of Certificates and
as of any Distribution Date the aggregate of the Certificate  Principal Balances
of all Certificates of such Class as of such date.

      Closing Date: December 30, 2004.

      CLTV Ratio: With respect to each Mortgage Loan, the ratio,  expressed as a
percentage, of:

                        (1) the sum of (a) the initial principal balance of that
                        Mortgage  Loan;  and  (b)  any   outstanding   principal
                        balance,  at  origination  of that Mortgage Loan, of all
                        other  Mortgage  Loans,  if any,  secured  by  senior or
                        subordinate  liens on the  related  Mortgaged  Property;
                        over

                                       8
<PAGE>

                        (2) the Appraised  Value,  or, when not  available,  the
                        Stated Value of that Mortgage Loan.

      Code:  The  Internal  Revenue  Code of 1986,  including  any  successor or
amendatory provisions.

      Combo  Mortgage  Loan: A Mortgage  Loan that was  originated in connection
with the  origination  of a first lien  mortgage  loan with  respect to the same
Mortgaged Property.

      Cooperative Corporation: The entity that holds title (fee or an acceptable
leasehold  estate)  to the  real  property  and  improvements  constituting  the
Cooperative  Property  and  which  governs  the  Cooperative   Property,   which
Cooperative  Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.

      Coop Shares: Shares issued by a Cooperative Corporation.

      Cooperative  Loan:  Any  Mortgage  Loan  secured  by  Coop  Shares  and  a
Proprietary Lease.

      Cooperative  Property:  The real  property and  improvements  owned by the
Cooperative  Corporation,  including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

      Cooperative  Unit:  A single  family  dwelling  located  in a  Cooperative
Property.

      Corporate Trust Office:  The designated office of the Trustee in the State
of New York at which at any  particular  time its corporate  trust business with
respect to this Agreement shall be administered, which office at the date of the
execution  of this  Agreement  is located at The Bank of New York,  101  Barclay
Street,  8W, New York,  New York 10286 (Attn:  Corporate  Trust  Mortgage-Backed
Securities  Group,   First  Horizon  Asset  Securities  Inc.  Series  2004-HE4),
facsimile no. (212)  815-3986,  and which is the address to which notices to and
correspondence with the Trustee should be directed.

      Corresponding  Class  of  Certificates:  As to any  Lower  REMIC  Interest
identified  in Section 2.7, the Class or Classes that are  identified in Section
2.7 as corresponding to such Lower REMIC Interest.

      Custodial Agreement: The Custodial Agreement dated as of December 30, 2004
by and among the Trustee, the Master Servicer and the Custodian.

      Custodian:  First Tennessee Bank National Association,  a national banking
association,  and its successors and assigns,  as custodian  under the Custodial
Agreement.

      Cut-off Date: December 1, 2004.

      Cut-off Date Pool Principal Balance: $236,305,552.93.

      Cut-off  Date  Principal  Balance:  As to any  Mortgage  Loan,  the actual
principal  balance of such  Mortgage  Loan as  reflected  on the  Mortgage  Loan
Schedule.

                                       9
<PAGE>

      Debt Service Reduction:  With respect to any Mortgage Loan, a reduction by
a court of competent  jurisdiction in a proceeding  under the Bankruptcy Code in
the   Scheduled   Payment  for  such   Mortgage  Loan  which  became  final  and
non-appealable,  except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.

      Defective  Mortgage  Loan:  Any  Mortgage  Loan  which is  required  to be
repurchased pursuant to Section 2.2 or 2.3.

      Deficient  Valuation:  With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then-outstanding indebtedness under the Mortgage Loan and any senior lien on
the related Mortgaged  Property,  or any reduction in the amount of principal to
be paid in  connection  with any  Scheduled  Payment that results in a permanent
forgiveness of principal,  which valuation or reduction results from an order of
such  court  which  is  final  and  non-appealable  in a  proceeding  under  the
Bankruptcy Code.

      Deficiency  Amount:  With  respect  to the  Class A  Certificates  and any
Distribution  Date, an amount,  if any,  equal to the sum of (i) the excess,  if
any, of (A) the aggregate amount of Accrued Certificate  Interest on the Class A
Certificates for that  Distribution  Date, over (B) the amount on deposit in the
Distribution Account available for interest payments on the Certificates on that
Distribution  Date,  (ii)  any  Liquidation  Loss  Amount,  to  the  extent  not
distributed as part of the Liquidation Loss Distribution Amount or to the extent
not applied as a reduction to the  Overcollateralization  Amount,  in each case,
for such  Distribution  Date and (iii) principal due on the  Certificates on the
Final Scheduled Distribution Date, if outstanding.

      Definitive   Certificates:   Any  Certificate   evidenced  by  a  Physical
Certificate  and any  Certificate  issued  in lieu of a  Book-Entry  Certificate
pursuant to Section 5.2(e).

      Delay Certificates: As specified in the Preliminary Statement.

      Delay  Delivery  Mortgage  Loans:  The  Mortgage  Loans for which all or a
portion of a related  Mortgage  File is not  delivered to Trustee on the Closing
Date.  The number of Delay  Delivery  Mortgage Loans shall not exceed 25% of the
aggregate number of Mortgage Loans as of the Closing Date.

      Deleted Mortgage Loan: As defined in Section 2.3(b) hereof.

      Denomination:  With respect to each  Certificate,  the amount set forth on
the face thereof as the "Initial Certificate Balance of this Certificate" or the
Percentage Interest appearing on the face thereof.

      Depositor: First Horizon Asset Securities Inc., a Delaware corporation, or
its successor in interest.

      Depository:  The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the  registered  Holder of the Book-Entry
Certificates.  The Depository shall at all times be a "clearing  corporation" as
defined in Section  8-102(a)(5) of the Uniform  Commercial  Code of the State of
New York.

                                       10
<PAGE>

      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: As to any  Distribution  Date, the earlier of (i) the
third  Business  Day  after  the 15th  day of each  month,  and (ii) the  second
Business Day prior to the related Distribution Date.

      Distribution Account: The separate Eligible Account created and maintained
by the  Trustee  pursuant  to  Section  3.5 in the name of the  Trustee  for the
benefit of the  Certificateholders  and the Insurer and designated  "The Bank of
New York, in trust for  registered  Holders of First Horizon ABS Trust  Mortgage
Pass-Through  Certificates,  Series 2004-HE4." Funds in the Distribution Account
shall be held in trust for the  Certificateholders  and the Insurer for the uses
and purposes set forth in this Agreement.

      Distribution  Account Deposit Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

      Distribution  Date:  The 25th day of each calendar month after the initial
issuance of the  Certificates,  or if such 25th day is not a Business  Day,  the
next succeeding Business Day, commencing in January 2005.

      Due Date:  With  respect to any  Distribution  Date,  the first day of the
month in which the related Distribution Date occurs.

      Due Period:  With  respect to a  Distribution  Date,  the  calendar  month
immediately preceding the month in which such Distribution Date occurs.

      Eligible  Account:  Any of (i) an account or  accounts  maintained  with a
federal  or  state  chartered  depository   institution  or  trust  company  the
short-term  unsecured debt obligations of which (or, in the case of a depository
institution  or trust  company  that is the  principal  subsidiary  of a holding
company,  the  debt  obligations  of such  holding  company)  have  the  highest
short-term  ratings of each  Rating  Agency at the time any  amounts are held on
deposit therein,  or (ii) an account or accounts in a depository  institution or
trust company in which such accounts are insured by the FDIC or the SAIF (to the
limits  established  by the FDIC or the SAIF, as  applicable)  and the uninsured
deposits in which  accounts are otherwise  secured such that, as evidenced by an
Opinion of Counsel  delivered  to the  Trustee and to each  Rating  Agency,  the
Certificateholders  have a claim with  respect to the funds in such account or a
perfected first priority  security  interest against any collateral (which shall
be limited to  Permitted  Investments)  securing  such funds that is superior to
claims of any other  depositors or creditors of the  depository  institution  or
trust company in which such account is  maintained,  or (iii) a trust account or
accounts  maintained  with  (a) the  trust  department  of a  federal  or  state
chartered depository institution or (b) a trust company, acting in its fiduciary
capacity or (iv) any other  account  acceptable  to each  Rating  Agency and the
Insurer.  Eligible  Accounts may bear  interest,  and may include,  if otherwise
qualified under this definition, accounts maintained with the Trustee.

      ERISA: The Employee Retirement Income Security Act of 1974, as amended.

                                       11
<PAGE>

      ERISA-Qualifying  Underwriting:   With  respect  to  any  ERISA-Restricted
Certificate, a best efforts or firm commitment underwriting or private placement
that meets the requirements of the Underwriters' Exemption.

      ERISA-Restricted Certificate: As specified in the Preliminary Statement.

      Event of Default: As defined in Section 7.1 hereof.

      Excess  Overcollateralization  Amount:  For  any  Distribution  Date,  the
excess,  if  any,  of  the  Overcollateralization   Amount  over  the  Specified
Overcollateralization Amount.

      Excess Proceeds: With respect to any Liquidated Mortgage Loan, the amount,
if any, by which the sum of any Net  Liquidation  Proceeds of such Mortgage Loan
received in the calendar  month in which such  Mortgage Loan became a Liquidated
Mortgage Loan, net of any amounts  previously  reimbursed to the Master Servicer
as  Nonrecoverable  Advance(s)  with respect to such  Mortgage  Loan pursuant to
Section 3.8(a)(iii), exceeds (i) the unpaid principal balance of such Liquidated
Mortgage Loan as of the Due Date in the month in which such Mortgage Loan became
a Liquidated  Mortgage Loan plus (ii) accrued interest at the Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and not reimbursed)
to  Certificateholders  up to the Due Date applicable to the  Distribution  Date
immediately following the calendar month during which such liquidation occurred.

      Excess Spread:  With respect to any  Distribution  Date and without taking
into account any draw on the Policy for that  Distribution  Date, the excess, if
any, of (x) Interest  Collections for the related Distribution Date over (y) the
sum of (1) the Master Servicing Fee for that Distribution  Date, (2) the Trustee
Fee for that  Distribution  Date,  (3) the  Premium  due to the Insurer for that
Distribution  Date;  (4) the  Accrued  Certificate  Interest  due on the Class A
Certificates for that  Distribution  Date, (5) any reimbursement due the Insurer
for prior draws made under the Policy, and (6) any other amounts due the Insurer
under the Insurance Agreement on that Distribution Date.

      Excess  Spread  Percentage:  For any  Distribution  Date,  the  percentage
equivalent  of a fraction  (A) the  numerator of which is the product of (i) the
Excess  Spread  for  such  Distribution  Date  and  (ii)  twelve,  and  (B)  the
denominator  of which is the Pool  Principal  Balance as of the beginning of the
related Due Period, expressed as a percentage.  The Excess Spread Percentage for
the first Distribution Date will equal approximately 3.98%.

      Expense Fee Rate: As to each Mortgage  Loan, the sum of the related Master
Servicing Fee Rate, the Trustee Fee Rate and the Premium Percentage.

      FDIC: The Federal Deposit Insurance Corporation, or any successor thereto.

      FHLMC:   The  Federal  Home  Loan   Mortgage   Corporation,   a  corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.

      Final Scheduled Distribution Date: The Distribution Date in July 2019.

                                       12
<PAGE>

      FIRREA: The Financial  Institutions Reform,  Recovery, and Enforcement Act
of 1989.

      First Horizon:  First Horizon Home Loan Corporation,  a Kansas corporation
and an indirect wholly owned subsidiary of First Horizon National Corporation, a
Tennessee corporation.

      Fiscal Agent: As defined in the Policy.

      Fitch: Fitch Ratings or any successor thereto. If Fitch is designated as a
Rating Agency in the Preliminary Statement,  for purposes of Section 11.5(b) the
address for notices to Fitch shall be Fitch,  Inc., One State Street Plaza,  New
York, New York 10004,  Attention:  Residential  Mortgage  Surveillance Group, or
such other  address as Fitch may  hereafter  furnish  to the  Depositor  and the
Master Servicer.

      FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned  corporation  organized and existing under the Federal  National
Mortgage Association Charter Act, or any successor thereto.

      FTMSI: First Tennessee Mortgage  Services,  Inc., a Tennessee  corporation
and an indirect wholly owned subsidiary of First Horizon National Corporation, a
Tennessee corporation.

      Indemnification  Agreement:  The  Indemnification  Agreement  dated  as of
December 22, 2004,  among the Insurer,  the Seller,  the Master Servicer and the
Underwriter.

      Index: LIBOR.

      Indirect   Participant:   A  broker,   dealer,  bank  or  other  financial
institution  or other  Person  that  clears  through or  maintains  a  custodial
relationship with a Depository Participant.

      Insurance Agreement:  The Insurance Agreement dated as of December 1, 2004
among the  Trustee,  the Seller,  the Master  Servicer,  the  Depositor  and the
Insurer, including any amendments and supplements thereto in accordance with the
terms thereof.

      Insurance Policy:  With respect to any Mortgage Loan included in the Trust
Fund, any insurance  policy,  including all riders and  endorsements  thereto in
effect, including any replacement policy or policies for any Insurance Policies.

      Insurance Proceeds:  Proceeds paid by an insurer pursuant to any Insurance
Policy,  in each case other than any amount included in such Insurance  Proceeds
in respect of Insured Expenses.

      Insured  Expenses:  Expenses  covered by an Insurance  Policy or any other
insurance policy with respect to the Mortgage Loans.

      Insured Payment: With respect to any Distribution Date, the sum of (i) any
Deficiency  Amount for such Distribution Date and (ii) any Preference Amount for
such Distribution Date.

                                       13
<PAGE>

      Insurer: MBIA Insurance Corporation and its successor and assigns.

      Insurer  Default:  Any failure of the  Insurer to make a payment  required
under the Policy in accordance with its terms.

      Interest Accrual Period:  With respect to each Class of Delay Certificates
and any  Distribution  Date,  the  calendar  month  prior  to the  month of such
Distribution   Date.  With  respect  to  any  Non-Delay   Certificates  and  any
Distribution  Date, the one month period commencing on the 25th day of the month
preceding  the month in which such  Distribution  Date  occurs and ending on the
24th day of the month in which such Distribution Date occurs.

      Interest  Collections:  With respect to any  Distribution  Date, an amount
equal to the sum of:

      (a)   the portion of all Scheduled Payments on the Mortgage Loans received
            and  applied to interest  during the  related Due Period,  minus the
            Master Servicing Fee and the Trustee Fee,

      (b)   the  portion  of  all  Net  Liquidation   Proceeds  and  prepayments
            allocated to interest under the terms of the Mortgage Notes, reduced
            by the Master Servicing Fee and Trustee Fee for that Due Period, and

      (c)   the interest  portion of the Purchase Price of any Deleted  Mortgage
            Loans and the Purchase  Price paid in  connection  with any Optional
            Termination.

      Interest  Determination  Date: With respect to any Interest Accrual Period
(other than the first Interest Accrual Period) for any LIBOR  Certificates,  the
second Business Day prior to the first day of such Interest Accrual Period. With
respect to the first Interest Accrual Period, LIBOR will be 2.40688%.

      Interest Shortfall:  For any Distribution Date and each Mortgage Loan, the
sum of (a) any Relief Act  Shortfall in respect of such Mortgage  Loan;  and (b)
any Prepayment Interest Shortfall in respect of such Mortgage Loan.

      Latest Possible  Maturity Date: As to each Class of Certificates  and each
Lower REMIC Interest,  the Distribution  Date following the third anniversary of
the scheduled  maturity  date of the Mortgage  Loan having the latest  scheduled
maturity date as of the Cut-off Date.

      LIBOR:  The London  interbank  offered  rate for one month  United  States
dollar deposits calculated in the manner described in Section 4.5.

      LIBOR Business Day: Any day other than a Saturday or a Sunday, or a day on
which  banking  institutions  in the city of London,  England  are  required  or
authorized by law to be closed.

      LIBOR Certificates: As defined in the Preliminary Statement.

                                       14
<PAGE>

      Liquidated  Mortgage  Loan:  With  respect  to any  Distribution  Date,  a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master  Servicer has determined (in accordance  with this Agreement) that it has
received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.

      Liquidation  Loss Amount:  With respect to any  Distribution  Date and any
Liquidated  Mortgage Loan, the unrecovered  principal  balance of the Liquidated
Mortgage  Loan,  after giving  effect to the Net  Liquidation  Proceeds for that
Mortgage  Loan.  If a Bankruptcy  Loss has occurred with respect to any Mortgage
Loan,  the amount of the  Bankruptcy  Loss will  constitute a  Liquidation  Loss
Amount.

      Liquidation  Loss  Distribution  Amount:  With respect to any Distribution
Date,  an amount  equal to the sum of (A) the  Liquidation  Loss Amounts on such
Distribution Date, plus (B) any Liquidation Loss Amounts remaining undistributed
from any preceding  Distribution  Date. Any  Liquidation  Loss Amount  remaining
undistributed  from any preceding  Distribution Date shall not be required to be
paid as a Liquidation Loss Distribution  Amount to the extent that a Liquidation
Loss Amount was distributed in respect of the Class A Certificates by means of a
draw on the Policy or was covered by Excess  Spread or through  reduction of the
Overcollateralization  Amount.  The  Policy  will not  cover  the  payment  of a
Liquidation Loss Distribution Amount until the Overcollateralization  Amount has
been reduced to zero.

      Lost  Mortgage  Note:  Any  Mortgage  Note,  the  original  of  which  was
permanently lost or destroyed and has not been replaced.

      Lower REMIC:  The segregated pool of assets  consisting of the Trust Fund,
the Lower REMIC Interests, the RL Interest and the RU Interest.

      Lower REMIC Interests: The REMIC regular interests,  within the meaning of
the REMIC Provisions, issued by the Lower REMIC as set forth in Section 2.7.

      Maintenance:  With respect to any  Cooperative  Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.

      Majority in Interest: As to any Class of Regular Certificates, the Holders
of Certificates of such Class evidencing,  in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.

      Master   Servicer:   First  Horizon  Home  Loan   Corporation,   a  Kansas
corporation,  and its successors and assigns, in its capacity as master servicer
hereunder.

      Master  Servicer  Advance Date:  As to any  Distribution  Date,  1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

      Master Servicing Fee: As to each Mortgage Loan and any Distribution  Date,
an amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Stated  Principal  Balance of such Mortgage Loan as of the Due Date in the month
of such Distribution Date (prior to giving effect to any Scheduled  Payments due
on such  Mortgage  Loan on such Due Date),  subject to  reduction as provided in
Section 3.14.

                                       15
<PAGE>

      Master  Servicing Fee Rate: For each Mortgage Loan, a per annum rate equal
to 0.500%.

      MERS:  Mortgage  Electronic  Registration  Systems,  Inc.,  a  corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.

      MERS Mortgage  Loan:  Any Mortgage Loan  registered  with MERS on the MERS
System.

      MERS(R)   System:   The  system  of   recording   transfers  of  mortgages
electronically maintained by MERS.

      MIN: The Mortgage Identification Number for any MERS Mortgage Loan.

      MLPAs: MLPA I and MLPA II, collectively.

      MLPA I: The  Mortgage  Loan  Purchase  Agreement  dated as of December 30,
2004, by and between First Horizon Home Loan Corporation,  as seller,  and First
Tennessee Bank National Association,  as purchaser,  as related to the transfer,
sale and conveyance of the Mortgage Loans.

      MLPA II: The Mortgage  Loan  Purchase  Agreement  dated as of December 30,
2004, by and between First Tennessee Bank National  Association,  as seller, and
First Horizon Asset Securities  Inc., as purchaser,  as related to the transfer,
sale and conveyance of the Mortgage Loans.

      MOM Loan:  Any  Mortgage  Loan as to which  MERS is  acting as  mortgagee,
solely as nominee for the  originator of such  Mortgage Loan and its  successors
and assigns.

      Monthly  Master  Servicer  Report:  A  report  in  substantially  the form
attached hereto as Schedule III.

      Monthly  Statement:  The  statement  delivered  to the  Certificateholders
pursuant to Section 4.6.

      Moody's:  Moody's Investors Service,  Inc., or any successor  thereto.  If
Moody's is  designated  as a Rating  Agency in the  Preliminary  Statement,  for
purposes of Section  11.5(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007,  Attention:
Residential  Pass-Through  Monitoring,  or such other  address  as  Moody's  may
hereafter furnish to the Depositor or the Master Servicer.

      Mortgage:  The  mortgage,  deed of trust or other  instrument  creating  a
second lien on an estate in fee simple or  leasehold  interest in real  property
securing a Mortgage Note.

                                       16
<PAGE>

      Mortgage  File:  The mortgage  documents  listed in Section  2.1(b) hereof
pertaining to a particular Mortgage Loan and any additional  documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.

      Mortgage Loan  Schedule:  The list of Mortgage Loans (as from time to time
amended by the Master  Servicer to reflect the addition of  Substitute  Mortgage
Loans and the deletion of Deleted  Mortgage  Loans pursuant to the provisions of
this  Agreement)  transferred  to the Trustee as part of the Trust Fund and from
time to time subject to this  Agreement,  attached hereto as Schedule I, setting
forth the following information with respect to each Mortgage Loan:

      (1)   the loan number;

      (2)   the  Mortgagor's  name  and  the  street  address  of the  Mortgaged
            Property, including the zip code;

      (3)   the maturity date;

      (4)   the original principal balance;

      (5)   the Cut-off Date Principal Balance;

      (6)   the first payment date of the Mortgage Loan;

      (7)   the Scheduled Payment in effect as of the Cut-off Date;

      (8)   the CLTV Ratio at origination;

      (9)   a code indicating  whether the  residential  dwelling at the time of
            origination was represented to be owner-occupied;

      (10)  a code indicating  whether the residential  dwelling is either (a) a
            detached  single family dwelling (b) a dwelling in a de minimis PUD,
            (c) a condominium  unit or PUD (other than a de minimis PUD),  (d) a
            two-to-four unit residential property or (e) a Cooperative Unit;

      (11)  the Mortgage Rate;

      (12)  the purpose for the Mortgage Loan;

      (13)  the type of  documentation  program  pursuant to which the  Mortgage
            Loan was originated;

      (14)  the Master Servicing Fee for the Mortgage Loan; and

      (15)  a code indicating whether the Mortgage Loan is a MERS Mortgage Loan.

                                       17
<PAGE>

      Such  schedule  shall  also set forth the total of the  amounts  described
under (4) and (5) above for all of the Mortgage Loans.

      Mortgage Loans: Such of the mortgage loans transferred and assigned to the
Trustee  pursuant  to the  provisions  hereof as from time to time are held as a
part of the Trust Fund (including any REO Property),  the mortgage loans so held
being identified in the Mortgage Loan Schedule,  notwithstanding  foreclosure or
other acquisition of title of the related Mortgaged Property.

      Mortgage   Note:   The  original   executed  note  or  other  evidence  of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

      Mortgage  Rate:  The annual rate of interest borne by a Mortgage Note from
time to time.

      Mortgaged  Property:  The  underlying  property  securing a Mortgage Loan,
which,  with  respect to a  Cooperative  Loan,  is the  related  Coop Shares and
Proprietary Lease.

      Mortgagor: The obligor(s) on a Mortgage Note.

      National Cost of Funds Index:  The National  Monthly  Median Cost of Funds
Ratio  to   SAIF-Insured   Institutions   published  by  the  Office  of  Thrift
Supervision.

      Net Liquidation  Proceeds:  With respect to any Liquidated  Mortgage Loan,
the proceeds,  excluding  draws on the Policy,  received in connection  with the
liquidation of that Mortgage Loan,  whether through Trustee's sale,  foreclosure
sale or otherwise,  and including Insurance Proceeds and Subsequent  Recoveries,
reduced by the sum of related  unreimbursed  Master  Servicing  Fees,  Servicing
Advances and Advances, but not including the portion, if any, of the amount that
exceeds  the  principal  balance of, plus  accrued and unpaid  interest  on, the
Mortgage Loan at the end of the calendar month in which the Mortgage Loan became
a Liquidated Mortgage Loan.

      Net  Mortgage  Rate:  With  respect to each  Mortgage  Loan,  the  related
Mortgage  Rate minus the sum of (a) the  Expense  Fee Rates and (b) the  Premium
Percentage;  provided,  however,  that for  purposes  of this  calculation,  the
Premium Percentage will be multiplied by a fraction equal to the aggregate Class
Certificate  Balance  of the Class A  Certificates  over the then  current  Pool
Principal Balance.

      Net WAC Cap: With respect to any Distribution Date, a per annum rate equal
to the weighted average of the Net Mortgage Rates of the Mortgage Loans for that
Distribution  Date  (using the Net  Mortgage  Rates in effect for the  Scheduled
Payments due on such Mortgage  Loans during the related Due Period),  multiplied
by a fraction,  the numerator of which is 30 and the denominator of which is the
actual number of days in the related Interest Accrual Period.

      Non-Delay Certificates: As specified in the Preliminary Statement.

      Nonrecoverable  Advance:  Any  portion  of an Advance  previously  made or
proposed to be made by the Master  Servicer  that, in the good faith judgment of
the Master Servicer,  will not be ultimately  recoverable by the Master Servicer
from the related Mortgagor, related Net Liquidation Proceeds or otherwise.

                                       18
<PAGE>

      Notice of Final  Distribution:  The  notice  to be  provided  pursuant  to
Section 9.2 to the effect  that final  distribution  on any of the  Certificates
shall be made only upon presentation and surrender thereof.

      Notional Amount: Not applicable.

      Notional Amount Component: Not applicable.

      Notional Certificates: Not applicable.

      Offered Certificates: As specified in the Preliminary Statement.

      Officer's  Certificate:  A  Certificate  (i) signed by the Chairman of the
Board, the Vice Chairman of the Board,  the President,  a Managing  Director,  a
Vice  President  (however  denominated),   an  Assistant  Vice  President,   the
Treasurer,  the  Secretary,  or one of the  Assistant  Treasurers  or  Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the  Depositor  and the  Trustee,  as the case may be,  as  required  by this
Agreement.

      Opinion of Counsel:  A written opinion of counsel,  who may be counsel for
the Depositor or the Master Servicer,  including,  in-house counsel,  reasonably
acceptable  to  the  Trustee;  provided,  however,  that  with  respect  to  the
interpretation or application of the REMIC Provisions,  such counsel must (i) in
fact be independent of the Depositor and the Master Servicer,  (ii) not have any
direct  financial  interest in the  Depositor  or the Master  Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an  officer,  employee,  promoter,  underwriter,  trustee,  partner,
director or person performing similar functions.

      Optional  Termination:  The termination of the trust created  hereunder in
connection  with the purchase of the Mortgage  Loans  pursuant to Section 9.1(a)
hereof.

      Original  Mortgage Loan: The Mortgage Loan  refinanced in connection  with
the origination of a Refinancing Mortgage Loan.

      OTS: The Office of Thrift Supervision.

      Outside Reference Date: Not applicable.

      Outstanding:   With  respect  to  the  Certificates  as  of  any  date  of
determination,  all Certificates  theretofore  executed and authenticated  under
this Agreement except:

      (i)   Certificates theretofore canceled by the Trustee or delivered to the
            Trustee for cancellation; and

                                       19
<PAGE>

      (ii)  Certificates  in  exchange  for  which  or in  lieu of  which  other
            Certificates  have  been  executed  and  delivered  by  the  Trustee
            pursuant to this Agreement.

      Outstanding  Mortgage  Loan:  As of any Due Date,  a Mortgage  Loan with a
Stated  Principal  Balance  greater  than zero  which was not the  subject  of a
Principal  Prepayment  in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.

      Overcollateralization  Amount:  For any Distribution  Date, the excess, if
any, of the Pool Principal  Balance as of the end of the related Due Period over
the aggregate Class  Certificate  Balance of the Class A Certificates as of such
Distribution  Date,  after taking into account the distribution of the Principal
Collections to the Class A Certificates on that Distribution Date.

      Overcollateralization  Floor: An amount equal to the sum of (i) product of
(x) 0.65% and (y) the Pool Principal  Balance as of the Closing Date and (ii) of
the aggregate Stated  Principal  Balance of all Mortgage Loans that are both (a)
180  days or more  contractually  delinquent  and  (b) in  REO,  foreclosure  or
bankruptcy.

      Overcollateralization   Increase  Amount:   For  any  Distribution   Date,
beginning on February 25, 2005,  an amount equal to the lesser of (i) the Excess
Spread not  distributed  on that  Distribution  Date to cover  Liquidation  Loss
Amounts or as reimbursement to the Insurer for prior draws on the Policy and any
other  amounts due and owing to the Insurer  under the  Insurance  Agreement and
(ii) the excess, if any, of (x) the Specified  Overcollateralization  Amount for
that  Distribution  Date  over  (y) the  Overcollateralization  Amount  for that
Distribution Date.

      Overcollateralization  Reduction  Amount:  For any  Distribution  Date for
which the Excess Overcollateralization Amount is, or would be, after taking into
account all other  distributions to be made on that Distribution  Date,  greater
than zero, an amount equal to the lesser of (i) the Excess Overcollateralization
Amount  for  that  Distribution  Date and (ii)  Principal  Collections  for that
Distribution Date.

      Ownership Interest: As to any Residual Certificate, any ownership 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.

      Pass-Through Rate: For any interest bearing Class of Certificates, the per
annum rate set forth or  calculated in the manner  described in the  Preliminary
Statement.

      Percentage  Interest:  As to  any  Certificate,  the  percentage  interest
evidenced  thereby in  distributions  required to be made on the related  Class,
such  percentage  interest  being set forth on the face  thereof or equal to the
percentage  obtained by dividing the  Denomination  of such  Certificate  by the
aggregate of the Denominations of all Certificates of the same Class.

      Permitted  Investments:  At any  time,  any one or  more of the  following
obligations and securities:

                                       20
<PAGE>

      (i)   obligations  of the United  States or any agency  thereof,  provided
            such  obligations  are  backed by the full  faith and  credit of the
            United States;

      (ii)  general obligations of or obligations guaranteed by any state of the
            United  States or the  District  of Columbia  receiving  the highest
            long-term debt rating of each Rating Agency;

      (iii) commercial  or finance  company  paper which is then  receiving  the
            highest  commercial  or finance  company paper rating of each Rating
            Agency;

      (iv)  certificates  of  deposit,  demand  or time  deposits,  or  bankers'
            acceptances  issued by any  depository  institution or trust company
            incorporated  under  the laws of the  United  States or of any state
            thereof and subject to supervision and examination by federal and/or
            state banking authorities, provided that the commercial paper and/or
            long term unsecured debt obligations of such depository  institution
            or  trust  company  (or in the  case  of  the  principal  depository
            institution in a holding  company  system,  the commercial  paper or
            long-term  unsecured debt obligations of such holding  company,  but
            only if  Moody's is not a Rating  Agency)  are then rated one of the
            two highest long-term and/or the highest  short-term ratings of each
            Rating Agency for such securities;

      (v)   demand or time  deposits or  certificates  of deposit  issued by any
            bank or trust company or savings institution to the extent that such
            deposits  are fully  insured by the FDIC and  receiving  the highest
            short-term debt rating of each Rating Agency;

      (vi)  guaranteed  reinvestment  agreements  issued by any bank,  insurance
            company or other  corporation  and receiving the highest  short-term
            debt rating of each Rating Agency and containing, at the time of the
            issuance of such  agreements,  such terms and conditions as will not
            result in the  downgrading or withdrawal of the rating then assigned
            to the Certificates by either Rating Agency;

      (vii) repurchase  obligations  with respect to any  security  described in
            clauses  (i) and (ii)  above,  in either  case  entered  into with a
            depository  institution  or  trust  company  (acting  as  principal)
            described in clause (iv) above;

      (viii)securities   (other  than  stripped  bonds,   stripped   coupons  or
            instruments  sold at a purchase  price in excess of 115% of the face
            amount thereof) bearing interest or sold at a discount issued by any
            corporation  incorporated under the laws of the United States or any
            state thereof which, at the time of such investment, have one of the
            two  highest  ratings of each  Rating  Agency  (except if the Rating
            Agency  is  Moody's  or  S&P,  such  rating  shall  be  the  highest
            commercial  paper rating of Moody's or S&P, as  applicable,  for any
            such securities);

                                       21
<PAGE>

      (ix)  units of a taxable money-market  portfolio having the highest rating
            assigned by each Rating  Agency  (except if Fitch is a Rating Agency
            and has not rated the  portfolio,  the  highest  rating  assigned by
            Moody's) and restricted to  obligations  issued or guaranteed by the
            United States of America or entities whose obligations are backed by
            the full  faith and  credit of the  United  States  of  America  and
            repurchase agreements collateralized by such obligations; and

      (x)   such  other  investments  bearing  interest  or sold  at a  discount
            acceptable  to  each  Rating  Agency  as  will  not  result  in  the
            downgrading  or withdrawal of the shadow rating then assigned to the
            Certificates  by either  Rating  Agency,  as  evidenced  by a signed
            writing delivered by each Rating Agency;

                        provided  that no such  instrument  shall be a Permitted
                        Investment  if such  instrument  evidences  the right to
                        receive  interest  only  payments  with  respect  to the
                        obligations underlying such instrument.

      Permitted  Transferee:  Any person other than (i) the United  States,  any
State or political  subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government,  International  Organization or any
agency or  instrumentality  of either of the  foregoing,  (iii) an  organization
(except  certain  farmers'  cooperatives  described  in section 521 of the Code)
which is exempt  from tax  imposed by Chapter 1 of the Code  (including  the tax
imposed by section 511 of the Code on unrelated  business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any  Residual  Certificate,  (iv)  rural  electric  and  telephone  cooperatives
described  in  section  1381(a)(2)(C)  of  the  Code,  (v)  an  "electing  large
partnership"  as defined in section  775 of the Code,  (vi) a Person that is not
(a) a citizen or resident of the United States, (b) a corporation,  partnership,
or other entity  created or organized in or under the laws of the United States,
any state  thereof or the District of Columbia,  (c) an estate whose income 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 (d) a trust if a court within
the  United   States  is  able  to  exercise   primary   supervision   over  the
administration  of the  trust and one or more  United  States  persons  have the
authority to control all substantial  decisions of the trust, unless such Person
has  furnished the  transferor  and the Trustee with a duly  completed  Internal
Revenue  Service Form W-8ECI or any  applicable  successor  form,  and (vii) any
other Person so  designated  by the  Depositor  based upon an Opinion of Counsel
that the Transfer of an  Ownership  Interest in a Residual  Certificate  to such
Person may cause any REMIC  created  hereunder  to fail to qualify as a REMIC at
any time that the  Certificates are outstanding;  provided,  however,  that if a
person is classified as a partnership  under the Code, such person shall only be
a  Permitted  Transferee  if all of  its  beneficial  owners  are  described  in
subclauses  (a), (b), (c) or (d) of clause (vi) and the  governing  documents of
such person  prohibits  a transfer of any  interest in such person to any person
described in clause (vi). The terms "United States," "State" and  "International
Organization"  shall have the  meanings set forth in section 7701 of the Code or
successor provisions. A corporation will not be treated as an instrumentality of
the United  States or of any State or  political  subdivision  thereof for these
purposes if all of its  activities are subject to tax and, with the exception of
the Federal Home Loan Mortgage Corporation, a majority of its board of directors
is not selected by such government unit.

                                       22
<PAGE>

      Person:   Any  individual,   corporation,   partnership,   joint  venture,
association,   joint-stock  company,  trust,   unincorporated   organization  or
government, or any agency or political subdivision thereof.

      Physical Certificate: As specified in the Preliminary Statement.

      Planned Balance: Not applicable.

      Planned Principal Classes: Not applicable.

      Policy:  The financial  guaranty insurance policy (No. 45549) with respect
to the Class A  Certificates  and all  endorsements  thereto,  if any, dated the
Closing   Date,   issued  by  the  Insurer  for  the  benefit  of  the  Class  A
Certificateholders, a copy of which is attached hereto as Exhibit N.

      Pool  Principal  Balance:  With  respect  to any  Distribution  Date,  the
aggregate  of the Stated  Principal  Balances of the  Mortgage  Loans which were
Outstanding  Mortgage Loans on the Due Date in the month  preceding the month of
such Distribution  Date, and for the first  Distribution Date, as of the Closing
Date,  less any  Principal  Prepayments  received  on or after such Due Date and
distributed to Certificateholders on the prior Distribution Date.

      Preference Amount: As defined in Section 10.2(a).

      Premium: As specified in the Insurance Agreement.

      Premium Letter:  The letter  agreement dated December 30, 2004 between the
Insurer and the Depositor.

      Premium Percentage: As specified in the Premium Letter.

      Prepayment Interest Shortfall:  As to any Distribution Date, Mortgage Loan
and Principal  Prepayment  received during the related  Prepayment  Period,  the
amount,  if any, by which one month's interest at the related Adjusted  Mortgage
Rate on such Principal  Prepayment  exceeds the amount of interest actually paid
by the Mortgagor in connection with such Principal Prepayment.

      Prepayment  Period:  With  respect  to any  Distribution  Date,  the month
preceding the month of such Distribution Date.

      Principal Balance Schedules: Not applicable.

      Principal  Collections:  With respect to any Distribution  Date, an amount
equal to the sum of:

                                       23
<PAGE>

      (a)   the amount  collected  during the related Due Period,  including Net
            Liquidation Proceeds, and applied to principal of the Mortgage Loans
            pursuant to the terms of the related Mortgage Notes;

      (b)   the principal portion of the Purchase Price for any Deleted Mortgage
            Loans, including any Substitution  Adjustment Amounts required to be
            deposited  in the  Certificate  Account  by the Seller  pursuant  to
            Section 2.3;

      (c)   the principal  portion of the Purchase Price paid in connection with
            any Optional Termination; and

      (d)   the principal  portion of the Purchase Price paid in connection with
            the optional  purchase by the Master  Servicer of any Mortgage  Loan
            which is 91 days or more delinquent pursuant to Section 3.11.

      Principal  Prepayment:  Any  payment  of  principal  by a  Mortgagor  on a
Mortgage  Loan that is received in advance of its  scheduled Due Date and is not
accompanied  by an amount  representing  scheduled  interest  due on any date or
dates in any month or months  subsequent  to the  month of  prepayment.  Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.

      Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Mortgage Loan.

      Private Certificate: As specified in the Preliminary Statement.

      Proceeding:  Any  suit in  equity,  action  at law or  other  judicial  or
administrative proceeding.

      Proprietary  Lease:  With  respect  to any  Cooperative  Unit,  a lease or
occupancy  agreement  between a Cooperative  Corporation and a holder of related
Coop Shares.

      PUD: Planned Unit Development.

      Purchase Price: With respect to any Mortgage Loan required to be purchased
by the Seller  pursuant to Section 2.2 or 2.3 hereof or  purchased at the option
of the Master  Servicer  pursuant to Section 3.11, an amount equal to the sum of
(i) 100% of the unpaid  principal  balance of the  Mortgage  Loan on the date of
such purchase, (ii) accrued interest thereon at the applicable Mortgage Rate (or
at the  applicable  Adjusted  Mortgage  Rate  if  the  purchaser  is the  Master
Servicer) from the date through which interest was last paid by the Mortgagor to
the Due Date in the month in which the Purchase  Price is to be  distributed  to
Certificateholders,  and (iii) any costs and  damages  incurred  by the Trust in
connection with the  noncompliance  of such Mortgage Loan with any  specifically
applicable predatory or abusive lending law.

      Qualified Insurer: A mortgage guaranty insurance company duly qualified as
such under the laws of the state of its  principal  place of  business  and each
state having  jurisdiction  over such insurer in  connection  with the insurance
policy issued by such insurer,  duly  authorized  and licensed in such states to
transact a mortgage guaranty  insurance business in such states and to write the
insurance  provided  by  the  insurance  policy  issued  by  it,  approved  as a
FNMA-approved  mortgage  insurer and having a claims paying ability rating of at
least "AA" or equivalent rating by a nationally  recognized  statistical  rating
organization.  Any replacement insurer with respect to a Mortgage Loan must have
at least as high a claims paying  ability  rating as the insurer it replaces had
on the Closing Date.

                                       24
<PAGE>

      Rating Agency:  Each of the Rating  Agencies  specified in the Preliminary
Statement.  If any such  organization  or a successor is no longer in existence,
"Rating  Agency"  shall  be  such  nationally   recognized   statistical  rating
organization,  or other  comparable  Person,  as is designated by the Depositor,
notice of which designation shall be given to the Trustee.  References herein to
a given  rating  category of a Rating  Agency  shall mean such  rating  category
without giving effect to any modifiers.

      Recognition Agreement:  With respect to any Cooperative Loan, an agreement
between the  Cooperative  Corporation  and the  originator of such Mortgage Loan
which establishes the rights of such originator in the Cooperative Property.

      Record Date: With respect to any Distribution  Date, the close of business
on the last  Business  Day of the  month  preceding  the  month  in  which  such
Distribution Date occurs.

      Reference  Bank: A leading bank with an  established  place of business in
London  engaged in  transactions  in  Eurodollar  deposits in the  international
Eurocurrency  market,  not  controlled by, or under the common control with, the
Trustee.

      Refinancing Mortgage Loan: Any Mortgage Loan originated in connection with
the refinancing of an existing mortgage loan.

      Regular Certificates: As specified in the Preliminary Statement.

      Relief Act: The  Servicemembers  Civil Relief Act or any similar  state or
local legislation or regulations.

      Relief  Act  Shortfall:  With  respect  to any  Distribution  Date and any
Mortgage  Loan as to which there has been a reduction  in the amount of interest
collectible  thereon for the most recently  ended  calendar month as a result of
the  application  of the Relief  Act,  the  amount,  if any,  by which  interest
collectible  on such Mortgage Loan for the most recently ended calendar month is
less than interest accrued thereon for such month pursuant to the Mortgage Note.

      REMIC: A "real estate mortgage  investment  conduit" within the meaning of
section 860D of the Code.

      REMIC Change of Law: Any proposed, temporary or final regulation,  revenue
ruling,  revenue  procedure or other  official  announcement  or  interpretation
relating to REMICs and the REMIC Provisions issued after the Closing Date.

      REMIC Pool: Any of the Lower REMIC or Upper REMIC.

                                       25
<PAGE>

      REMIC  Provisions:  Provisions  of the federal  income tax law relating to
real estate mortgage investment conduits,  which appear at sections 860A through
860G of  Subchapter  M of Chapter 1 of the Code,  and  related  provisions,  and
regulations promulgated thereunder,  as the foregoing may be in effect from time
to time as well as provisions of applicable state laws.

      REO Loan: A Mortgage  Loan where title to the related  Mortgaged  Property
has  been   obtained   by  the   Trustee  or  its   nominee  on  behalf  of  the
Certificateholders.

      REO  Property:  A Mortgaged  Property  acquired by the Trust Fund  through
foreclosure  or  deed-in-lieu  of  foreclosure  in  connection  with a defaulted
Mortgage Loan.

      Request for  Release:  The Request  for  Release  submitted  by the Master
Servicer  to the  Trustee,  substantially  in the form of  Exhibits  L and M, as
appropriate.

      Required  Insurance  Policy:  With  respect  to  any  Mortgage  Loan,  any
insurance  policy that is required to be maintained from time to time under this
Agreement.

      Residual Certificates: As specified in the Preliminary Statement.

      Responsible  Officer:  When used with  respect  to the  Trustee,  any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust  Officer or any other  officer of the Trustee  customarily  performing
functions similar to those performed by any of the above designated officers and
having direct  responsibility  for the administration of this Agreement and also
to whom, with respect to a particular matter, such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

      RL Interest: The REMIC residual interest,  within the meaning of the REMIC
Provisions, issued by the Lower REMIC, which shall be represented by the Class R
Certificate.

      Rolling  Three-Month Excess Spread Percentage:  For any Distribution Date,
the average of the Excess Spread  Percentages  determined for that  Distribution
Date and for each of the two preceding Distribution Dates.

      RU Interest: The REMIC residual interest,  within the meaning of the REMIC
Provisions, issued by the Upper REMIC, which shall be represented by the Class R
Certificate.

      Scheduled Balances: Not applicable.

      Scheduled Certificates: Not applicable.

      Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
any Due Date allocable to principal and/or interest on such Mortgage Loan.

      Securities Act: The Securities Act of 1933, as amended.

      Security  Agreement:  The security agreement with respect to a Cooperative
Loan.

                                       26
<PAGE>

      Seller: First Horizon Home Loan Corporation, a Kansas corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans pursuant
to MLPA I.

      Servicing  Advances:  All  customary,  reasonable  and  necessary  "out of
pocket" costs and expenses incurred in the performance by the Master Servicer of
its servicing  obligations,  including,  but not limited to, the cost of (i) the
preservation,  restoration  and  protection  of a Mortgaged  Property,  (ii) any
expenses  reimbursable to the Master  Servicer  pursuant to Section 3.11 and any
enforcement  or  judicial  proceedings,   including   foreclosures,   (iii)  the
management  and  liquidation  of any REO Property and (iv)  compliance  with the
obligations under Section 3.9.

      Servicing Agreement: The Servicing Agreement (Home Equity Loans), dated as
of December 1, 2004 by and between First Tennessee Bank National Association and
its assigns, as owner, and First Tennessee Mortgage Services, Inc., as servicer.

      Servicing  Officer:  Any officer of the Master  Servicer  involved  in, or
responsible  for, the  administration  and servicing of the Mortgage Loans whose
name and facsimile signature appear on a list of servicing officers furnished to
the  Trustee  by the  Master  Servicer  on the  Closing  Date  pursuant  to this
Agreement, as such list may from time to time be amended.

      Servicing Rights Transfer and Subservicing Agreement: The Servicing Rights
Transfer and Subservicing Agreement (Home Equity Loans), dated as of December 1,
2004,  by and between  First Horizon Home Loan  Corporation,  as transferor  and
subservicer,  and First  Tennessee  Mortgage  Services,  Inc., as transferee and
servicer.

      S&P:  Standard  &  Poor's  Corporation,  a  division  of  The  McGraw-Hill
Companies,  Inc.  If S&P is  designated  as a Rating  Agency in the  Preliminary
Statement,  for purposes of Section 11.5(b) the address for notices to S&P shall
be Standard & Poor's,  55 Water Street,  41st Floor,  New York,  New York 10041,
Attention:  Mortgage Surveillance  Monitoring,  or such other address as S&P may
hereafter furnish to the Depositor and the Master Servicer.

      Specified  Overcollateralization Amount: For any Distribution Date, (a) if
such  Distribution  Date is  prior to the  Stepdown  Date,  the  Base  Specified
Overcollateralization  Amount,  or (b) if such  Distribution Date is on or after
the  Stepdown  Date,  the  greater of (A) the sum of (i) the  product of (x) two
times the Target  Percentage and (y) the Pool Principal Balance as of the end of
the related Due Period and (ii) the aggregate  Stated  Principal  Balance of all
Mortgage Loans that are both (a) 180 days or more  contractually  delinquent and
(b) in REO, foreclosure or bankruptcy, and (B) the Overcollateralization  Floor;
provided,   however,  that  for  the  first  Distribution  Date,  the  Specified
Overcollateralization Amount will equal 0.00%; provided, further, that if either
of the  Spread  Squeeze  Step-Down  Freeze  or  Total  Loss  Freeze  Test is not
satisfied,  the  Specified  Overcollateralization  Amount  will  equal  the Base
Specified Overcollateralization Amount.

      Spread Squeeze  Step-Down Freeze Test: For any  Distribution  Date, a test
that is satisfied if the Rolling Three Month Excess Spread  Percentage  for that
Distribution Date equals or exceeds 2.00%.

      Startup Day: The Closing Date.

                                       27
<PAGE>

      Stated Principal Balance: As to any Mortgage Loan and Due Date, the unpaid
principal  balance of such Mortgage Loan as of such Due Date as specified in the
amortization  schedule at the time relating  thereto  (before any  adjustment to
such  amortization  schedule by reason of any  moratorium  or similar  waiver or
grace period) after giving effect to any previous partial Principal  Prepayments
and Liquidation  Proceeds allocable to principal (other than with respect to any
Liquidated  Mortgage  Loan) and to the payment of principal due on such Due Date
and irrespective of any delinquency in payment by the related Mortgagor.

      Stated   Value:   With  respect  to  each  Mortgage  Loan  for  which  the
documentation  type is known, the stated value of the related Mortgaged Property
given by the related Mortgagor in his or her application.

      Step-down Date: The  Distribution  Date which is the later to occur of (x)
the Distribution Date in July 2007 and (y) the first  Distribution Date on which
the Pool Principal  Balance as of the end of the related Due Period is less than
one-half of the Cut-off Date Pool Principal Balance.

      Subsequent Recoveries: With respect to Liquidated Mortgage Loans that have
resulted  in a  Liquidation  Loss  Amount , any  subsequent  recoveries,  net of
reimbursable expenses.

      Subservicer: Any person to whom the Master Servicer has contracted for the
servicing  of all or a portion of the  Mortgage  Loans  pursuant  to Section 3.2
hereof.

      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 a Request  for  Release,  substantially  in the form of Exhibit L, (i) have a
Stated  Principal  Balance,  after  deduction  of the  principal  portion of the
Scheduled  Payment due in the month of  substitution,  not in excess of, and not
more than 10% less than the Stated  Principal  Balance of the  Deleted  Mortgage
Loan;  (ii) have an Adjusted Net  Mortgage  Rate not lower than the lower of (a)
the  Adjusted  Net  Mortgage  Rate of the Deleted  Mortgage  Loan or (b) 5.865%;
provided that the Master Servicing Fee for the Substitute Mortgage Loan shall be
the same as that of the Deleted Mortgage Loan; (iii) have a CLTV Ratio no higher
than that of the Deleted  Mortgage Loan;  (iv) have a remaining term to maturity
no  greater  than (and not more  than one year  less  than that of) the  Deleted
Mortgage  Loan; (v) not be a Cooperative  Loan unless the Deleted  Mortgage Loan
was a Cooperative Loan and (vi) comply with each representation and warranty set
forth in Section 2.3 hereof.

      Substitution Adjustment Amount: The meaning ascribed to such term pursuant
to Section 2.3.

      Target Percentage: 3.40%.

      Tax Matters Person:  The person  designated as "tax matters person" in the
manner  provided  under  Treasury   regulation  ss.   1.860F-4(d)  and  Treasury
regulation ss. 301.6231(a)(7)-1.  Initially, the Tax Matters Person shall be the
Trustee.

      Tax Matters Person Certificate: The Class R Certificates with a Percentage
Interest of 0.01%.

                                       28
<PAGE>

      Total  Loss  Freeze  Test:  For  any  Distribution  Date,  a test  that is
satisfied  when the  percentage  equivalent of a fraction,  (A) the numerator of
which is the cumulative  Liquidation Loss Amounts since the Closing Date and (B)
the  denominator of which is the Pool Principal  Balance as of the Closing Date,
is equal to or less than the following percentages:

DISTRIBUTION DATES                                  PERCENTAGE

July 2007 to and including December 2007              2.00%
January 2008 to and including December 2008           2.50%
January 2009 and thereafter                           3.00%

      Transfer:  Any  direct  or  indirect  transfer  or sale  of any  Ownership
Interest in a Residual Certificate.

      Trust Fund:  The corpus of the trust created  hereunder  consisting of (i)
the Mortgage  Loans and all interest and  principal  received on or with respect
thereto  after the  Cut-off  Date to the extent not  applied  in  computing  the
Cut-off Date Principal  Balance thereof;  (ii) all of the Depositor's  rights as
purchaser  under MLPA II;  (iii) the  Certificate  Account and the  Distribution
Account and all amounts deposited therein pursuant to the applicable  provisions
of this  Agreement;  (iv)  property  that  secured a Mortgage  Loan and has been
acquired by foreclosure,  deed-in-lieu of foreclosure or otherwise; (v) upon the
resignation or termination  of First Horizon as Master  Servicer,  the servicing
rights with respect to the  Mortgage  Loans that are  automatically  transferred
pursuant  to  Section  10 of the  Servicing  Rights  Transfer  and  Subservicing
Agreement;  (vi) the  Depositor's  right to (A)  require  the Seller to cure any
breach of a  representation  or warranty made by the Seller  pursuant to MLPA I,
which  right has been  assigned  to the  Depositor  pursuant  to MLPA II, or (B)
repurchase or substitute for any affected  Mortgage Loan in accordance with this
Agreement; (vii) all right, title and interest of the Depositor in, to and under
the Servicing Agreement, which right has been assigned to the Depositor pursuant
to the  MLPA II,  and  (viii)  all  proceeds  of the  conversion,  voluntary  or
involuntary, of any of the foregoing.

      Trustee:  The Bank of New  York and its  successors  and,  if a  successor
trustee is appointed hereunder, such successor.

      Trustee Fee: As to any  Distribution  Date, an amount equal to one-twelfth
of the Trustee Fee Rate multiplied by the Pool Principal Balance with respect to
such Distribution Date.

      Trustee Fee Rate:  With respect to each Mortgage  Loan, the per annum rate
agreed  upon in writing on or prior to the  Closing  Date by the Trustee and the
Depositor.

      Underwriter: As specified in the Preliminary Statement.

      Upper REMIC:  The segregated pool of assets  consisting of the Lower REMIC
Interests.

      Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate. As of any date of determination,  (a) 98%
of all Voting  Rights will be allocated  among all Holders of the  Certificates,
other than the Class C Certificates and the Class R Certificates,  in proportion
to their  then  outstanding  Class  Certificate  Balances;  (b) 1% of all Voting
Rights will be allocated to the Class C  Certificates;  and (c) 1% of all Voting
Rights  will be  allocated  to the  Class R  Certificates.  Notwithstanding  the
foregoing,  the Insurer  shall be deemed to be the Holder of 100% of the Class A
Certificates,  for purposes of exercising Voting Rights hereunder, so long as no
Insurer Default is then continuing.

                                       29
<PAGE>

                                   ARTICLE II
                          CONVEYANCE OF MORTGAGE LOANS;
                         REPRESENTATIONS AND WARRANTIES

      SECTION 2.1 Conveyance of Mortgage Loans.

      (a)   The Depositor,  concurrently with the execution and delivery hereof,
            hereby sells, transfers, assigns, sets over and otherwise conveys to
            the  Trustee  for  the  benefit  of the  Certificateholders  and the
            Insurer,  without recourse, all the right, title and interest of the
            Depositor in and to the Trust Fund. In addition,  on or prior to the
            Closing Date,  the Depositor  shall cause the Insurer to deliver the
            Policy   to  the   Trustee   for  the   benefit   of  the   Class  A
            Certificateholders.

      (b)   In connection  with the transfer and  assignment set forth in clause
            (a)  above,  the  Depositor  has  delivered  or caused the Seller to
            deliver to the  Trustee or the  Custodian  on its behalf (or, in the
            case of the Delay Delivery  Mortgage Loans, will deliver or cause to
            be  delivered to the Trustee or the  Custodian on its behalf  within
            thirty (30) days  following the Closing Date) for the benefit of the
            Certificateholders  and  the  Insurer  the  following  documents  or
            instruments with respect to each Mortgage Loan so assigned:

            (i)   (A) the original Mortgage Note endorsed by manual or facsimile
                  signature in blank in the following form: "Pay to the order of
                  ________________,  without  recourse,"  with  all  intervening
                  endorsements  showing a complete chain of endorsement from the
                  originator  to the Person  endorsing  the Mortgage  Note (each
                  such endorsement being sufficient to transfer all right, title
                  and  interest  of the party so  endorsing,  as  noteholder  or
                  assignee thereof, in and to that Mortgage Note); or

                  (B)  with  respect  to any Lost  Mortgage  Note,  a lost  note
                  affidavit from the Seller  stating that the original  Mortgage
                  Note  was  lost  or  destroyed,  together  with a copy of such
                  Mortgage Note;

            (ii)  except as provided  below and for each  Mortgage  Loan that is
                  not a MERS Mortgage Loan, the original  recorded Mortgage or a
                  copy of such Mortgage  certified by the Seller as being a true
                  and complete copy of the Mortgage and in the case of each MERS
                  Mortgage Loan, the original  Mortgage,  noting the presence of
                  the MIN of the Mortgage Loans and either  language  indicating
                  that the Mortgage Loan is a MOM Loan if the Mortgage Loan is a
                  MOM  Loan  or if the  Mortgage  Loan  was  not a MOM  Loan  at
                  origination,  the original Mortgage and the assignment thereof
                  to MERS, with evidence of recording  indicated  thereon,  or a
                  copy of the Mortgage  certified by the public recording office
                  in which such Mortgage has been recorded;

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            (iii) in the case of a  Mortgage  Loan  that is not a MERS  Mortgage
                  Loan,  a duly  executed  assignment  of the  Mortgage in blank
                  (which   may  be   included   in  a  blanket   assignment   or
                  assignments),  together with,  except as provided  below,  all
                  interim  recorded  assignments  of such  mortgage  (each  such
                  assignment,   when  duly  and  validly  completed,  to  be  in
                  recordable form and sufficient to effect the assignment of and
                  transfer to the assignee thereof,  under the Mortgage to which
                  the  assignment  relates);   provided  that,  if  the  related
                  Mortgage  has not been  returned  from the  applicable  public
                  recording office,  such assignment of the Mortgage may exclude
                  the information to be provided by the recording office;

            (iv)  the  original  or  copies  of each  assumption,  modification,
                  written assurance or substitution agreement, if any;

            (v)   for any Mortgage Loan other than a Combo Mortgage Loan, either
                  the original or duplicate original title policy (including all
                  riders   thereto)  with  respect  to  the  related   Mortgaged
                  Property,  if  available,   provided  that  the  title  policy
                  (including  all riders  thereto) for any  Mortgage  Loan other
                  than a Combo  Mortgage  Loan will be  delivered  as soon as it
                  becomes  available,  and if the title policy is not available,
                  and to the extent  required  pursuant to the second  paragraph
                  below,  a written  commitment or interim binder or preliminary
                  report of the title  issued by the title  insurance  or escrow
                  company with respect to the Mortgaged Property, and

            (vi)  in the  case  of a  Cooperative  Loan,  the  originals  of the
                  following documents or instruments:

                  (A)   The Coop Shares, together with a stock power in blank;

                  (B)   The executed Security Agreement;

                  (C)   The executed Proprietary Lease;

                  (D)   The executed Recognition Agreement;

                  (E)   The executed UCC-1 financing  statement with evidence of
                        recording  thereon  which  have been filed in all places
                        required  to perfect the  Seller's  interest in the Coop
                        Shares and the Proprietary Lease; and

                  (F)   Executed UCC-3 financing statements or other appropriate
                        UCC   financing   statements   required  by  state  law,
                        evidencing  a  complete  and  unbroken   line  from  the
                        mortgagee  to the Trustee  with  evidence  of  recording
                        thereon (or in a form suitable for recordation).

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      In the event that the Depositor  cannot deliver (a) the original  recorded
Mortgage or (b) all interim recorded assignments  satisfying the requirements of
clause (ii) or (iii) above,  respectively,  concurrently  with the execution and
delivery  hereof  because such document or documents have not been returned from
the applicable public recording office,  the Depositor shall promptly deliver or
cause to be  delivered  to the  Trustee  or the  Custodian  on its  behalf  such
original Mortgage or such interim assignment,  as the case may be, with evidence
of recording  indicated  thereon upon receipt thereof from the public  recording
office, or a copy thereof,  certified, if appropriate, by the relevant recording
office,  but in no event shall any such  delivery of the  original  Mortgage and
each such interim assignment or a copy thereof,  certified,  if appropriate,  by
the relevant recording office, be made later than one year following the Closing
Date;  provided,  however,  in the event the  Depositor  is unable to deliver or
cause  to be  delivered  by such  date  each  Mortgage  and  each  such  interim
assignment by reason of the fact that any such  documents have not been returned
by the  appropriate  recording  office,  or,  in the case of each  such  interim
assignment,   because  the  related  Mortgage  has  not  been  returned  by  the
appropriate  recording  office,  the  Depositor  shall  deliver  or  cause to be
delivered  such  documents to the Trustee or the Custodian on its behalf (unless
an Assignment  Event has occurred,  in which case the Depositor shall deliver or
cause to be  delivered  such  documents  to the Trustee) as promptly as possible
upon receipt  thereof and, in any event,  within 720 days  following the Closing
Date. The Depositor shall forward or cause to be forwarded to the Trustee or the
Custodian  on its behalf  (a) from time to time  additional  original  documents
evidencing an assumption  or  modification  of a Mortgage Loan and (b) any other
documents  required to be delivered by the  Depositor or the Master  Servicer to
the Trustee.  In the event that the original  Mortgage is not  delivered  and in
connection with the payment in full of the related  Mortgage Loan and the public
recording office requires the presentation of a "lost instruments  affidavit and
indemnity" or any equivalent  document,  because only a copy of the Mortgage can
be delivered with the instrument of  satisfaction  or  reconveyance,  the Master
Servicer  shall execute and deliver or cause to be executed and delivered such a
document to the public  recording  office.  In the case where a public recording
office retains the original recorded Mortgage or in the case where a Mortgage is
lost after recordation in a public recording office, the Depositor shall deliver
or cause to be delivered to the Trustee or the Custodian on its behalf a copy of
such  Mortgage  certified  by such  public  recording  office  to be a true  and
complete copy of the original recorded Mortgage.

      In addition, in the event that in connection with any Mortgage Loan (other
than a Combo  Mortgage  Loan)  the  Depositor  cannot  deliver  or  cause  to be
delivered the original or duplicate  original  lender's  title policy  (together
with all  riders  thereto),  satisfying  the  requirements  of clause (v) above,
concurrently with the execution and delivery hereof because the related Mortgage
has not been returned from the applicable public recording office, the Depositor
shall promptly  deliver or cause to be delivered to the Trustee or the Custodian
on its  behalf  such  original  or  duplicate  original  lender's  title  policy
(together  with all riders  thereto)  upon receipt  thereof from the  applicable
title  insurer,  but in no event  shall any such  delivery  of the  original  or
duplicate  original  lender's title policy be made later than one year following
the Closing  Date;  provided,  however,  in the event the Depositor is unable to
deliver or cause to be delivered by such date the original or duplicate original
lender's title policy  (together with all riders  thereto) for any Mortgage Loan
(other than a Combo  Mortgage  Loan)  because the related  Mortgage has not been
returned by the  appropriate  recording  office,  the Depositor shall deliver or
cause to be  delivered  such  documents  to the Trustee or the  Custodian on its
behalf as promptly as possible  upon receipt  thereof and, in any event,  within
720  days  following  the  Closing  Date.   Notwithstanding  the  preceding,  in
connection  with any Mortgage Loan (other than a Combo  Mortgage Loan) for which

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either the original or duplicate original title policy has not been delivered to
the Trustee or the  Custodian  on its behalf,  if at any time during the term of
this Agreement the parent company of the Seller does not have a long term senior
debt  rating of A- or higher  from S&P and A- or higher  from Fitch (if rated by
Fitch), then the Depositor shall within 30 days deliver or cause to be delivered
to the Trustee or the Custodian on its behalf (if it has not previously done so)
a written commitment or interim binder or preliminary report of the title issued
by the title insurance or escrow company with respect to the Mortgaged Property.

      Within thirty (30) days after the occurrence of an Assignment  Event,  the
Master  Servicer  shall (i) complete each  assignment  of Mortgage,  as follows:
"First Horizon Mortgage Pass-Through Certificates,  Series 2004-HE4, The Bank of
New York,  as  trustee  for the  holders of the  Certificates",  (ii) cause such
assignment to be in proper form for recording in the  appropriate  public office
for real  property  records and (iii) cause to be delivered for recording in the
appropriate  public  office for real  property  records the  assignments  of the
Mortgages  to the  Trustee,  except that,  with  respect to any  assignments  of
Mortgage  as to which the  Master  Servicer  has not  received  the  information
required to prepare such  assignment in recordable  form, the Master  Servicer's
obligation to do so and to deliver the same for such recording  shall be as soon
as practicable  after receipt of such information and in any event within thirty
(30) days after receipt thereof.

      In the case of  Mortgage  Loans  that have been  prepaid in full as of the
Closing Date,  the Depositor,  in lieu of delivering the above  documents to the
Trustee or the Custodian on its behalf,  will deposit in the Certificate Account
the portion of such payment that is required to be deposited in the  Certificate
Account pursuant to Section 3.8 hereof.

      Notwithstanding anything to the contrary in this Agreement,  within thirty
days after the Closing Date, the Depositor  shall either (i) deliver or cause to
be delivered to the Trustee or the  Custodian on its behalf the Mortgage File as
required  pursuant to this Section 2.1 for each Delay Delivery  Mortgage Loan or
(ii) (A)  substitute or cause to be  substituted a Substitute  Mortgage Loan for
the Delay  Delivery  Mortgage Loan or (B)  repurchase or cause to be repurchased
the Delay Delivery  Mortgage Loan,  which  substitution  or repurchase  shall be
accomplished  in the manner and subject to the  conditions  set forth in Section
2.3 (treating each Delay Delivery  Mortgage Loan as a Deleted  Mortgage Loan for
purposes of such Section 2.3), provided, however, that if the Depositor fails to
deliver  a  Mortgage  File for any  Delay  Delivery  Mortgage  Loan  within  the
thirty-day  period provided in the prior  sentence,  the Depositor shall use its
best reasonable efforts to effect or cause to be effected a substitution, rather
than a repurchase of, such Deleted  Mortgage Loan and provided  further that the
cure period provided for in Section 2.2 or in Section 2.3 shall not apply to the
initial delivery of the Mortgage File for such Delay Delivery Mortgage Loan, but
rather the  Depositor  shall have five (5) Business  Days to cure or cause to be
cured  such  failure  to  deliver.  Notwithstanding  anything  to  the  contrary
contained in this Agreement,  none of the Mortgage Loans in the Trust Fund is or
will be Delay Delivery Mortgage Loans.

      SECTION 2.2 Acceptance by Trustee of the Mortgage Loans.

      So long as no Assignment  Event has occurred,  neither the Trustee nor the
Custodian on its behalf will be required to deliver an Initial  Certification or
a Final Certification with respect to the Mortgage Files. Upon the occurrence of
an Assignment  Event,  the Trustee shall cause the Custodian to promptly deliver
the Mortgage Files to the Trustee and as soon as  practicable  after its receipt
of the  Mortgage  Files but in any event,  within 30 days  thereof,  the Trustee
agrees to execute  and deliver to the  Depositor,  the Master  Servicer  and the
Insurer an Initial  Certification in the form annexed hereto as Exhibit E. Based
on its review and examination,  and only as to the documents  identified in such
Initial  Certification,  the Trustee shall  acknowledge  that the such documents
appear regular on their face and relate to the Mortgage Loans. The Trustee shall
have no duty or  obligation  to  inspect,  review  or  examine  said  documents,
instruments,  certificates  or  other  papers  to  determine  that  the same are
genuine,  enforceable or appropriate  for the  represented  purpose or that they
have actually  been  recorded in the real estate  records or that they are other
than what they purport to be on their face.

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<PAGE>

      Not later than 90 days after the  occurrence of an Assignment  Event,  the
Trustee shall deliver to the  Depositor,  the Master  Servicer and the Insurer a
Final Certification in the form annexed hereto as Exhibit G, with any applicable
exceptions noted thereon.

      If, in the course of its review of the Mortgage Files after the occurrence
of an Assignment Event, the Trustee finds any document  constituting a part of a
Mortgage File which does not meet the  requirements  of Section 2.1, the Trustee
shall list such as an exception in the Final  Certification;  provided,  however
that the  Trustee  shall  not  make  any  determination  as to  whether  (i) any
endorsement is sufficient to transfer all right, title and interest of the party
so endorsing, as noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any  assignment  is in  recordable  form or is  sufficient  to  effect  the
assignment  of and transfer to the assignee  thereof under the mortgage to which
the  assignment  relates.  The Seller  shall  promptly  correct or cure any such
defect  within 90 days from the date it was so  notified  of such defect and, if
the Seller does not correct or cure such defect  within such period,  the Seller
shall either (a) substitute for the related Mortgage Loan a Substitute  Mortgage
Loan, which  substitution shall be accomplished in the manner and subject to the
conditions set forth in Section 2.3, or (b) purchase such Mortgage Loan from the
Trustee  within 90 days from the date the Seller was  notified of such defect in
writing at the Purchase Price of such Mortgage Loan; provided,  however, that in
no event shall such  substitution  or purchase occur more than 540 days from the
Closing  Date,  except that if the  substitution  or purchase of a Mortgage Loan
pursuant to this  provision  is required by reason of a delay in delivery of any
documents by the appropriate  recording  office,  and there is a dispute between
either the Master  Servicer or the Seller and the Trustee  over the  location or
status of the recorded document,  then such substitution or purchase shall occur
within  720  days  from the  Closing  Date.  As soon as  practicable  after  the
occurrence of an Assignment  Event,  the Trustee shall deliver written notice to
each Rating Agency indicating each Mortgage Loan (a) which has not been returned
by the appropriate  recording office or (b) as to which there is a dispute as to
location or status of such Mortgage  Loan. The Trustee shall deliver such notice
to the  Insurer and each Rating  Agency and every 90 days  thereafter  until the
related Mortgage Loan is returned to the Trustee. Any such substitution pursuant
to (a) above or purchase  pursuant  to (b) above shall not be effected  prior to
the  delivery to the  Trustee of the Opinion of Counsel  required by Section 2.5
hereof, if any, and any substitution pursuant to (a) above shall not be effected
prior to the  additional  delivery  to the  Trustee  of a  Request  for  Release
substantially  in the form of Exhibit L. No substitution is permitted to be made
in any calendar month after the Determination  Date for such month. The Purchase
Price  for any such  Mortgage  Loan  shall be  deposited  by the  Seller  in the
Certificate Account on or prior to the Distribution Account Deposit Date for the
Distribution  Date in the month  following  the month of  repurchase  and,  upon
receipt of such deposit and  certification  with respect  thereto in the form of
Exhibit M hereto,  the Trustee  shall  release the related  Mortgage File to the
Seller and shall execute and deliver at the Seller's request such instruments of
transfer or assignment prepared by the Seller, in each case without recourse, as
shall be necessary to vest in the Seller, or a designee,  the Trustee's interest
in any Mortgage Loan released pursuant hereto.

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<PAGE>

      The Trustee shall retain or (so long as no Assignment  Event has occurred)
shall cause the Custodian to retain possession and custody of each Mortgage File
in accordance with and subject to the terms and conditions set forth herein. The
Master  Servicer  shall  promptly  deliver  to the  Trustee  or (so  long  as no
Assignment  Event has occurred) the Custodian on its behalf,  upon the execution
or receipt  thereof,  the  originals  of such  other  documents  or  instruments
constituting  the  Mortgage  File as come  into  the  possession  of the  Master
Servicer from time to time.

      It is  understood  and  agreed  that  the  obligation  of  the  Seller  to
substitute  for or to  purchase  any  Mortgage  Loan  which  does  not  meet the
requirements  of Section 2.1 above shall  constitute the sole remedy  respecting
such defect  available to the Trustee,  the Depositor and any  Certificateholder
against the Seller.

      The mortgage loans permitted by the terms of this Agreement to be included
in the Trust Fund are limited to (i) the  Mortgage  Loans  (which the  Depositor
acquired   pursuant  to  MLPA  II,   which   contains  an   assignment   of  the
representations  and warranties  made by the Seller under MLPA I, which include,
among other representations and warranties, a representation and warranty of the
Seller  that no Mortgage  Loan is a "high cost loan" as defined by the  specific
applicable   predatory  and  abusive  lending  laws,  which  includes  the  term
"High-Cost Home Loan" as defined in the New Jersey Home Ownership Act, effective
November 27, 2003, and the New Mexico Home Loan Protection Act,  effective as of
April  11,  2003,  or a  "High  Cost  Home  Mortgage  Loan"  as  defined  in the
Massachusetts  Predatory Home Loan  Practices  Act,  effective as of November 7,
2004 (collectively,  the "Acts")), and (ii) Substitute Mortgage Loans (which, by
definition  as set  forth  in this  Agreement  and  referred  to in MLPA I,  are
required  to  conform  to,  among  other   representations  and  warranties,   a
representation and warranty of the Seller set forth in MLPA I that no Substitute
Mortgage  Loan is a "high  cost  loan" as  defined  by the  specific  applicable
predatory and abusive  lending laws,  which  includes the term  "High-Cost  Home
Loan"  and  "High  Cost Home  Mortgage  Loan" as  defined  in the  Acts).  It is
therefore  understood  and agreed by the parties  hereto that it is not intended
that any Mortgage  Loan be included in the Trust Fund that is a "High-Cost  Home
Loan" as defined in the Acts.

      SECTION  2.3  Representations  and  Warranties  of  the  Master  Servicer;
Covenants of the Seller.

      (a)   The Master Servicer hereby makes the  representations and warranties
            set forth in Schedule II hereto and by this  reference  incorporated
            herein,  to the  Depositor,  the Trustee and the Insurer,  as of the
            Closing Date, or if so specified therein, as of the Cut-off Date.

      (b)   Upon  discovery  by any of  the  parties  hereto  of a  breach  of a
            representation  or  warranty  made  pursuant to Schedule B to MLPA I
            that   materially  and  adversely   affects  the  interests  of  the
            Certificateholders  or the Insurer in any Mortgage  Loan,  the party
            discovering  such  breach  shall give prompt  notice  thereof to the

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            other  parties and the Insurer.  The Seller  hereby  covenants  that
            within 90 days of the  earlier of its  discovery  or its  receipt of
            written notice from any party of a breach of any  representation  or
            warranty made pursuant to Schedule B to MLPA I which  materially and
            adversely  affects the  interests of the  Certificateholders  or the
            Insurer  in any  Mortgage  Loan,  it shall  cure such  breach in all
            material respects, and if such breach is not so cured, shall, (i) if
            such 90-day period  expires prior to the second  anniversary  of the
            Closing Date,  remove such Mortgage Loan (a "Deleted Mortgage Loan")
            from  the  Trust  Fund  and  substitute  in its  place a  Substitute
            Mortgage Loan, in the manner and subject to the conditions set forth
            in this Section;  or (ii)  repurchase the affected  Mortgage Loan or
            Mortgage  Loans from the Trustee at the Purchase Price in the manner
            set  forth  below;  provided,  however,  that any such  substitution
            pursuant to (i) above shall not be effected prior to the delivery to
            the  Trustee  of the  Opinion  of Counsel  required  by Section  2.5
            hereof,  if any,  and any such  substitution  pursuant  to (i) above
            shall  not be  effected  prior  to the  additional  delivery  to the
            Trustee  or the  Custodian  on its behalf of a Request  for  Release
            substantially in the form of Exhibit M and the Mortgage File for any
            such Substitute  Mortgage Loan. The Seller shall promptly  reimburse
            the Master  Servicer  and the  Trustee for any  expenses  reasonably
            incurred  by the  Master  Servicer  or the  Trustee  in  respect  of
            enforcing  the  remedies  for  such  breach.  With  respect  to  the
            representations  and warranties  described in this Section which are
            made to the best of the Seller's  knowledge,  if it is discovered by
            either the  Depositor,  the Seller or the Trustee that the substance
            of  such   representation   and  warranty  is  inaccurate  and  such
            inaccuracy materially and adversely affects the value of the related
            Mortgage  Loan or the interests of the  Certificateholders  therein,
            notwithstanding  the Seller's lack of knowledge  with respect to the
            substance of such representation or warranty,  such inaccuracy shall
            be deemed a breach of the applicable representation or warranty.

      With respect to any  Substitute  Mortgage Loan or Loans,  the Seller shall
deliver to the  Trustee or the  Custodian  on its behalf for the  benefit of the
Certificateholders  and the Insurer the Mortgage Note, the Mortgage, the related
assignment  of the  Mortgage,  and such other  documents  and  agreements as are
required by Section  2.1,  with the  Mortgage  Note  endorsed  and the  Mortgage
assigned as required by Section 2.1. No  substitution is permitted to be made in
any  calendar  month  after the  Determination  Date for such  month.  Scheduled
Payments  due  with  respect  to  Substitute  Mortgage  Loans  in the  month  of
substitution  shall not be part of the Trust  Fund and will be  retained  by the
Seller on the next succeeding  Distribution Date. For the month of substitution,
distributions to Certificateholders  will include the monthly payment due on any
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
Master  Servicer  shall amend the Mortgage  Loan Schedule for the benefit of the
Certificateholders  and the  Insurer to  reflect  the  removal  of such  Deleted
Mortgage Loan and the substitution of the Substitute  Mortgage Loan or Loans and
the Master  Servicer  shall  deliver the amended  Mortgage  Loan Schedule to the
Trustee. Upon such substitution,  the Substitute Mortgage Loan or Loans shall be
subject to the terms of this Agreement in all respects,  and the Seller shall be
deemed to have made with respect to such  Substitute  Mortgage Loan or Loans, as
of the date of substitution, the representations and warranties made pursuant to
Schedule  B to  MLPA I with  respect  to  such  Mortgage  Loan.  Upon  any  such
substitution  and the deposit to the Certificate  Account of the amount required
to be deposited therein in connection with such substitution as described in the
following  paragraph,  the Trustee shall release or shall cause the Custodian to
release the Mortgage File held for the benefit of the Certificateholders and the
Insurer  relating to such Deleted  Mortgage Loan to the Seller and shall execute
and deliver at the Seller's direction such instruments of transfer or assignment
prepared by the Seller, in each case without recourse,  as shall be necessary to
vest title in the Seller, or its designee, the Trustee's interest in any Deleted
Mortgage Loan substituted for pursuant to this Section 2.3.
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<PAGE>

      For any  month in which  the  Seller  substitutes  one or more  Substitute
Mortgage Loans for one or more Deleted  Mortgage Loans, the Master Servicer will
determine  the amount (if any) by which the aggregate  principal  balance of all
such  Substitute  Mortgage Loans as of the date of substitution is less than the
aggregate  Stated  Principal  Balance of all such Deleted  Mortgage Loans (after
application of the scheduled  principal  portion of the monthly  payments due in
the month of  substitution).  The  amount of such  shortage  (the  "Substitution
Adjustment  Amount") plus an amount equal to the  aggregate of any  unreimbursed
Advances with respect to such Deleted  Mortgage  Loans shall be deposited in the
Certificate Account by the Seller on or before the Distribution  Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related  Mortgage  Loan became  required to be  purchased  or replaced
hereunder.

      In the event that the Seller shall have  repurchased a Mortgage  Loan, the
Purchase Price therefor shall be deposited in the Certificate  Account  pursuant
to  Section  3.5 on or before  the  Distribution  Account  Deposit  Date for the
Distribution  Date in the month  following  the month  during  which the  Seller
became obligated  hereunder to repurchase or replace such Mortgage Loan and upon
such  deposit of the  Purchase  Price,  the  delivery  of the Opinion of Counsel
required  by Section  2.5 and  receipt of a Request  for  Release in the form of
Exhibit M hereto,  the Trustee  shall  release or shall cause the  Custodian  to
release the related Mortgage File held for the benefit of the Certificateholders
and the Insurer to such  Person,  and the Trustee  shall  execute and deliver or
shall cause the Custodian to execute and deliver at such Person's direction such
instruments  of transfer or  assignment  prepared by such  Person,  in each case
without recourse,  as shall be necessary to transfer title from the Trustee.  It
is understood and agreed that the obligation  under this Agreement of the Seller
to cure,  repurchase  or  replace  any  Mortgage  Loan as to which a breach  has
occurred and is continuing  shall  constitute the sole remedy against the Seller
respecting  such breach  available to  Certificateholders,  the Depositor or the
Trustee on their behalf.

      The representations and warranties made pursuant to this Section 2.3 shall
survive  delivery  of  the  respective  Mortgage  Files  to the  Trustee  or the
Custodian for the benefit of the Certificateholders and the Insurer.

      SECTION 2.4  Representations  and  Warranties  of the  Depositor as to the
Mortgage Loans.

      The  Depositor  hereby  represents  and  warrants  to the  Trustee and the
Insurer with respect to each  Mortgage  Loan as of the date hereof or such other
date set forth herein that as of the Closing Date, and following the transfer of
the  Mortgage  Loans  to it  pursuant  to MLPA II and  immediately  prior to the
conveyance of the Mortgage Loans by it to the Trustee pursuant to Section 2.1(a)
hereof,  the  Depositor  had good title to the  Mortgage  Loans and the Mortgage
Notes were subject to no offsets, defenses or counterclaims.

                                       37
<PAGE>

      It is understood  and agreed that the  representations  and warranties set
forth in this Section 2.4 shall  survive  delivery of the Mortgage  Files to the
Trustee. Upon discovery by the Depositor, the Trustee or the Insurer of a breach
of any of the foregoing representations and warranties set forth in this Section
2.4 (referred to herein as a "breach"),  which breach  materially  and adversely
affects  the  interest  of the  Certificateholders  or the  Insurer,  the  party
discovering  such breach  shall give prompt  written  notice to the others,  the
Insurer and to each Rating Agency.

      SECTION   2.5   Delivery  of  Opinion  of  Counsel  in   Connection   with
Substitutions.

      (a)   Notwithstanding  any  contrary  provision  of  this  Agreement,   no
            substitution  pursuant  to Section  2.2 or Section 2.3 shall be made
            more than 90 days  after  the  Closing  Date  unless  the  Depositor
            delivers  to the  Trustee an Opinion of  Counsel,  which  Opinion of
            Counsel  shall not be at the  expense of either  the  Trustee or the
            Trust Fund,  addressed to the Trustee and the Insurer, to the effect
            that such  substitution will not (i) result in the imposition of the
            tax on "prohibited  transactions" on the Trust Fund or contributions
            after the  Startup  Date,  as defined  in  Sections  860F(a)(2)  and
            860G(d) of the Code,  respectively,  or (ii) cause any REMIC created
            hereunder  to fail  to  qualify  as a REMIC  at any  time  that  any
            Certificates are outstanding.

      (b)   Upon discovery by the Depositor,  the Master Servicer 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  promptly (and in any event within five
            (5) Business Days of discovery)  give written  notice thereof to the
            other parties and the Insurer. In connection therewith,  the Trustee
            shall require the Depositor to cause the Seller,  pursuant to MLPA I
            and at  the  Seller's  option,  to  either  (i)  substitute,  if the
            conditions  in Section  2.3(b)  with  respect to  substitutions  are
            satisfied,  a Substitute  Mortgage  Loan for the  affected  Mortgage
            Loan, or (ii)  repurchase the affected  Mortgage Loan within 90 days
            of such discovery in the same manner as it would a Mortgage Loan for
            a breach of representation or warranty made pursuant to Section 2.3.
            The Trustee shall  reconvey or shall cause the Custodian to 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
            contained in Section 2.3.

      SECTION 2.6 Execution and Delivery of Certificates.

      The Trustee  acknowledges  the transfer and  assignment to it of the Trust
Fund and,  concurrently  with such  transfer  and  assignment,  has executed and
delivered to or upon the order of the Depositor,  the Certificates in authorized
denominations  evidencing  directly or  indirectly  the entire  ownership of the
Trust Fund.  The Trustee  agrees to hold the Trust Fund and  exercise the rights
referred to above for the  benefit of all present and future  Certificateholders
and the  Insurer and to perform  the duties set forth in this  Agreement  to the
best of its ability, to the end that the interests of the Certificateholders and
the Insurer may be adequately and effectively protected.

                                       38
<PAGE>

      SECTION 2.7 REMIC Matters.

      The Preliminary  Statement sets forth the "latest possible  maturity date"
for federal income tax purposes of all REMIC regular interests created hereby.

      The  assets of the  Lower  REMIC  shall be as set forth in the  definition
thereof.  Each  interest  identified  in the first table below by a  designation
beginning with "L" shall be a "regular  interest" in the Lower REMIC and a Lower
REMIC  Interest,  and the RL  Interests  shall  be the sole  class  of  residual
interest in the Lower REMIC.  The Lower REMIC Interests shall be  uncertificated
and shall be held by the Trustee as assets of the Upper REMIC.

      The  assets of the  Upper  REMIC  shall be as set forth in the  definition
thereof.  The Regular  Certificates shall represent  "regular  interests" in the
Upper REMIC. The RU Interest shall be the sole class of residual interest in the
Upper  REMIC.  The  Class R  Certificate  shall  represent  ownership  of the RL
Interest and RU Interest.

      The Tax Interest Rate Cap Agreement shall not be a part of the Lower REMIC
or Upper  REMIC.  The Class A-1  Certificates  shall be treated as  representing
ownership of the related Upper REMIC regular  interest and also  ownership of an
interest in the Tax Interest Rate Cap Agreement.

      The  "Startup  Day" for  purposes of the REMIC  Provisions  for each REMIC
hereunder shall be the Closing Date. The Tax Matters Person with respect to each
REMIC  hereunder shall be the Trustee and the Trustee shall hold the Tax Matters
Person Certificate. Each REMIC's taxable year shall be the calendar year and its
accounts shall be maintained using the accrual method.
<TABLE>
<CAPTION>

       Lower
       REMIC
    Interest or          Lower REMIC             Lower REMIC           Corresponding Class of Certificate
     Residual         Interest Balance          Interest Rate                      or Interest
                                                                     ----------------------------------------
                                                                          Interest            Principal
-------------------- -------------------- -------------------------- ------------------- --------------------
<S> <C>                      <C>                     <C>                      <C>                  <C>
L-A-1                        (1)                     (2)                    A-1                  A-1
L-A-2                        (1)                     (2)                    A-2                  A-2
L-A-3                        (1)                     (2)                    A-3                  A-3
L-A-4                        (1)                     (2)                    A-4                  A-4
L-A-5                        (1)                     (2)                    A-5                  A-5
L-Accrual                    (1)                     (2)                    N/A                  N/A
RL                           N/A                     N/A                    (3)                  (3)
</TABLE>

                                       39
<PAGE>

(1) The L-A-1 Lower REMIC  Interest,  L-A-2  Lower REMIC  Interest,  L-A-3 Lower
REMIC Interest, L-A-4 Lower REMIC Interest, and L-A-5 Lower REMIC Interest (each
such class hereafter  referred to as an "Accretion  Directed Class") each have a
principal   balance  that  is  initially  equal  to  50%  of  its  corresponding
Certificate Class issued by the Upper REMIC. Principal payments,  both scheduled
and prepaid,  Liquidation  Loss Amounts,  and interest  accruing on the Mortgage
Loans will be allocated to each of the foregoing classes to maintain each Class'
size  relative to its  Corresponding  Certificate  Class (that is, 50%) with any
excess payments of principal and Liquidation Loss Amounts being allocated to the
L-Accrual Lower REMIC Interest in such manner as to cause the principal  balance
of the  L-Accrual  Lower REMIC  Interest to have a principal  balance  after the
first  Distribution Date equal to (a) 50% of the Pool Principal Balance plus (b)
50% of the Overcollateralization Amount for such Distribution Date.

(2) The  interest  rate with respect to any  Distribution  Date (and the related
Interest Accrual Period) for this Lower REMIC Interest is a per annum rate equal
to the Net WAC Cap.

(3) The RL Interest is the sole class of residual  interest in the Lower  REMIC.
It pays neither  principal  nor interest  and has no  Corresponding  Certificate
Class.

      The following  table specifies the class  designation,  interest rate, and
principal amount for each class of interest issued by the Upper REMIC:

      Class            Initial Class          Pass-Through Rate
                    Certificate Balance
------------------ ---------------------- --------------------------
Class A-1              $132,632,000                  (1)
Class A-2               $58,022,000                  (1)
Class A-3               $14,267,000                  (1)
Class A-4               $16,384,000                  (1)
Class A-5               $15,000,000                  (1)
Class C                     (2)                      (3)
Class RU                    (4)                      (4)

(1) The  Certificates  will accrue  interest at the related  Pass-Through  Rates
identified in this Agreement.  Any entitlement of the Class A-1  Certificates to
Accrued  Certificate  Interest  in excess of the Net Wac Cap will be  treated as
paid by the Upper REMIC to the Class C  Certificates  and then paid to the Class
A-1  Certificates,  as  applicable,  pursuant  to  the  Tax  Interest  Rate  Cap
Agreement.

(2) The Class C Certificates do not have a Certificate  Principal  Balance.  For
federal  income  tax  purposes,  the Class C  Certificates  will be  treated  as
comprised  of two  components,  each of which is  hereby  designated  a  regular
interest in the Upper REMIC:  (i) a principal only component equal to the excess
of the initial Pool Principal Balance over the initial Class Certificate Balance
of all classes  other than the Class C  Certificates,  and (ii) an interest only
component having a notional balance equal to the principal  balance of the Lower
REMIC Interests  (other than the Class RL Interests) and bearing interest at the
rate described in Note (3).

(3) For each Interest  Accrual Period the Class C Certificates are entitled to a
specified  portion of the interest on the Mortgage  Loans equal to the excess of
the per annum rate equal to the  weighted  average of the  Adjusted Net Mortgage
Rate of each of the  Mortgage  Loans over the  product  of two and the  weighted
average  of the  Lower  REMIC  Regular  Interests  with the  Accretion  Directed
Interests  subject to a cap equal to the Pass-Through  Rate of the corresponding
Certificate Class and the Lower REMIC L-Accrual Class subject to a cap of 0.00%.
The Pass-Through  Rate of the Class C Certificates  will be a rate sufficient to
entitle it to all  interest  accrued  on the  Mortgage  Loans less the  interest
accrued on the other interests issued by the Upper REMIC.

                                       40
<PAGE>

(4) The RU Interest  represent the sole class of residual interest in each REMIC
created  hereunder.  The RU  Interest  are  not  entitled  to  distributions  of
principal or interest.  The Class R Certificates  represent the ownership of the
RL Interest and RU Interest.

      The  foregoing  REMIC  structure is intended to cause all of the cash from
the  Mortgage  Loans to flow  through to the Upper REMIC as cash flow on a REMIC
regular interest, without creating any shortfall-actual or potential (other than
for credit  losses) to any REMIC regular  interest.  It is not intended that the
Class R Certificates be entitled to any cash flow pursuant to this Agreement. To
the extent that the  structure  is believed to diverge from such  intention  the
Trustee shall  resolve  ambiguities  to accomplish  such result and shall to the
extent  necessary  rectify  any  drafting  errors or seek  clarification  to the
structure without  Certificateholder  approval (but with guidance of counsel) to
accomplish such intention.

      SECTION 2.8 Covenants of the Master Servicer.

      The Master Servicer hereby covenants to the Depositor, the Trustee and the
Insurer as follows:

      (a)   the  Master   Servicer  shall  comply  in  the  performance  of  its
            obligations  under  this  Agreement  with all  reasonable  rules and
            requirements  of the insurer under each Required  Insurance  Policy;
            and

      (b)   no  written  information,   certificate  of  an  officer,  statement
            furnished in writing or written  report  delivered to the Depositor,
            any  affiliate  of the  Depositor,  the  Trustee or the  Insurer and
            prepared  by the Master  Servicer  pursuant to this  Agreement  will
            contain any untrue  statement of a material  fact or omit to state a
            material  fact  necessary  to make  such  information,  certificate,
            statement or report not misleading.

                                   ARTICLE III
                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

      SECTION 3.1 Master Servicer to Service Mortgage Loans.

      For and on behalf of the  Certificateholders  and the Insurer,  the Master
Servicer shall service and administer the Mortgage Loans in accordance  with the
terms of (i) the Servicing Rights Transfer and Subservicing Agreement,  pursuant
to which First Tennessee Mortgage Services,  Inc. engaged the Master Servicer to
subservice the Mortgage  Loans,  (ii) this Agreement and (iii) the customary and
usual  standards of practice of prudent  mortgage loan  servicers of second lien
mortgage  loans;  provided that if there is a conflict  between the terms of the
Servicing   Agreement  and  the  Servicing   Rights  Transfer  and  Subservicing
Agreement,  on the one hand, and this Agreement, on the other hand, the terms of

                                       41
<PAGE>

this   Agreement   shall  prevail.   In  connection   with  such  servicing  and
administration,  the Master Servicer shall have full power and authority, acting
alone and/or through  Subservicers  as provided in Section 3.2 hereof,  to do or
cause to be done any and all things that it may deem  necessary  or desirable in
connection with such servicing and administration, including but not limited to,
the power and authority, subject to the terms hereof (i) to execute and deliver,
on behalf of the  Certificateholders  and the  Trustee,  customary  consents  or
waivers and other instruments and documents, (ii) to consent to transfers of any
Mortgaged  Property and assumptions of the Mortgage Notes and related  Mortgages
(but only in the  manner  provided  in this  Agreement),  (iii) to  collect  any
Insurance  Proceeds  and  other  Liquidation  Proceeds,  and (iv) to  effectuate
foreclosure  or other  conversion  of the  ownership of the  Mortgaged  Property
securing any Mortgage Loan; provided that the Master Servicer shall not take any
action that is inconsistent  with or prejudices the interests of the Trust Fund,
the  Certificateholders  or the Insurer in any  Mortgage  Loan or the rights and
interests of the Depositor,  the Trustee, the Certificateholders and the Insurer
under this  Agreement.  The Master  Servicer  shall  represent  and  protect the
interests of the Trust Fund in the same manner as it protects its own  interests
in second lien mortgage  loans in its own portfolio in any claim,  proceeding or
litigation  regarding  a  Mortgage  Loan,  and  shall  not  make or  permit  any
modification,  waiver or amendment  of any  Mortgage  Loan which would cause any
REMIC  created  hereunder  to  fail  to  qualify  as a REMIC  or  result  in the
imposition  of any tax under  Section  860F(a) or  Section  860G(d) of the Code.
Without limiting the generality of the foregoing,  the Master  Servicer,  in its
own name or in the name of the Depositor and the Trustee,  is hereby  authorized
and  empowered  by the  Depositor  and the  Trustee,  when the  Master  Servicer
believes it appropriate in its reasonable  judgment,  to execute and deliver, on
behalf of the Trustee, the Depositor, the Certificateholders or any of them, any
and all  instruments  of  satisfaction  or  cancellation,  or of partial or full
release or discharge and all other comparable  instruments,  with respect to the
Mortgage  Loans,  and with  respect  to the  Mortgaged  Properties  held for the
benefit of the  Certificateholders  and the Insurer.  The Master  Servicer shall
prepare and deliver to the Depositor and/or the Trustee such documents requiring
execution and delivery by either or both of them as are necessary or appropriate
to enable the Master  Servicer to service and  administer  the Mortgage Loans to
the extent that the Master Servicer is not permitted to execute and deliver such
documents  pursuant to the preceding  sentence.  Upon receipt of such documents,
the Depositor  and/or the Trustee shall execute such  documents and deliver them
to the Master Servicer.  The Master Servicer further is authorized and empowered
by the Trustee, on behalf of the  Certificateholders and the Trustee, in its own
name or in the name of a Subservicer,  when the Master Servicer or a Subservicer
as the case may be, believes it appropriate in its best judgment to register any
Mortgage Loan on the MERS(R) System,  or cause the removal from the registration
of any Mortgage Loan on the MERS(R) System, to execute and deliver, on behalf of
the Trustee and the  Certificateholders  or any of them, any and all instruments
of assignment and other  comparable  instruments with respect to such assignment
or  re-recording  of a Mortgage  in the name of MERS,  solely as nominee for the
Trustee and its successors and assigns.

      In accordance  with the standards of the preceding  paragraph,  the Master
Servicer may, at its option and in its sole  discretion,  advance or cause to be
advanced  funds as necessary  for the purpose of effecting  the payment of taxes
and assessments on the Mortgaged  Properties,  which Advances,  if any, shall be
reimbursable  as  provided  in Section  3.8.  The costs  incurred  by the Master
Servicer,  if any, in effecting the timely  payments of taxes and assessments on
the  Mortgaged  Properties  and related  insurance  premiums  shall not, for the
purpose of calculating monthly distributions to the Certificateholders, be added
to the Stated Principal Balances of the related Mortgage Loans,  notwithstanding
that the terms of such Mortgage Loans so permit.

                                       42
<PAGE>

      If a  Mortgage  had a lien  senior  to the  related  Mortgage  Loan on the
related  Mortgaged  Property as of the  related  Cut-off  Date,  then the Master
Servicer,  in such  capacity,  may not consent to the  refinancing of such prior
senior lien,  unless (i) the  resulting  CLTV Ratio of such  Mortgage Loan is no
higher than the CLTV Ratio of such Mortgage Loan prior to such refinancing, (ii)
the interest rate for the mortgage loan evidencing the refinanced senior lien is
no higher than the interest rate on the loan evidencing the existing senior lien
immediately  prior to the date of such refinancing  (meaning,  in the case of an
adjustable rate mortgage loan, a substantially  similar index and a gross margin
no higher than that of the existing senior lien); provided, however, that if the
mortgage  loan  evidencing  the  existing  senior  lien  prior  to the  date  of
refinancing is an adjustable-rate mortgage loan and the mortgage loan evidencing
the refinanced senior lien is a fixed-rate mortgage loan, then the interest rate
on the mortgage loan  evidencing  the  refinanced  senior lien may be up to 2.0%
higher than the  then-current  mortgage rate of the mortgage loan evidencing the
existing  senior lien,  and (iii) the mortgage loan  evidencing  the  refinanced
senior lien is not subject to negative amortization.  In addition, the aggregate
number  of  Mortgage  Loans  with  respect  to  which a new  senior  lien may be
consented  to by the  Master  Servicer  shall  not  exceed  5% of the  number of
Mortgage Loans as of the Cut-off Date

      SECTION 3.2 Subservicing; Enforcement of the Obligations of Servicers.

      (a)   The Master Servicer may arrange for the subservicing of any Mortgage
            Loan  by  a  Subservicer  pursuant  to  a  subservicing   agreement;
            provided,  however, that such subservicing arrangement and the terms
            of the related subservicing agreement must provide for the servicing
            of such  Mortgage  Loans in a manner  consistent  with the servicing
            arrangements  contemplated  hereunder.  Unless the context otherwise
            requires,  references  in this  Agreement to actions  taken or to be
            taken by the Master Servicer in servicing the Mortgage Loans include
            actions  taken or to be  taken by a  Subservicer  on  behalf  of the
            Master Servicer.  Notwithstanding the provisions of any subservicing
            agreement,  any of the  provisions  of this  Agreement  relating  to
            agreements  or  arrangements  between  the  Master  Servicer  and  a
            Subservicer  or reference to actions taken through a Subservicer  or
            otherwise,  the Master Servicer shall remain obligated and liable to
            the Depositor,  the Trustee, the Insurer and the  Certificateholders
            for the  servicing  and  administration  of the  Mortgage  Loans  in
            accordance with the provisions of this Agreement without  diminution
            of such  obligation  or  liability  by virtue  of such  subservicing
            agreements or arrangements or by virtue of indemnification  from the
            Subservicer  and to the same  extent  and under  the same  terms and
            conditions  as if the  Master  Servicer  alone  were  servicing  and
            administering  the Mortgage Loans.  All actions of each  Subservicer
            performed  pursuant to the related  subservicing  agreement shall be
            performed as an agent of the Master Servicer with the same force and
            effect as if performed directly by the Master Servicer.

      (b)   For purposes of this Agreement,  the Master Servicer shall be deemed
            to have  received  any  collections,  recoveries  or  payments  with
            respect to the  Mortgage  Loans that are  received by a  Subservicer
            regardless of whether such payments are remitted by the  Subservicer
            to the Master Servicer.

                                       43
<PAGE>

      SECTION  3.3  Rights of the  Depositor  and the  Trustee in Respect of the
Master Servicer.

      The Depositor may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform,  or cause a
designee to perform,  any defaulted  obligation of the Master Servicer hereunder
and in  connection  with any such  defaulted  obligation to exercise the related
rights of the Master Servicer hereunder; provided that the Master Servicer shall
not  be  relieved  of any  of  its  obligations  hereunder  by  virtue  of  such
performance  by the  Depositor  or its  designee.  Neither  the  Trustee nor the
Depositor shall have any  responsibility  or liability for any action or failure
to act by the  Master  Servicer  nor  shall  the  Trustee  or the  Depositor  be
obligated to  supervise  the  performance  of the Master  Servicer  hereunder or
otherwise.

      SECTION 3.4 Trustee to Act as Master Servicer.

      In the event  that the Master  Servicer  shall for any reason no longer be
the Master Servicer hereunder (including by reason of an Event of Default),  the
Trustee  or  its  successor  shall  thereupon  assume  all  of  the  rights  and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee  shall not be (i) liable for losses of the Master  Servicer  pursuant to
Section 3.9 hereof or any acts or omissions of the  predecessor  Master Servicer
hereunder,  (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate  repurchases or  substitutions  of
Mortgage  Loans  hereunder  including,   but  not  limited  to,  repurchases  or
substitutions  of Mortgage  Loans  pursuant  to Section 2.2 or 2.3 hereof,  (iv)
responsible for expenses of the Master  Servicer  pursuant to Section 2.3 or (v)
deemed to have made any  representations  and warranties of the Master  Servicer
hereunder).  Any such assumption shall be subject to Section 7.2 hereof.  If the
Master Servicer shall for any reason no longer be the Master Servicer (including
by reason of any Event of Default),  the Trustee or its successor  shall succeed
to any rights and  obligations of the Master  Servicer  under each  subservicing
agreement.

      The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer,  deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being  serviced  thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute  subservicing agreement to the assuming
party.

      SECTION 3.5  Collection of Mortgage Loan  Payments;  Certificate  Account;
Distribution Account.

      (a)   The Master Servicer shall use commercially  reasonable  efforts,  in
            accordance  with the  customary  and usual  standards of practice of
            prudent mortgage servicers of second lien mortgage loans, to collect
            all  payments  called  for under the  terms  and  provisions  of the
            Mortgage  Loans to the extent such  procedures  shall be  consistent
            with this  Agreement  and the terms and  provisions  of any  related
            Required Insurance Policy. Consistent with the foregoing, the Master
            Servicer may in its  discretion (i) waive any late payment charge or
            any  prepayment  charge or penalty  interest in connection  with the
            prepayment  of a  Mortgage  Loan and (ii)  extend  the due dates for

                                       44
<PAGE>

            payments  due on a Mortgage  Note for a period not greater  than 180
            days; provided,  however, that the Master Servicer cannot extend the
            maturity of any such  Mortgage Loan past the date on which the final
            payment  is due on  the  latest  maturing  Mortgage  Loan  as of the
            Cut-off  Date.  In the  event of any such  arrangement,  the  Master
            Servicer  may,  at  its  option  and in its  sole  discretion,  make
            Advances  on the  related  Mortgage  Loan  in  accordance  with  the
            provisions of Section 4.1 during the scheduled  period in accordance
            with  the  amortization  schedule  of  such  Mortgage  Loan  without
            modification  thereof  by reason of such  arrangements.  The  Master
            Servicer  shall not be required to institute  or join in  litigation
            with respect to collection of any payment (whether under a Mortgage,
            Mortgage  Note or  otherwise  or against any public or  governmental
            authority with respect to a taking or condemnation) if it reasonably
            believes  that  enforcing  the  provision  of the  Mortgage or other
            instrument  pursuant to which such payment is required is prohibited
            by applicable law.

      (b)   The Master  Servicer  shall  establish and maintain the  Certificate
            Account.  The Master Servicer shall deposit or cause to be deposited
            into the  Certificate  Account no later than two Business Days after
            receipt,  except as  otherwise  specifically  provided  herein,  the
            following  payments  and  collections  remitted by  Subservicers  or
            received by it in respect of the Mortgage  Loans  subsequent  to the
            Cut-off Date (other than in respect of principal and interest due on
            the Mortgage  Loans on or before the Cut-off Date) and the following
            amounts required to be deposited hereunder:

            (i)   all Principal Collections;

            (ii)  all Interest Collections;

            (iii) any amount  required to be  deposited  by the Master  Servicer
                  pursuant to Section  3.5(d) in  connection  with any losses on
                  Permitted Investments;

            (iv)  any amounts  required to be deposited  by the Master  Servicer
                  pursuant to Section 3.9(b) and 3.9(d);

            (v)   all Substitution Adjustment Amounts;

            (vi)  all Advances,  if any, made by the Master Servicer pursuant to
                  Section 4.1; and

            (vii) any other amounts required to be deposited hereunder.

      The foregoing  requirements for remittance by the Master Servicer shall be
exclusive,  it being understood and agreed that, without limiting the generality
of the foregoing,  payments in the nature of prepayment penalties,  late payment
charges,  assumption fees or amounts attributable to reimbursements of Advances,
if collected, need not be remitted by the Master Servicer. In the event that the
Master  Servicer  shall remit any amount not required to be remitted,  it may at
any time withdraw or direct the institution  maintaining the Certificate Account
to withdraw such amount from the Certificate  Account,  any provision  herein to
the contrary  notwithstanding.  Such withdrawal or direction may be accomplished
by delivering  written notice  thereof to the Trustee or such other  institution
maintaining  the Certificate  Account which  describes the amounts  deposited in
error in the Certificate  Account.  The Master Servicer shall maintain  adequate
records with respect to all withdrawals made pursuant to this Section. All funds
deposited  in  the   Certificate   Account  shall  be  held  in  trust  for  the
Certificateholders  and the Insurer until  withdrawn in accordance  with Section
3.8.

                                       45
<PAGE>

            (c)   The Trustee shall  establish  and  maintain,  on behalf of the
                  Certificateholders  and the Insurer, the Distribution Account.
                  The  Trustee  shall,  promptly  upon  receipt,  deposit in the
                  Distribution Account and retain therein the following:

                  (i)   the aggregate  amount remitted by the Master Servicer to
                        the Trustee pursuant to Section 3.8(a)(ix);

                  (ii)  any amount deposited by the Master Servicer  pursuant to
                        Section  3.5(b)(iii)  in  connection  with any losses on
                        Permitted Investments;

                  (iii) solely    for    the    benefit    of   the    Class   A
                        Certificateholders,  any  Insured  Payment  made  by the
                        Insurer pursuant to the Policy; and

                  (iv)  any other amounts deposited hereunder which are required
                        to be deposited in the Distribution Account.

      In the event that the Master  Servicer shall remit any amount not required
to be  remitted,  it may at any time direct the Trustee to withdraw  such amount
from  the   Distribution   Account,   any  provision   herein  to  the  contrary
notwithstanding.  Such direction may be  accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution  Account.  All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the related  Certificateholders until disbursed
in accordance  with this Agreement or withdrawn in accordance  with Section 3.8.
In no  event  shall  the  Trustee  incur  liability  for  withdrawals  from  the
Distribution Account at the direction of the Master Servicer.

      (d)   The   institutions  at  which  the   Certificate   Account  and  the
            Distribution  Account are maintained  shall invest funds as directed
            by the Master Servicer in Permitted  Investments which in both cases
            shall  mature  not  later  than (i) in the  case of the  Certificate
            Account,   the  second  Business  Day  next  preceding  the  related
            Distribution  Account  Deposit Date  (except that if such  Permitted
            Investment is an obligation of the  institution  that maintains such
            account,  then such Permitted Investment shall mature not later than
            the Business Day next preceding such  Distribution  Account  Deposit
            Date) and (ii) in the case of the Distribution Account, the Business
            Day  next  preceding  the  Distribution  Date  (except  that if such
            Permitted  Investment  is an  obligation  of  the  institution  that
            maintains such fund or account, then such Permitted Investment shall
            mature not later  than such  Distribution  Date) and,  in each case,
            shall not be sold or  disposed  of prior to its  maturity.  All such
            Permitted  Investments shall be made in the name of the Trustee, for
            the benefit of the  Certificateholders  and the Insurer.  All income
            and gain net of any  losses  realized  from any such  investment  of
            funds on deposit in the Certificate Account shall be for the benefit
            of the Master Servicer as servicing  compensation and all income and

                                       46
<PAGE>

            gain net of any losses realized from any such investment of funds on
            deposit in the Distribution  Account shall be for the benefit of the
            Trustee.  The  amount  of any  losses  incurred  by the  Certificate
            Account  in  respect  of any  such  investments  shall  promptly  be
            deposited by the Master Servicer in the Certificate  Account and any
            losses incurred by the  Distribution  Account in respect of any such
            investments  shall  promptly be  deposited  by the Trustee  into the
            Distribution  Account.  All reinvestment income earned on amounts on
            deposit in the Distribution  Account shall be for the benefit of the
            Trustee.  The Trustee in its fiduciary  capacity shall not be liable
            for the amount of any loss incurred in respect of any  investment or
            lack of investment of funds held in the Certificate Account and made
            in accordance with this Section 3.5.

      (e)   The Master  Servicer  shall give notice to the Trustee,  the Seller,
            the Insurer,  each Rating  Agency and the  Depositor of any proposed
            change  of the  location  of the  Certificate  Account  prior to any
            change  thereof.  The  Trustee  shall  give  notice  to  the  Master
            Servicer,  the  Seller,  the  Insurer,  each  Rating  Agency and the
            Depositor of any proposed change of the location of the Distribution
            Account prior to any change thereof.

      SECTION 3.6 [RESERVED].

      SECTION 3.7 Access to Certain  Documentation and Information Regarding the
Mortgage Loans.

      The Master  Servicer  shall  afford the  Depositor,  the  Trustee  and the
Insurer  reasonable  access  to all  records  and  documentation  regarding  the
Mortgage  Loans  and all  accounts,  insurance  information  and  other  matters
relating to this Agreement,  such access being afforded without charge, but only
upon  reasonable  request  and  during  normal  business  hours  at  the  office
designated by the Master Servicer.

      Upon  reasonable  advance  notice in  writing,  the Master  Servicer  will
provide to each  Certificateholder  or Certificate  Owner which is a savings and
loan  association,  bank or insurance  company  certain  reports and  reasonable
access to information and documentation  regarding the Mortgage Loans sufficient
to permit such  Certificateholder or Certificate Owner to comply with applicable
regulations  of  the  OTS  or  other  regulatory  authorities  with  respect  to
investment  in the  Certificates;  provided  that the Master  Servicer  shall be
entitled to be reimbursed by each such  Certificateholder  or Certificate  Owner
for actual  expenses  incurred by the Master  Servicer in providing such reports
and access.

                                       47
<PAGE>

      SECTION  3.8  Permitted  Withdrawals  from  the  Certificate  Account  and
Distribution Account.

      (a)   The Master Servicer may from time to time make  withdrawals from the
            Certificate Account for the following purposes:

            (i)   to the extent not previously  retained by the Master Servicer,
                  to  pay  to  the  Master   Servicer   the   master   servicing
                  compensation to which it is entitled pursuant to Section 3.14,
                  and earnings on or investment  income with respect to funds in
                  or credited to the  Certificate  Account as additional  master
                  servicing compensation;

            (ii)  to the extent not previously  retained by the Master Servicer,
                  to reimburse the Master Servicer for any unreimbursed Advances
                  made by it,  such  right  of  reimbursement  pursuant  to this
                  subclause  (ii)  being  limited  to  amounts  received  on the
                  Mortgage  Loan(s)  in respect  of which any such  Advance  was
                  made;

            (iii) to  reimburse  the  Master  Servicer  for  any  Nonrecoverable
                  Advance previously made by it;

            (iv)  to reimburse the Master Servicer for Insured Expenses from the
                  related Insurance Proceeds;

            (v)   to  reimburse  the Master  Servicer  for (a) any  unreimbursed
                  Servicing   Advances,   the   Master   Servicer's   right   to
                  reimbursement  pursuant to this clause (a) with respect to any
                  Mortgage  Loan  being  limited  to  amounts  received  on such
                  Mortgage  Loan(s)  which  represent  late  recoveries  of  the
                  payments for which such advances were made pursuant to Section
                  3.1 and (b) for unpaid  Master  Servicing  Fees as provided in
                  Section 3.11 hereof;

            (vi)  to pay to the Seller or Master Servicer,  as applicable,  with
                  respect to each Mortgage Loan or property  acquired in respect
                  thereof that has been  purchased  pursuant to Section 2.2, 2.3
                  or 3.11, all amounts  received  thereon after the date of such
                  purchase;

            (vii) to reimburse the Seller,  the Master Servicer or the Depositor
                  for expenses incurred by any of them and reimbursable pursuant
                  to Section 6.3 hereof;

            (viii)to withdraw any amount  deposited in the  Certificate  Account
                  and not required to be deposited therein;

            (ix)  on or prior  to the  Distribution  Account  Deposit  Date,  to
                  withdraw an amount  equal to the related  Available  Funds and
                  the  Trustee  Fee for such  Distribution  Date and remit  such
                  amount to the Trustee for deposit in the Distribution Account;
                  and

                                       48
<PAGE>

            (x)   to  clear  and   terminate   the   Certificate   Account  upon
                  termination of this Agreement pursuant to Section 9.1 hereof.

      The Master  Servicer  shall keep and maintain  separate  accounting,  on a
Mortgage  Loan-by-Mortgage  Loan  basis,  for  the  purpose  of  justifying  any
withdrawal from the Certificate  Account  pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Certificate  Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's  Certificate  of a  Servicing  Officer  indicating  the  amount of any
previous  Advance  determined  by the  Master  Servicer  to be a  Nonrecoverable
Advance and  identifying the related  Mortgage  Loans(s),  and their  respective
portions of such Nonrecoverable Advance.

      (b)   The Trustee shall withdraw funds from the  Distribution  Account for
            distributions  to  the  related  Certificateholders  in  the  manner
            specified  in this  Agreement  (and to withhold  from the amounts so
            withdrawn, the amount of any taxes that it is authorized to withhold
            pursuant to the last  paragraph of Section 8.11).  In addition,  the
            Trustee may (and with respect to clauses (i) and (ii) below, shall),
            prior to making the  distribution  pursuant to Section 4.2 from time
            to time  make  withdrawals  from the  Distribution  Account  for the
            following purposes:

            (i)   to pay to itself the Trustee Fee for the related  Distribution
                  Date;

            (ii)  to pay to itself earnings on or investment income with respect
                  to funds in the Distribution Account;

            (iii) to  withdraw  and  return to the  Master  Servicer  any amount
                  deposited in the  Distribution  Account and not required to be
                  deposited therein; and

            (iv)  to  clear  and   terminate  the   Distribution   Account  upon
                  termination of the Agreement pursuant to Section 9.1 hereof.

      SECTION 3.9 Maintenance of Hazard Insurance.

      (a)   The Master Servicer shall cause to be maintained,  for each Mortgage
            Loan,  hazard insurance with extended  coverage in an amount that is
            at least equal to the lesser of (i) the maximum  insurable  value of
            the improvements  securing such Mortgage Loan or (ii) the greater of
            (y) the outstanding  principal  balance of the Mortgage Loan and (z)
            an amount such that the proceeds of such policy shall be  sufficient
            to prevent  the  Mortgagor  and/or  the  mortgagee  from  becoming a
            co-insurer.  Each such policy of  standard  hazard  insurance  shall
            contain,  or have  an  accompanying  endorsement  that  contains,  a
            standard  mortgagee  clause.  Any  amounts  collected  by the Master
            Servicer  under any such  policies  (other  than the  amounts  to be
            applied  to the  restoration  or  repair  of the  related  Mortgaged
            Property or amounts released to the Mortgagor in accordance with the
            Master Servicer's normal servicing procedures) shall be deposited in
            the Certificate Account. Any cost incurred by the Master Servicer in
            maintaining  any  such  insurance  shall  not,  for the  purpose  of
            calculating  monthly  distributions  to  the  Certificateholders  or
            remittances  to the  Trustee  for  their  benefit,  be  added to the
            principal  balance of the Mortgage  Loan,  notwithstanding  that the
            terms  of  the  Mortgage  Loan  so  permit.   Such  costs  shall  be

                                       49
<PAGE>

            recoverable  by the  Master  Servicer  out of late  payments  by the
            related  Mortgagor  or out of  Liquidation  Proceeds  to the  extent
            permitted by Section 3.8 hereof. It is understood and agreed that no
            earthquake  or other  additional  insurance is to be required of any
            Mortgagor  or  maintained  on  property  acquired  in  respect  of a
            Mortgage other than pursuant to such applicable laws and regulations
            as  shall  at any  time  be in  force  and  as  shall  require  such
            additional  insurance.  If the Mortgaged  Property is located at the
            time of origination  of the Mortgage Loan in a federally  designated
            special  flood  hazard  area and such area is  participating  in the
            national flood  insurance  program,  the Master Servicer shall cause
            flood insurance to be maintained with respect to such Mortgage Loan.
            Such flood insurance shall be in an amount equal to the least of (i)
            the original  principal  balance of the related  Mortgage Loan, (ii)
            the  replacement  value of the  improvements  which are part of such
            Mortgaged  Property,  and (iii) the maximum amount of such insurance
            available  for the related  Mortgaged  Property  under the  national
            flood insurance program.

      (b)   In the event that the Master  Servicer  shall  obtain and maintain a
            blanket policy insuring against hazard losses on all of the Mortgage
            Loans,  it  shall  conclusively  be  deemed  to have  satisfied  its
            obligations as set forth in the first  sentence of this Section,  it
            being   understood  and  agreed  that  such  policy  may  contain  a
            deductible  clause  on  terms  substantially   equivalent  to  those
            commercially  available and maintained by comparable  servicers.  If
            such policy contains a deductible clause, the Master Servicer shall,
            in the  event  that  there  shall not have  been  maintained  on the
            related  Mortgaged  Property  a  policy  complying  with  the  first
            sentence  of this  Section,  and there  shall  have been a loss that
            would have been covered by such policy,  deposit in the  Certificate
            Account the amount not otherwise  payable  under the blanket  policy
            because of such deductible clause. In connection with its activities
            as Master Servicer of the Mortgage Loans, the Master Servicer agrees
            to present, on behalf of itself, the Depositor,  and the Trustee for
            the benefit of the Certificateholders and the Insurer,  claims under
            any such blanket policy.

      SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption Agreements.

      (a)   Except as  otherwise  provided in this  Section,  when any  property
            subject to a Mortgage has been conveyed by the Mortgagor, the Master
            Servicer  shall  to  the  extent  that  it  has  knowledge  of  such
            conveyance, enforce any due-on-sale clause contained in any Mortgage
            Note or Mortgage,  to the extent  permitted under applicable law and
            governmental   regulations,   but  only  to  the  extent  that  such
            enforcement will not adversely  affect or jeopardize  coverage under
            any Required Insurance Policy.  Notwithstanding  the foregoing,  the
            Master Servicer is not required to exercise such rights with respect
            to a  Mortgage  Loan if the  Person  to whom the  related  Mortgaged
            Property has been  conveyed or is proposed to be conveyed  satisfies
            the terms and conditions contained in the Mortgage Note and Mortgage
            related thereto and the consent of the mortgagee under such Mortgage
            Note or Mortgage is not  otherwise so required  under such  Mortgage
            Note or Mortgage as a condition to such transfer.  In the event that

                                       50
<PAGE>

            the Master  Servicer is  prohibited  by law from  enforcing any such
            due-on-sale  clause,  or if coverage  under any  Required  Insurance
            Policy  would  be  adversely  affected,   or  if  nonenforcement  is
            otherwise  permitted  hereunder,  the Master Servicer is authorized,
            subject to Section 3.10(b),  to take or enter into an assumption and
            modification 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 Mortgage  Note and,  unless  prohibited by
            applicable state law, the Mortgagor remains liable thereon, provided
            that the Mortgage  Loan shall  continue to be covered (if so covered
            before the Master  Servicer enters such agreement) by the applicable
            Required Insurance Policies. The Master Servicer, subject to Section
            3.10(b),  is also authorized with the prior approval of the insurers
            under any Required  Insurance  Policies to enter into a substitution
            of  liability  agreement  with such  Person,  pursuant  to which the
            original  Mortgagor is released  from  liability  and such Person is
            substituted as Mortgagor and becomes liable under the Mortgage Note.
            Notwithstanding  the  foregoing,  the Master  Servicer  shall not be
            deemed to be in default under this Section by reason of any transfer
            or assumption  which the Master Servicer  reasonably  believes it is
            restricted by law from preventing, for any reason whatsoever.

      (b)   Subject to the Master  Servicer's  duty to enforce  any  due-on-sale
            clause to the  extent set forth in Section  3.10(a)  hereof,  in any
            case in which a Mortgaged  Property has been conveyed to a Person by
            a  Mortgagor,  and  such  Person  is to  enter  into  an  assumption
            agreement or  modification  agreement or  supplement to the Mortgage
            Note or Mortgage that  requires the signature of the Trustee,  or if
            an instrument of release signed by the Trustee is required releasing
            the  Mortgagor  from  liability  on the  Mortgage  Loan,  the Master
            Servicer  shall  prepare  and  deliver or cause to be  prepared  and
            delivered to the Trustee for signature and shall direct, in writing,
            the Trustee to execute the  assumption  agreement with the Person to
            whom the Mortgaged  Property is to be conveyed and such modification
            agreement or  supplement  to the Mortgage  Note or Mortgage or other
            instruments as are reasonable or necessary to carry out the terms of
            the  Mortgage  Note or  Mortgage  or  otherwise  to comply  with any
            applicable  laws  regarding  assumptions  or  the  transfer  of  the
            Mortgaged  Property  to such  Person.  In  connection  with any such
            assumption, no material term of the Mortgage Note may be changed. In
            addition,  the substitute  Mortgagor and the Mortgaged Property must
            be  acceptable  to  the  Master  Servicer  in  accordance  with  its
            underwriting  standards as then in effect.  Together  with each such
            substitution,  assumption or other agreement or instrument delivered
            to the  Trustee  for  execution  by it,  the Master  Servicer  shall
            deliver  an  Officer's  Certificate  signed by a  Servicing  Officer
            stating that the  requirements  of this  subsection have been met in
            connection  therewith.  The Master Servicer shall notify the Trustee
            that  any  such  substitution  or  assumption   agreement  has  been
            completed  by  forwarding  to  the  Trustee  the  original  of  such
            substitution  or  assumption  agreement,  which  in the  case of the
            original shall be added to the related  Mortgage File and 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.  Any fee collected by the Master Servicer for entering into
            an  assumption  or  substitution  of  liability  agreement  will  be
            retained   by  the   Master   Servicer   as   additional   servicing
            compensation.

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<PAGE>

      SECTION 3.11  Realization  Upon Defaulted  Mortgage  Loans;  Repurchase of
Certain Mortgage Loans.

      With  respect  to any  Mortgage  Loan that  comes  into and  continues  in
default,  the Master  Servicer  shall decide  whether to (i) foreclose  upon the
related Mortgaged Property, (ii) write- off the unpaid principal balance thereof
as bad debt, (iii) take a deed in lieu of foreclosure,  (iv) accept a short sale
(a payoff of the Mortgage  Loan for an amount that is less than the total amount
contractually  owed in order to facilitate a sale of the  Mortgaged  Property by
the related Mortgagor), (v) permit a short refinancing (a payoff of the Mortgage
Loan for an amount  less than the total  amount  contractually  owed in order to
facilitate refinancing transactions by the Mortgagor not involving a sale of the
Mortgaged  Property),  (vi)  arrange  for a  repayment  plan,  (vii)  agree to a
modification  in accordance with this Agreement or (viii) take an unsecured note
in each case subject to the rights of any related  first lien holder;  provided,
that in  connection  with the  foregoing,  if the  Master  Servicer  has  actual
knowledge  that any Mortgaged  Property is affected by hazardous or toxic wastes
or substances and that the  acquisition of such Mortgaged  Property would not be
commercially reasonable, then the Master Servicer shall not cause the Trust Fund
or the Trustee to acquire title to such  Mortgaged  Property in a foreclosure or
similar proceeding.  In connection with such decision, the Master Servicer shall
follow such practices (including, in the case of any default on a related senior
mortgage  loan,  the  advancing of funds to correct such default if deemed to be
appropriate by the Master Servicer) and procedures as it shall deem necessary or
advisable and as shall be customary  and usual  standards of practice of prudent
mortgage loan servicers of second lien mortgage loans; provided, that the Master
Servicer shall not be liable in any respect  hereunder if the Master Servicer is
acting in connection with any such foreclosure or attempted foreclosure which is
not  completed  or other  conversion  in a manner  that is  consistent  with the
provisions of this  Agreement.  The foregoing is subject to the proviso that the
Master Servicer shall not be required to expend its own funds in connection with
any foreclosure or attempted  foreclosure  which is not completed or towards the
correction of any default on a related  senior  mortgage loan or  restoration of
any property unless it shall determine that such  expenditure  will increase the
related Net Liquidation  Proceeds. In the event of a determination by the Master
Servicer that any such expenditure previously made pursuant to this Section 3.11
will not be reimbursable from the related Net Liquidation  Proceeds,  the Master
Servicer shall be entitled to reimbursement of its funds so expended pursuant to
Section 3.8.

      With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trust Fund for the  benefit  of the  Certificateholders
and the Insurer, or its nominee, on behalf of the Certificateholders. The Master
Servicer shall ensure that the title to such REO Property references the Pooling
and Servicing  Agreement and the Trust Fund's capacity  thereunder.  Pursuant to
its efforts to sell such REO Property,  the Master  Servicer shall either itself
or through an agent  selected by the Master  Servicer  protect and conserve such
REO  Property  in the same  manner  and to such  extent as is  customary  in the
locality  where  such  REO  Property  is  located  and  may,   incident  to  its
conservation and protection of the interests of the Certificateholders, rent the
same,  or any  part  thereof,  as the  Master  Servicer  deems to be in the best

                                       52
<PAGE>

interest of the  Certificateholders for the period prior to the sale of such REO
Property.  The Master  Servicer shall perform the tax reporting and  withholding
required by Sections 1445 and 6050J of the Code with respect to foreclosures and
abandonments,  the tax  reporting  required  by  Section  6050H of the Code with
respect  to the  receipt  of  mortgage  interest  from  individuals  and any tax
reporting required by Section 6050P of the Code with respect to the cancellation
of  indebtedness  by  certain  financial  entities,  by  preparing  such tax and
information returns as may be required, in the form required, and delivering the
same to the Trustee for filing.

      In the event  that the Trust  Fund  acquires  any  Mortgaged  Property  as
aforesaid  or otherwise in  connection  with a default or imminent  default on a
Mortgage  Loan, the Master  Servicer  shall dispose of such  Mortgaged  Property
prior to the close of the third  taxable  year  after  the  taxable  year of its
acquisition  by the Trust Fund unless the Trustee  shall have been supplied with
an Opinion of Counsel to the effect  that the  holding by the Trust Fund of such
Mortgaged  Property  subsequent to such three-year period will not result in the
imposition  of taxes on  "prohibited  transactions"  of any REMIC  hereunder  as
defined in Section 860F of the Code or cause any REMIC created hereunder to fail
to  qualify as a REMIC at any time that any  Certificates  are  outstanding,  in
which case the Trust Fund may continue to hold such Mortgaged  Property (subject
to any  conditions  contained in such Opinion of Counsel).  Notwithstanding  any
other provision of this Agreement,  no Mortgaged  Property acquired by the Trust
Fund shall be rented (or allowed to continue to be rented) or otherwise used for
the  production  of income by or on behalf of the Trust Fund in such a manner or
pursuant  to any terms that would (i) cause such  Mortgaged  Property to fail to
qualify as "foreclosure  property"  within the meaning of Section  860G(a)(8) of
the Code or (ii) subject any REMIC  hereunder to the  imposition of any federal,
state or local income taxes on the income  earned from such  Mortgaged  Property
under Section  860G(c) of the Code or otherwise,  unless the Master Servicer has
agreed to  indemnify  and hold  harmless  the Trust  Fund  with  respect  to the
imposition of any such taxes.

      In the event of a default on a Mortgage  Loan one or more of whose obligor
is not a United States Person, as that term is defined in Section 7701(a)(30) of
the Code, in connection with any foreclosure or acquisition of a deed in lieu of
foreclosure  (together,  "foreclosure")  in respect of such Mortgage  Loan,  the
Master Servicer will cause compliance with the provisions of Treasury Regulation
Section  1.1445-2(d)(3)  (or any successor  thereto) necessary to assure that no
withholding  tax  obligation  arises  with  respect  to  the  proceeds  of  such
foreclosure  except to the extent, if any, that proceeds of such foreclosure are
required to be remitted to the obligors on such Mortgage Loan.

      The decision of the Master  Servicer to foreclose on a defaulted  Mortgage
Loan  shall be  subject  to a  determination  by the  Master  Servicer  that the
proceeds of such  foreclosure  would  exceed the costs and  expenses of bringing
such a proceeding.  The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property  or  other  taxes)  in  connection  with  such  management  and  net of
unreimbursed Master Servicing Fees,  Advances and Servicing  Advances,  shall be
applied to the payment of  principal  of and  interest on the related  defaulted
Mortgage Loans (with interest  accruing as though such Mortgage Loans were still
current)  and  all  such  income  shall  be  deemed,  for all  purposes  in this
Agreement,  to be payments on account of  principal  and interest on the related
Mortgage  Notes and shall be  deposited  into the  Certificate  Account.  To the
extent the net income  received  during any  calendar  month is in excess of the
amount attributable to amortizing  principal and accrued interest at the related
Mortgage Rate on the related Mortgage Loan for such calendar month,  such excess
shall be  considered  to be a partial  prepayment  of  principal  of the related
Mortgage Loan.

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<PAGE>

      The  proceeds  from any  liquidation  of a Mortgage  Loan,  as well as any
income from an REO Property, will be applied in the following order of priority:
first, to reimburse the Master Servicer for any related  unreimbursed  Servicing
Advances and Master Servicing Fees; second, to reimburse the Master Servicer for
any unreimbursed  Advances;  third, to reimburse the Certificate Account for any
Nonrecoverable  Advances (or portions thereof) that were previously withdrawn by
the  Master  Servicer  pursuant  to  Section  3.8(a)(iii)  that  related to such
Mortgage Loan;  fourth, to accrued and unpaid interest (to the extent no Advance
has been made for such amount or any such  Advance has been  reimbursed)  on the
Mortgage Loan or related REO Property,  at the Adjusted Net Mortgage Rate to the
Due Date  occurring  in the  month in which  such  amounts  are  required  to be
distributed;  and fifth, as a recovery of principal of the Mortgage Loan. Excess
Proceeds,  if any, from the  liquidation  of a Liquidated  Mortgage Loan, to the
extent not  required to  reimburse  the Insurer for any amounts due and owing to
the  Insurer  under the  Insurance  Agreement,  will be  retained  by the Master
Servicer as additional servicing compensation pursuant to Section 3.14.

      The Master  Servicer,  with the consent of the  Trustee  and the  Insurer,
shall have the right to  purchase  for its own  account  from the Trust Fund any
Mortgage  Loan  which  is 91 days or more  delinquent  at a price  equal  to the
Purchase  Price.  The Purchase Price for any Mortgage Loan  purchased  hereunder
shall be deposited in the Certificate Account and the Trustee, upon receipt of a
certificate  from the Master  Servicer  in the form of  Exhibit M hereto,  shall
release or cause to be  released  to the  purchaser  of such  Mortgage  Loan the
related Mortgage File and shall execute and deliver such instruments of transfer
or  assignment  prepared by the  purchaser of such  Mortgage  Loan, in each case
without  recourse,  as  shall  be  necessary  to vest in the  purchaser  of such
Mortgage Loan any Mortgage Loan  released  pursuant  hereto and the purchaser of
such Mortgage Loan shall succeed to all the Trustee's right,  title and interest
in and to such Mortgage Loan and all security and documents related thereto. The
purchaser of such Mortgage Loan shall  thereupon own such Mortgage Loan, and all
security and  documents,  free of any further  obligation  to the Trustee or the
Certificateholders with respect thereto.

      SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files.

      Upon the  payment  in full of any  Mortgage  Loan,  or the  receipt by the
Master  Servicer of a  notification  that  payment in full will be escrowed in a
manner customary for such purposes,  the Master Servicer will immediately notify
the Trustee by  delivering,  or causing to be  delivered a "Request for Release"
substantially  in the form of  Exhibit  M. Upon  receipt  of such  request,  the
Trustee  shall or shall  cause the  Custodian  to  promptly  release the related
Mortgage  File to the  Master  Servicer,  and the  Trustee  shall at the  Master
Servicer's  direction execute and deliver to the Master Servicer the request for
reconveyance,  deed of  reconveyance  or release or  satisfaction of mortgage or
such instrument  releasing the lien of the Mortgage in each case provided by the
Master  Servicer,  together  with the  Mortgage  Note with  written  evidence of
cancellation  thereon.  Expenses  incurred in connection  with any instrument of
satisfaction  or  deed  of  reconveyance  shall  be  chargeable  to the  related
Mortgagor.  From time to time and as shall be  appropriate  for the servicing or
foreclosure of any Mortgage Loan,  including for such purpose,  collection under
any policy of flood insurance,  any fidelity bond or errors or omissions policy,
or for the purposes of  effecting a partial  release of any  Mortgaged  Property
from the lien of the Mortgage or the making of any  corrections  to the Mortgage
Note or the  Mortgage or any of the other  documents  included  in the  Mortgage
File, the Trustee  shall,  upon delivery to the Trustee of a Request for Release
in the form of Exhibit L signed by a Servicing  Officer,  release  the  Mortgage
File to the Master Servicer. Subject to the further limitations set forth below,
the Master Servicer shall cause the Mortgage File or documents so released to be
returned to the Trustee or its  Custodian  when the need  therefor by the Master
Servicer  no longer  exists,  unless the  Mortgage  Loan is  liquidated  and the
proceeds  thereof are deposited in the  Certificate  Account,  in which case the
Master  Servicer  shall deliver to the Trustee a Request for Release in the form
of Exhibit M, signed by a Servicing Officer.

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      If the  Master  Servicer  at any time  seeks  to  initiate  a  foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master  Servicer shall deliver or cause to be delivered to the Trustee,  for
signature, as appropriate,  any court pleadings,  requests for trustee's sale or
other  documents  necessary to effectuate  such  foreclosure or any legal action
brought to obtain  judgment  against the  Mortgagor on the Mortgage  Note or the
Mortgage or to obtain a deficiency  judgment or to enforce any other remedies or
rights  provided by the Mortgage Note or the Mortgage or otherwise  available at
law or in equity.

      SECTION 3.13 Documents  Records and Funds in Possession of Master Servicer
to be Held for the Trustee.

      Notwithstanding  any  other  provisions  of  this  Agreement,  the  Master
Servicer  shall  transmit  to the  Trustee as  required  by this  Agreement  all
documents  and  instruments  in  respect  of a  Mortgage  Loan  coming  into the
possession  of the Master  Servicer from time to time and shall account fully to
the Trustee for any funds received by the Master Servicer or which otherwise are
collected by the Master Servicer as Liquidation  Proceeds or Insurance  Proceeds
in respect of any Mortgage Loan. All Mortgage Files and funds  collected or held
by, or under the  control  of, the Master  Servicer  in respect of any  Mortgage
Loans,  whether from the  collection of principal and interest  payments or from
Liquidation Proceeds,  including but not limited to, any funds on deposit in the
Certificate  Account,  shall be held by the Master Servicer for and on behalf of
the  Trustee  and shall be and remain  the sole and  exclusive  property  of the
Trustee,  subject to the  applicable  provisions of this  Agreement.  The Master
Servicer  also agrees that it shall not  create,  incur or subject any  Mortgage
File or any funds that are deposited in the  Certificate  Account,  Distribution
Account or any Escrow Account, or any funds that otherwise are or may become due
or payable to the  Trustee  for the  benefit of the  Certificateholders  and the
Insurer,  to any  claim,  lien,  security  interest,  judgment,  levy,  writ  of
attachment  or other  encumbrance,  or assert by legal action or  otherwise  any
claim or right of setoff against any Mortgage File or any funds collected on, or
in connection with, a Mortgage Loan, except,  however,  that the Master Servicer
shall be  entitled to set off against and deduct from any such funds any amounts
that are properly due and payable to the Master Servicer under this Agreement.

      SECTION 3.14 Master Servicing Compensation.

      As compensation  for its activities as Master Servicer  hereunder and as a
subservicer   pursuant  to  the  Servicing   Rights  Transfer  and  Subservicing
Agreement,  the Master Servicer shall be entitled to retain or withdraw from the
Certificate  Account  an  amount  equal  to the  Master  Servicing  Fee for each
Mortgage Loan,  provided that the aggregate Master Servicing Fee with respect to
any Distribution  Date shall be reduced,  in the case of the first  Distribution
Date,  by an amount  equal to any amount to be deposited  into the  Distribution
Account by the Depositor pursuant to Section 2.1(a) and not so deposited.

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      Additional  servicing  compensation in the form of (i) Excess Proceeds and
all income and gain net of any losses  realized from Permitted  Investments  and
(ii) prepayment penalties, assumption fees and late payment charges in each case
under the circumstances  and in the manner set forth in the applicable  Mortgage
Note or  Mortgage  shall be  retained  by the Master  Servicer to the extent not
required to be  deposited  in the  Certificate  Account  pursuant to Section 3.5
hereof. The Master Servicer shall be required to pay all expenses incurred by it
in connection with its master servicing  activities hereunder (including payment
of any  premiums  for hazard  insurance  and  maintenance  of the other forms of
insurance  coverage  required  by this  Agreement)  and shall not be entitled to
reimbursement therefor except as specifically provided in this Agreement.

      SECTION 3.15 Access to Certain Documentation.

      The  Master  Servicer  shall  provide  to the  OTS  and  the  FDIC  and to
comparable  regulatory  authorities   supervising  Holders  of  Certificates  or
Certificate Owners and the examiners and supervisory agents of the OTS, the FDIC
and such other authorities,  access to the documentation  regarding the Mortgage
Loans required by applicable  regulations  of the OTS and the FDIC.  Such access
shall be afforded  without  charge,  but only upon  reasonable and prior written
request and during normal business hours at the offices designated by the Master
Servicer.  Nothing in this  Section  shall  limit the  obligation  of the Master
Servicer to observe any  applicable  law  prohibiting  disclosure of information
regarding  the  Mortgagors  and the  failure of the Master  Servicer  to provide
access as  provided  in this  Section as a result of such  obligation  shall not
constitute a breach of this Section.

      SECTION 3.16 Annual Statement as to Compliance.

      The Master  Servicer shall deliver to the  Depositor,  the Trustee and the
Insurer  on or before 120 days  after the end of the  Master  Servicer's  fiscal
year, commencing with its 2005 fiscal year, an Officer's Certificate stating, as
to the  signer  thereof,  that  (i) a review  of the  activities  of the  Master
Servicer during the preceding calendar year and of the performance of the Master
Servicer under this Agreement has been made under such officer's supervision and
(ii) to the best of such officer's  knowledge,  based on such review, the Master
Servicer has fulfilled all its obligations under this Agreement  throughout 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.  The Trustee shall forward a copy of each such statement to each Rating
Agency.

      SECTION 3.17 Annual Independent Public Accountants'  Servicing  Statement;
Financial Statements.

       On or before 120 days after the end of the Master  Servicer's fiscal
year,  commencing  with its 2005 fiscal year, the Master Servicer at its expense
shall cause a nationally or regionally  recognized  firm of  independent  public
accountants  (who may also render  other  services to the Master  Servicer,  the
Seller or any affiliate  thereof) which is a member of the American Institute of

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Certified  Public  Accountants  to  furnish  a  statement  to the  Trustee,  the
Depositor  and the Insurer to the effect  that-such  firm has  examined  certain
documents and records relating to the servicing of the Mortgage Loans under this
Agreement  or  of  mortgage   loans  under  pooling  and  servicing   agreements
substantially similar to this Agreement (such statement to have attached thereto
a schedule setting forth the pooling and servicing  agreements  covered thereby)
and  that,  on  the  basis  of  such  examination,  conducted  substantially  in
compliance with the Uniform Single  Attestation  Program for Mortgage Bankers or
the Audit Program for Mortgages  serviced for FNMA and FHLMC, such servicing has
been conducted in compliance with such pooling and servicing  agreements  except
for such  significant  exceptions  or errors in records  that, in the opinion of
such firm, the Uniform Single  Attestation  Program for Mortgage  Bankers or the
Audit Program for Mortgages  serviced for FNMA and FHLMC  requires it to report.
In  rendering  such  statement,  such firm may rely,  as to matters  relating to
direct servicing of mortgage loans by Subservicers,  upon comparable  statements
for examinations  conducted  substantially in compliance with the Uniform Single
Attestation  Program for  Mortgage  Bankers or the Audit  Program for  Mortgages
serviced  for FNMA and FHLMC  (rendered  within one year of such  statement)  of
independent public accountants with respect to the related  Subservicer.  Copies
of such statement shall be provided by the Trustee to any  Certificateholder  or
Certificate Owner upon request at the Master Servicer's  expense,  provided such
statement is delivered by the Master Servicer to the Trustee.

      SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds.

      The Master  Servicer shall for so long as it acts as master servicer under
this  Agreement,  obtain  and  maintain  in force  (a) a policy or  policies  of
insurance covering errors and omissions in the performance of its obligations as
Master  Servicer  hereunder  and (b) a fidelity bond in respect of its officers,
employees  and agents.  Each such policy or policies  and bond shall,  together,
comply  with the  requirements  from time to time of FNMA or FHLMC  for  persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases to be in effect,  the Master  Servicer shall
obtain a  comparable  replacement  policy or bond  from an  insurer  or  issuer,
meeting the requirements set forth above as of the date of such replacement.

                                   ARTICLE IV
                DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER

      SECTION 4.1 Advances.

      The  Master  Servicer  shall  determine,  in its sole  discretion,  on the
Business  Day prior to each Master  Servicer  Advance Date whether it intends to
make an Advance. If the Master Servicer determines, in its sole discretion, that
it  intends to make an  Advance,  it shall,  on or before  the  Master  Servicer
Advance Date, either (i) deposit into the Certificate Account an amount equal to
the Advance or (ii) make an  appropriate  entry in its  records  relating to the
Certificate  Account that any Amount Held for Future  Distribution has been used
by the Master  Servicer  for any such  Advance.  Any funds so  applied  shall be
replaced by the Master Servicer by deposit in the  Certificate  Account no later
than the  close of  business  on the  Business  Day  preceding  the next  Master
Servicer  Advance Date.  The Master  Servicer shall be entitled to be reimbursed
from the Certificate  Account for all Advances of its own funds made pursuant to
this Section as provided in Section 3.8. As to any Distribution Date, the Master
Servicer  shall inform the Trustee in writing of the amount of the Advance to be
made by the Master Servicer on each Master  Servicer  Advance Date no later 1:30
p.m.  Central  time  on the  second  Business  Day  immediately  preceding  such
Distribution Date.

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      SECTION 4.2 Priorities of Distribution.

      (a)   On each Distribution  Date, the Trustee shall withdraw the Available
            Funds  from  the  Distribution  Account  and  apply  such  funds  to
            distributions  on  the  Certificates  in  the  following  order  and
            priority  and,  in each  case,  to the  extent  of  Available  Funds
            remaining:

            (i)   to  the   Insurer,   the  Premium  for  the  Policy  for  such
                  Distribution  Date and any previously  unpaid  Premiums,  with
                  interest thereon as provided in the Insurance Agreement;

            (ii)  to the Holders of the Class A  Certificates,  pro rata, to the
                  extent of remaining  Available Funds, the Accrued  Certificate
                  Interest on each such Class for such  Distribution  Date,  any
                  shortfall  in available  amounts  being  allocated  among such
                  Classes in  proportion  to the  amount of Accrued  Certificate
                  Interest otherwise distributable thereon;

            (iii) to the Holders of the Class A  Certificates,  in  reduction of
                  the  Class  Certificate  Balances  thereof,  to the  extent of
                  remaining Available Funds, the Class A Principal  Distribution
                  Amount for such  Distribution  Date,  in the order of priority
                  set forth below in Section 4.2(b),  until the respective Class
                  Certificate Balances thereof have been reduced to zero;

            (iv)  to the Holders of the Class A  Certificates,  in  reduction of
                  the  Class  Certificate  Balances  thereof,  to the  extent of
                  remaining  Available Funds, the Liquidation Loss  Distribution
                  Amount for such Distribution Date (excluding  Liquidation Loss
                  Amounts that have been allocated to the reduction of the Class
                  Certificate  Balance of the Class A  Certificates  pursuant to
                  Section  4.2(c)(ii) below), in the order of priority set forth
                  below  in  Section   4.2(b),   until  the   respective   Class
                  Certificate Balances thereof have been reduced to zero;

            (v)   to the  Insurer,  to  reimburse it for prior draws made on the
                  Policy,  plus  any  other  amount  due  and  owing  under  the
                  Insurance Agreement,  with interest thereon as provided in the
                  Insurance Agreement;

            (vi)  on  each   Distribution   Date   occurring  on  or  after  the
                  Distribution  Date in  February  2005,  to the  Holders of the
                  Class A  Certificates,  in reduction of the Class  Certificate
                  Balances thereof,  to the extent of remaining Available Funds,
                  the    Overcollateralization    Increase   Amount   for   such
                  Distribution  Date, if any, in the order of priority set forth
                  below  in  Section   4.2(b),   until  the   respective   Class
                  Certificate Balances thereof have been reduced to zero;

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<PAGE>

            (vii) to the Holders of the Class A  Certificates,  pro rata, to the
                  extent  of  remaining  Available  Funds,  the  amount  of  any
                  Prepayment Interest Shortfalls for such Distribution Date;

            (viii)to the  Holders of the Class A-1  Certificates,  to the extent
                  of remaining  Available  Funds,  any Class A-1 Interest  Carry
                  Forward Amount; and

            (ix)  to the  Holder of the Class C  Certificate,  to the  extent of
                  remaining  Available Funds, any amount remaining on deposit in
                  the Distribution Account on such Distribution Date;

provided,  however, that on the Final Scheduled Distribution Date, the amount to
be  distributed  pursuant to clause (iii) above shall be equal to the  aggregate
Class Certificate Balances of the Class A Certificates immediately prior to such
Distribution  Date. For purposes of the  foregoing,  required  distributions  of
principal on the Class A Certificates on each Distribution Date will include the
portion  allocable to the Class A Certificates of all  Liquidation  Loss Amounts
for such  Distribution  Date and for all  previous  Due  Periods  until  paid or
covered in full,  to the  extent not  otherwise  covered by a  Liquidation  Loss
Distribution  Amount, any  Overcollateralization  Reduction Amount, or a draw on
the Policy (up to the outstanding Class Certificate Balance).

      (b)   The Class A Principal  Distribution Amount distributable pursuant to
            Section   4.2(a)(iii),   Liquidation   Loss   Distribution   Amounts
            distributable     pursuant     to     Section     4.2(a)(iv)     and
            Overcollateralization  Increase  Amounts  distributable  pursuant to
            Section  4.2(a)(vi)  will be distributed  in the following  order of
            priority:

            (i)   to the Class A-5 Certificates in an amount up to the Class A-5
                  Lockout  Distribution Amount for such Distribution Date, until
                  the Class  Certificate  Balance  thereof  has been  reduced to
                  zero; and

            (ii)  sequentially,  to the Class A-1,  Class A-2,  Class A-3, Class
                  A-4 and Class A-5  Certificates,  in that  order,  until their
                  respective Class  Certificate  Balances have each been reduced
                  to zero.

      (c)   On  each  Distribution   Date,  the   Overcollateralization   Amount
            available to cover any Liquidation Loss Amounts on such Distribution
            Date shall be deemed to be reduced by any  Liquidation  Loss Amounts
            not distributed as Liquidation Loss Distribution Amounts pursuant to
            Section  4.2(a)(iv).  In the  event  that  an  Insurer  Default  has
            occurred and is continuing, on each Distribution Date, the amount of
            any  Liquidation  Loss Amounts  with  respect to the prior  calendar
            month that were not  distributed  as Liquidation  Loss  Distribution
            Amounts pursuant to Section 4.2(a)(iv) will be applied as follows:

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<PAGE>

            (i)   to  reduce  any   Overcollateralization   Amount   (after  the
                  allocation  of  Principal  Collections  for such  Distribution
                  Date) until such amount has been reduced to zero; and

            (ii)  second, to reduce the Class Certificate  Balance of each Class
                  of Class A Certificates then outstanding,  pro rata, until the
                  Class   Certificate   Balance   of  each   Class  of  Class  A
                  Certificates has been reduced to zero.

      (d)   On each  Distribution  Date,  the Trustee  shall  distribute  to the
            Holders of the Class R Certificates representing the RL Interest and
            RU Interest,  any  Available  Funds  remaining in the related  REMIC
            created  hereunder for such  Distribution  Date after application of
            all amounts  described  in clauses  (a), (b) and (c) of this Section
            4.2.

      SECTION 4.3 Method of Distribution.

      (a)   All distributions with respect to each Class of Certificates on each
            Distribution  Date  shall  be made pro rata  among  the  outstanding
            Certificates of such Class, based on the Percentage Interest in such
            Class   represented   by   each   Certificate.   Payments   to   the
            Certificateholders  on each  Distribution  Date  will be made by the
            Trustee to the  Certificateholders  of record on the related  Record
            Date by check or money order  mailed to a  Certificateholder  at the
            address  appearing  in the  Certificate  Register,  or upon  written
            request by such Certificateholder to the Trustee made not later than
            the  applicable  Record Date, by wire transfer to a U.S.  depository
            institution  acceptable  to the  Trustee,  or by such other means of
            payment as such Certificateholder and the Trustee shall agree.

      (b)   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  financial
            intermediary  for  which  it  acts as  agent.  Each  such  financial
            intermediary  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  applicable  Certificates.  Neither the
            Trustee  nor the  Master  Servicer  shall  have  any  responsibility
            therefor except as otherwise provided by applicable law.

      (c)   The Trustee  shall  withhold or cause to be withheld such amounts as
            it  reasonably  determines  are  required by the Code  (giving  full
            effect to any exemptions from withholding and related certifications
            required to be furnished by Certificateholders or Certificate Owners
            and any  reductions  to  withholding  by virtue of any bilateral tax
            treaties and any applicable  certification  required to be furnished
            by  Certificateholders  or Certificate  Owners with respect thereto)
            from  distributions to be made to Non-U.S.  Persons.  If the Trustee
            reasonably  determines  that a more  accurate  determination  of the
            amount required to be withheld for a distribution can be made within

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            a reasonable period after the scheduled date for such  distribution,
            it may hold such  distribution  in trust for a Holder of a  Residual
            Certificate  until such  determination can be made. For the purposes
            of this paragraph,  a "Non-U.S.  Person" is (i) an individual  other
            than a citizen or resident of the United States, (ii) a partnership,
            corporation or entity  treated as a partnership  or corporation  for
            U.S.  federal  income tax  purposes not formed under the laws of the
            United  States,  any  state  thereof  or the  District  of  Columbia
            (unless, in the case of a partnership,  Treasury regulations provide
            otherwise),  (iii) any estate, the income of which is not subject to
            U.S.  federal income  taxation,  regardless of source,  and (iv) any
            trust,  other than a trust that a court within the United  States is
            able to exercise primary  supervision over the administration of the
            trust and one or more U.S. Persons have the authority to control all
            substantial decisions of the trust.

      SECTION 4.4 [Reserved].

      SECTION 4.5 Determination of Pass-Through Rates for LIBOR Certificates.

      (a)   On  each   Interest   Determination   Date  so  long  as  any  LIBOR
            Certificates  are  outstanding,  the Trustee will determine LIBOR on
            the basis of the  British  Bankers'  Association  ("BBA")  "Interest
            Settlement Rate" for one-month  deposits in U.S. dollars as found on
            Telerate  page 3750 as of 11:00 a.m.  London  time on each  Interest
            Determination  Date.  "Telerate  Page 3750" means the  display  page
            currently so designated on the Bridge Telerate Service (formerly the
            Dow Jones  Markets)  (or such other page as may replace that page on
            that  service  for the  purpose of  displaying  comparable  rates or
            prices.)

      (b)   If LIBOR cannot be  determined  as provided in paragraph (a) of this
            Section  4.5, the Trustee  shall  either (i) request each  Reference
            Bank inform the Trustee of the quotation  offered by such  Reference
            Bank's  principal  London office for making  one-month United States
            dollar deposits in leading banks in the London interbank  market, as
            of 11:00 a.m. (London time) on such Interest  Determination  Date or
            (ii) in lieu of making any such request, rely on such Reference Bank
            quotations  that appear at such time on the Reuters Screen LIBO Page
            (as defined in the International Swap Dealers  Association Inc. Code
            of Standard  Wording,  Assumptions  and Provisions  for Swaps,  1986
            Edition),  to the extent  available.  With  respect to this  Section
            4.2(b),   LIBOR  for  the  next  Interest  Accrual  Period  will  be
            established  by the Trustee on each Interest  Determination  Date as
            follows:

            (i)   If on any Interest  Determination  Date two or more  Reference
                  Banks  provide  such  offered  quotations,  LIBOR for the next
                  Interest  Accrual Period shall be the arithmetic  mean of such
                  offered  quotations  (rounding such arithmetic mean upwards if
                  necessary to the nearest whole multiple of 1/32%).

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<PAGE>

            (ii)  If on any Interest  Determination Date only one or none of the
                  Reference  Banks provides such offered  quotations,  LIBOR for
                  the next  Interest  Accrual  Period  shall be whichever is the
                  higher of (i) LIBOR as  determined  on the  previous  Interest
                  Determination  Date or (ii) the  Reserve  Interest  Rate.  The
                  "Reserve  Interest Rate" shall be the rate per annum which the
                  Trustee  determines  to be  either  (i)  the  arithmetic  mean
                  (rounded upwards if necessary to the nearest whole multiple of
                  1/32%) of the one-month  United  States  dollar  lending rates
                  that New York City banks  selected by the Trustee are quoting,
                  on the relevant Interest  Determination Date, to the principal
                  London offices of at least two of the Reference Banks to which
                  such quotations  are, in the opinion of the Trustee,  being so
                  made,  or (ii) in the event that the Trustee can  determine no
                  such  arithmetic  mean,  the lowest  one-month  United  States
                  dollar  lending rate which New York City banks selected by the
                  Trustee are  quoting on such  Interest  Determination  Date to
                  leading European banks.

            (iii) If on any Interest  Determination Date the Trustee is required
                  but is unable to determine  the Reserve  Interest  Rate in the
                  manner  provided in paragraph (b) above,  LIBOR shall be LIBOR
                  as determined on the preceding Interest Determination Date.

      The Master Servicer shall designate at least four Reference  Banks.  Until
all of the LIBOR  Certificates  are paid in full,  the Trustee will refer to the
four Reference  Banks  designated by the Master Servicer to determine LIBOR with
respect to each Interest  Determination  Date. Each "Reference  Bank" shall be a
leading bank engaged in transactions in Eurodollar deposits in the international
Eurocurrency  market,  shall not control,  be controlled  by, or be under common
control  with,  the Trustee and shall have an  established  place of business in
London.  If any such Reference Bank should be unwilling or unable to act as such
or if the Master  Servicer  should  terminate its appointment as Reference Bank,
the Master  Servicer  shall  promptly  appoint or cause to be appointed  another
Reference  Bank.  The Trustee shall have no liability or  responsibility  to any
Person for (i) the selection of any Reference  Bank for purposes of  determining
LIBOR or (ii) any  inability  of the Master  Servicer to designate at least four
Reference Banks.

            (c)   The Pass-Through Rate for each Class of LIBOR Certificates for
                  each  Interest  Accrual  Period  shall  be  determined  by the
                  Trustee  on each  Interest  Determination  Date so long as the
                  LIBOR  Certificates  are outstanding on the basis of LIBOR and
                  the respective  formulae appearing in footnotes  corresponding
                  to  the  LIBOR  Certificates  in  the  table  relating  to the
                  Certificates in the Preliminary Statement.

      In determining  LIBOR, any Pass-Through  Rate for the LIBOR  Certificates,
any Interest  Settlement  Rate, or any Reserve  Interest  Rate,  the Trustee may
conclusively rely and shall be protected in relying upon the offered  quotations
(whether  written,  oral or on the Dow Jones  Markets)  from the BBA  designated
banks,  the Reference Banks or the New York City banks as to LIBOR, the Interest
Settlement  Rate or the Reserve  Interest Rate, as  appropriate,  in effect from
time to time. The Trustee shall not have any liability or  responsibility to any
Person for (i) the  Trustee's  selection  of New York City banks for purposes of
determining  any  Reserve  Interest  Rate or (ii)  its  inability,  following  a
good-faith reasonable effort, to obtain such quotations from, the BBA designated
banks,  the  Reference  Banks or the New York City  banks or to  determine  such
arithmetic mean, all as provided for in this Section 4.5.

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      The  establishment  of LIBOR  and  each  Pass-Through  Rate for the  LIBOR
Certificates  by the Trustee shall (in the absence of manifest  error) be final,
conclusive and binding upon each Holder of a Certificate and the Trustee.

      SECTION 4.6 Monthly Statements to Certificateholders.

      (a)   Not  later  than  12:00  noon,   New  York  time,   on  the  related
            Distribution Date, the Trustee shall prepare and either (x) cause to
            be  forwarded  by first  class mail to each  Certificateholder,  the
            Master Servicer,  the Depositor,  the Insurer and each Rating Agency
            or (y)  post  on its  website  located  at  www.mbsreporting.com,  a
            statement  setting forth the following  information  with respect to
            the related distribution:

            (i)   The  aggregate  amount  of  (a)  Interest   Collections,   (b)
                  Principal Collections, and (c) Substitution Adjustment Amounts
                  for such Due Period;

            (ii)  the  amount  of  such  distribution  allocable  to  principal,
                  separately  identifying the aggregate  amount of any Principal
                  Prepayments and Net Liquidation Proceeds included therein;

            (iii) the amount of such  distribution  allocable to  interest,  the
                  amount of any Class A-1 Interest  Carry Forward Amount and any
                  remaining  Interest  Shortfalls  after  giving  effect to such
                  distribution;

            (iv)  the Insured Amount, if any, for such Distribution Date and the
                  aggregate  amount of prior draws on the Policy  thereunder not
                  yet reimbursed;

            (v)   the Class  Certificate  Balance of each Class of  Certificates
                  after giving effect to the  distribution  of principal on such
                  Distribution Date;

            (vi)  the Pool  Principal  Balance  for the  following  Distribution
                  Date;

            (vii) the amount of the Master Servicing Fees paid to or retained by
                  the Master Servicer with respect to such Distribution Date;

            (viii)the  Pass-Through  Rate for each  such  Class of  Certificates
                  with respect to such Distribution Date;

            (ix)  the amount of Advances  included in the  distribution  on such
                  Distribution   Date  and  the  aggregate  amount  of  Advances
                  outstanding  as of the close of business on such  Distribution
                  Date;

            (x)   the number and aggregate  principal  amounts of Mortgage Loans
                  (A) delinquent  (exclusive of Mortgage  Loans in  foreclosure)
                  (1) 1 to 30 days  (2) 31 to 60 days  (3) 61 to 90 days and (4)
                  91 or more days and (B) in foreclosure and delinquent (1) 1 to
                  30 days (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more
                  days,  as of the  close  of  business  on the  last day of the
                  calendar month preceding such Distribution Date;

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            (xi)  with respect to any Mortgage  Loan that became an REO Property
                  during  the  preceding  calendar  month,  the loan  number and
                  Stated Principal Balance of such Mortgage Loan as of the close
                  of  business  on  the   Determination   Date   preceding  such
                  Distribution Date and the date of acquisition thereof;

            (xii) the total number and principal  balance of any REO  Properties
                  (and market  value,  if available) as of the close of business
                  on the Determination Date preceding such Distribution Date;

            (xiii)the  aggregate  Liquidation  Loss  Amounts with respect to the
                  related Due Period,  the amount  distribute  as  principal  to
                  Class A  Certificateholders  in  respect of  Liquidation  Loss
                  Amounts  (minus  any  Subsequent  Recovery  Amounts)  and  the
                  aggregate of the Liquidation Loss Amounts from all Due Periods
                  to date  expressed as a dollar  amount and a percentage of the
                  aggregate Cut-off Date Pool Principal Balance;

            (xiv) the  Overcollateralization   Amount  as  of  the  end  of  the
                  preceding Due Period;

            (xv)  the weighted average of the Net Mortgage Rates of the Mortgage
                  Loans for the related Due Period;

            (xvi) the number and aggregate  principal  amounts of Mortgage Loans
                  purchased  pursuant to Sections 2.2, 2.3 or 3.11 hereof during
                  the related Due Period

            (xvii) the Net Liquidation Proceeds for the related Due Period;

            (xviii) the  aggregate  Subsequent  Recovery  Amounts  for  such Due
                  Period;

            (xix) with respect to the second  Distribution  Date, the number and
                  aggregate  balance of any Delay  Delivery  Mortgage  Loans not
                  delivered within thirty days after the Closing Date;

            (xx)  the Rolling  Three Month  Excess  Spread  Percentage  for such
                  Distribution Date;

            (xxi) the Excess Spread Percentage for such Distribution Date;

            (xxii)whether the Total Loss Freeze Test has been  satisfied on such
                  Distribution Date; and

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            (xxiii) whether the Spread  Squeeze  Step-Down  Freeze Test has been
                  satisfied for such Distribution Date.

      (b)   The Trustee's responsibility for disbursing the above information to
            the  Certificateholders,  the Master  Servicer,  the Depositor,  the
            Insurer  and each  Rating  Agency is  limited  to the  availability,
            timeliness  and accuracy of the  information  provided by the Master
            Servicer.

      (c)   On or before the fifth  Business Day  following  the end of each Due
            Period (but in no event later than the third  Business  Day prior to
            the related Distribution Date), the Master Servicer shall deliver to
            the Trustee (which delivery may be by electronic data  transmission)
            a Monthly Master Servicer Report.

      (d)   Within a  reasonable  period of time after the end of each  calendar
            year,  the Trustee shall cause to be furnished to each Person who at
            any  time  during  the  calendar  year  was a  Certificateholder,  a
            statement  containing the information set forth in clauses  (a)(ii),
            (a)(iii)  and  (a)(vii)  of this  Section  4.6  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 provided by the Trustee pursuant to
            any requirements of the Code as from time to time in effect.

                                    ARTICLE V
                                THE CERTIFICATES

      SECTION 5.1 The Certificates.

      The  Certificates  shall be  substantially in the forms attached hereto as
exhibits.  The Certificates shall be issuable in registered form, in the minimum
denominations, integral multiples in excess thereof (except that one Certificate
in each Class may be issued in a different amount which must be in excess of the
applicable minimum denomination) and aggregate denominations per Class set forth
in the Preliminary Statement.

      Subject to Section 9.2 hereof  respecting  the final  distribution  on the
Certificates,  on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (x) by wire
transfer in immediately  available funds to the account of such Holder at a bank
or other entity having appropriate  facilities therefor,  if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related  Record
Date and (ii) such Holder shall hold (A) 100% of the Class  Certificate  Balance
of any Class of  Certificates  or (B)  Certificates  of any Class with aggregate
principal  Denominations  of not less than  $1,000,000 or (y) by check mailed by
first  class  mail to  such  Certificateholder  at the  address  of such  Holder
appearing in the Certificate Register.

      The  Certificates  shall be executed by manual or  facsimile  signature on
behalf of the Trustee by an authorized 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 Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature 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  countersigned  by the  Trustee by manual  signature,  and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence,  that such Certificate has been duly executed and delivered hereunder.
All  Certificates  shall be dated  the  date of their  countersignature.  On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.

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      The Depositor shall provide, or cause to be provided,  to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.

      SECTION 5.2 Certificate Register; Registration of Transfer and Exchange of
Certificates.

      (a)   The Trustee shall maintain,  or cause to be maintained in accordance
            with the  provisions of Section 5.6 hereof,  a Certificate  Register
            for  the  Trust  Fund  in  which,   subject  to  the  provisions  of
            subsections (b) and (c) below and to such reasonable  regulations as
            it may prescribe,  the Trustee shall provide for the registration of
            Certificates  and of  transfers  and  exchanges of  Certificates  as
            herein provided.  Upon surrender for registration of transfer of any
            Certificate,  the Trustee shall execute and deliver,  in the name of
            the  designated   transferee  or   transferees,   one  or  more  new
            Certificates of the same Class and aggregate Percentage Interest.

      At the option of a  Certificateholder,  Certificates  may be exchanged for
other Certificates of the same Class in authorized  denominations and evidencing
the same aggregate  Percentage Interest upon surrender of the Certificates to be
exchanged at the office or agency of the Trustee.  Whenever any Certificates are
so  surrendered  for exchange,  the Trustee  shall  execute,  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 be accompanied by a written instrument of transfer
in form  satisfactory  to the Trustee duly executed by the Holder thereof or his
attorney duly authorized in writing.

      No  service  charge  to the  Certificateholders  shall  be  made  for  any
registration  of  transfer or  exchange  of  Certificates,  but 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 may be required.

      All  Certificates  surrendered  for  registration  of transfer or exchange
shall be cancelled and subsequently  destroyed by the Trustee in accordance with
the Trustee's customary procedures.

      After giving  effect to the sale of the  Certificates  by the Depositor to
the Underwriter, and thereafter, so long as any Certificates remain outstanding,
the Seller, its affiliates and agents, collectively,  shall not beneficially own
Certificates  the aggregate  fair value of which would  represent 90% or more of
the beneficial interests in the Trust Fund.

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<PAGE>

      (b)   No  transfer  of a Private  Certificate  shall be made  unless  such
            transfer is made  pursuant to an  effective  registration  statement
            under the Securities Act and any applicable state securities laws or
            is exempt from the registration requirements under said Act and such
            state securities laws. In the event that a transfer is to be made in
            reliance upon an exemption from the Securities Act and such laws, in
            order to assure  compliance  with the  Securities Act and such laws,
            the  Certificateholder  desiring  to effect such  transfer  and such
            Certificateholder's prospective transferee shall each certify to the
            Trustee  in  writing   the  facts   surrounding   the   transfer  in
            substantially  the  forms set  forth in  Exhibit I (the  "Transferor
            Certificate")  and (i) deliver a letter in substantially the form of
            either Exhibit J (the  "Investment  Letter") or Exhibit K (the "Rule
            144A Letter") or (ii) there shall be delivered to the Trustee at the
            expense of the  transferor  an Opinion of Counsel that such transfer
            may be made pursuant to an exemption  from the  Securities  Act. The
            Depositor  shall provide to any Holder of a Private  Certificate and
            any   prospective   transferee   designated   by  any  such  Holder,
            information  regarding  the related  Certificates  and the  Mortgage
            Loans and such other  information  as shall be  necessary to satisfy
            the  condition  to  eligibility  set  forth in Rule  144A(d)(4)  for
            transfer of any such Certificate without  registration thereof under
            the Securities Act pursuant to the registration  exemption  provided
            by Rule 144A. The Trustee and the Master  Servicer  shall  cooperate
            with the Depositor in providing the Rule 144A information referenced
            in the preceding sentence, including providing to the Depositor such
            information regarding the Certificates, the Mortgage Loans and other
            matters  regarding the Trust Fund as the Depositor shall  reasonably
            request to meet its obligation  under the preceding  sentence.  Each
            Holder of a Private  Certificate  desiring to effect  such  transfer
            shall,  and does  hereby  agree to,  indemnify  the  Trustee and the
            Depositor,  the Seller and the Master Servicer 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 an  ERISA-Restricted  Certificate  shall be made unless the
Trustee shall have received a Transferor Certificate from the related transferor
and  either  (i) a  representation  from  the  transferee  of  such  Certificate
acceptable  to and in form and  substance  satisfactory  to the  Trustee (in the
event such Certificate is a Private  Certificate,  such requirement is satisfied
only by the Trustee's  receipt of a  representation  letter from the  transferee
substantially  in the form of Exhibit J or Exhibit  K), to the effect  that such
transferee is not an employee benefit plan or arrangement subject to Section 406
of ERISA or a plan or  arrangement  subject to Section  4975 of the Code,  nor a
person acting on behalf of any such plan or arrangement, nor using the assets of
any such plan or  arrangement  to effect  such  transfer,  (ii) in the case of a
Private  Certificate (that has been subject to an ERISA-Qualified  Underwriting)
or a  Residual  Certificate,  if  the  purchaser  is  an  insurance  company,  a
representation  that the  purchaser is an insurance  company which is purchasing

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<PAGE>

such Certificates with funds contained in an "insurance company general account"
(as such  term is  defined  in  Section  V(e) of  Prohibited  Transaction  Class
Exemption  95-60  ("PTCE  95-60"))  and that the  purchase  and  holding of such
Certificates  are covered under Sections I and III of PTCE 95-60 or (iii) in the
case of any such ERISA-Restricted  Certificate presented for registration in the
name of an employee  benefit  plan  subject to ERISA,  or a plan or  arrangement
subject to Section 4975 of the Code (or comparable  provisions of any subsequent
enactments),  or a trustee of any such plan or any other person acting on behalf
of any such plan or arrangement,  or using such plan's or arrangement's  assets,
an Opinion of Counsel  satisfactory  to the  Trustee,  which  Opinion of Counsel
shall not be an  expense  of either  the  Trustee,  the  Depositor,  the  Master
Servicer  or the Trust  Fund,  addressed  to the  Trustee to the effect that the
purchase  or holding  of such  ERISA-Restricted  Certificate  will not result in
prohibited  transactions under Section 406 of ERISA and Section 4975 of the Code
and will not subject the Trustee,  the  Depositor or the Master  Servicer to any
obligation in addition to those expressly undertaken in this Agreement or to any
liability.  Notwithstanding  anything else to the contrary herein, any purported
transfer  of an  ERISA-Restricted  Certificate  to or on behalf  of an  employee
benefit plan subject to ERISA or to the Code without the delivery to the Trustee
of an Opinion of Counsel satisfactory to the Trustee as described above shall be
void and of no effect.

      To the extent permitted under  applicable law (including,  but not limited
to,  ERISA),  the  Trustee  shall be under no  liability  to any  Person for any
registration of transfer of any ERISA-Restricted Certificate that is in fact not
permitted  by  this  Section  5.2(b)  or for  making  any  payments  due on such
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 transfer was
registered by the Trustee in accordance with the foregoing requirements.

      (c)   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 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  Ownership  Interest  in  a  Residual  Certificate  may  be
                  registered on the Closing Date or thereafter transferred,  and
                  the Trustee  shall not  register  the Transfer of any Residual
                  Certificate  unless, in addition to the certificates  required
                  to be delivered to the Trustee under  subparagraph  (b) above,
                  the Trustee  shall have been  furnished  with an  affidavit (a
                  "Transfer  Affidavit")  of the initial  owner or the  proposed
                  transferee in the form attached hereto as Exhibit H.

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<PAGE>

            (iii) Each Person  holding or acquiring any Ownership  Interest in a
                  Residual  Certificate  shall  agree (A) to  obtain a  Transfer
                  Affidavit  from any other Person to whom such Person  attempts
                  to Transfer its Ownership Interest in a Residual  Certificate,
                  (B) to obtain a  Transfer  Affidavit  from any Person for whom
                  such  Person  is  acting  as  nominee,  trustee  or  agent  in
                  connection with any Transfer of a Residual Certificate and (C)
                  not  to  Transfer  its   Ownership   Interest  in  a  Residual
                  Certificate or to cause the Transfer of an Ownership  Interest
                  in a Residual Certificate to any other Person if it has actual
                  knowledge that such Person is not a Permitted Transferee.

            (iv)  Any attempted or purported  Transfer of any Ownership Interest
                  in a Residual  Certificate  in violation of the  provisions of
                  this  Section  5.2(c)  shall be  absolutely  null and void and
                  shall  vest no  rights  in the  purported  Transferee.  If any
                  purported  transferee  shall  become  a Holder  of a  Residual
                  Certificate  in  violation of the  provisions  of this Section
                  5.2(c), then the last preceding Permitted  Transferee shall 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 Section  5.2(b) and this Section  5.2(c)
                  or for  making any  payments  due on such  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
                  Transfer was registered  after receipt of the related Transfer
                  Affidavit,  Transferor  Certificate  and,  in  the  case  of a
                  Residual  Certificate  which  is also a  Private  Certificate,
                  either  the Rule 144A  Letter or the  Investment  Letter.  The
                  Trustee  shall be entitled  but not  obligated to recover from
                  any  Holder of a Residual  Certificate  that was in fact not a
                  Permitted  Transferee  at the time it  became a Holder  or, at
                  such  subsequent  time as it  became  other  than a  Permitted
                  Transferee,  all payments made on such Residual Certificate at
                  and after either such time.  Any such payments so recovered by
                  the Trustee  shall be paid and delivered by the Trustee to the
                  last preceding Permitted Transferee of such Certificate.

            (v)   The  Depositor  shall use its best efforts to make  available,
                  upon  receipt  of  written  request  from  the  Trustee,   all
                  information necessary to compute any tax imposed under Section
                  860E(e) of the Code as a result of a Transfer of an  Ownership
                  Interest in a Residual  Certificate to any Holder who is not a
                  Permitted Transferee.

      The restrictions on Transfers of a Residual  Certificate set forth in this
Section 5.2(c) shall cease to apply (and the  applicable  portions of the legend
on a Residual  Certificate  may be deleted) with respect to Transfers  occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Seller or the Master
Servicer, to the effect that the elimination of such restrictions will not cause
any REMIC  created  hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a  Certificateholder  or another Person.  Each Person holding or acquiring
any  Ownership  Interest  in a  Residual  Certificate  hereby  consents  to  any
amendment of this Agreement which,  based on an Opinion of Counsel  furnished to
the Trustee, is reasonably necessary (a) to ensure that the record ownership of,
or any  beneficial  interest  in, a  Residual  Certificate  is not  transferred,
directly or indirectly,  to a Person that is not a Permitted  Transferee and (b)
to provide for a means to compel the Transfer of a Residual Certificate which is
held by a  Person  that is not a  Permitted  Transferee  to a  Holder  that is a
Permitted Transferee.

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            (d)   The preparation and delivery of all  certificates and opinions
                  referred  to  above in this  Section  5.2 in  connection  with
                  transfer  shall  be at the  expense  of the  parties  to  such
                  transfers.

            (e)   Except as provided 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  the
                  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  Book-Entry
                  Certificates; (iii) ownership and transfers of registration of
                  the  Book-Entry  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
                  customary  fees,  charges  and  expenses  from its  Depository
                  Participants;  (v) the Trustee shall deal with the Depository,
                  Depository  Participants and indirect  participating  firms as
                  representatives  of the  Certificate  Owners of the Book-Entry
                  Certificates  for purposes of exercising the rights of holders
                  under this  Agreement,  and  requests and  directions  for and
                  votes  of  such  representatives  shall  not be  deemed  to be
                  inconsistent  if they  are  made  with  respect  to  different
                  Certificate Owners; and (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.

      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   Owner.  Each  Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage  firms for which it acts as agent in accordance  with
the Depository's normal procedures.

      If (x) (i) the Depository or the Depositor  advises the Trustee in writing
that the  Depository  is no longer  willing or able to  properly  discharge  its
responsibilities as Depository,  and (ii) the Trustee or the Depositor is unable
to locate a qualified  successor,  (y) the  Depositor at its option  advises the
Trustee in writing that it elects to terminate the book-entry system through the
Depository  or (z)  after the  occurrence  of an Event of  Default,  Certificate
Owners  representing  at  least  51% of the  Class  Certificate  Balance  of the
Book-Entry  Certificates  together advise the Trustee and the Depository through
the Depository  Participants  in writing that the  continuation  of a book-entry
system  through  the  Depository  is no  longer  in the  best  interests  of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository,  of the  occurrence  of any such  event and of the  availability  of
definitive,  fully-registered  Certificates  (the "Definitive  Certificates") to
Certificate  Owners  requesting  the same.  Upon surrender to the Trustee of the
related Class of Certificates by the Depository, accompanied by the instructions

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from the  Depository  for  registration,  the Trustee shall issue the Definitive
Certificates.  Neither the Master Servicer,  the Depositor nor the Trustee shall
be  liable  for  any  delay  in  delivery  of  such  instruction  and  each  may
conclusively  rely on, and shall be protected in relying on, such  instructions.
The Master  Servicer  shall  provide the Trustee  with an adequate  inventory of
certificates to facilitate the issuance and transfer of Definitive Certificates.
Upon  the  issuance  of  Definitive   Certificates  all  references   herein  to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed  upon and  performed by the Trustee,  to the extent  applicable  with
respect to such  Definitive  Certificates  and the Trustee  shall  recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the  Trustee  shall  not by virtue of its  assumption  of such  obligations
become liable to any party for any act or failure to act of the Depository.

      SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates.

      If (a) any mutilated  Certificate is  surrendered  to the Trustee,  or the
Trustee receives evidence to its satisfaction of the destruction,  loss or theft
of any  Certificate  and (b) there is delivered  to the Master  Servicer and the
Trustee  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  that  such
Certificate  has been  acquired  by a bona fide  purchaser,  the  Trustee  shall
execute,  countersign  and  deliver,  in  exchange  for or in lieu  of any  such
mutilated,  destroyed,  lost or stolen  Certificate,  a new  Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental  charge that may be imposed in
relation thereto and any other expenses  (including the fees and expenses of the
Trustee)  connected  therewith.  Any replacement  Certificate issued pursuant to
this  Section  5.3  shall  constitute  complete  and  indefeasible  evidence  of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

      SECTION 5.4 Persons Deemed Owners.

      The Master  Servicer,  the Trustee and any agent of the Master Servicer or
the Trustee may treat the Person in whose name any  Certificate is registered as
the owner of such  Certificate  for the purpose of  receiving  distributions  as
provided in this  Agreement and for all other purposes  whatsoever,  and neither
the Master  Servicer,  the Trustee  nor any agent of the Master  Servicer or the
Trustee shall be affected by any notice to the contrary.

      SECTION 5.5 Access to List of Certificateholders' Names and Addresses.

      If three or more Certificateholders or Certificate Owners (a) request such
information in writing from the Trustee, (b) state that such  Certificateholders
or Certificate Owners desire to communicate with other  Certificateholders  with
respect to their rights under this Agreement or under the Certificates,  and (c)
provide a copy of the communication which such Certificateholders or Certificate
Owners  propose to transmit,  or if the  Depositor,  the Master  Servicer or the
Insurer shall  request such  information  in writing from the Trustee,  then the
Trustee  shall,  within ten  Business  Days after the  receipt of such  request,
provide   the   Depositor,   the   Master   Servicer,   the   Insurer   or  such
Certificateholders  or Certificate Owners, at such recipients' expense, the most
recent list of the Certificateholders of such Trust Fund held by the Trustee, if
any.  The  Depositor  and  every  Certificateholder  or  Certificate  Owner,  by
receiving  and holding a  Certificate,  agree that the Trustee shall not be held
accountable by reason of the  disclosure of any such  information as to the list
of the  Certificateholders  hereunder,  regardless of the source from which such
information was derived.

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      SECTION 5.6 Maintenance of Office or Agency.

      The  Trustee  will  maintain or cause to be  maintained  at its expense an
office or offices or agency or agencies in New York City where  Certificates may
be surrendered for registration of transfer or exchange.  The Trustee  initially
designates its Corporate  Trust Office for such purposes.  The Trustee will give
prompt written notice to the  Certificateholders  of any change in such location
of any such office or agency.

                                   ARTICLE VI
                      THE DEPOSITOR AND THE MASTER SERVICER

      SECTION  6.1  Respective  Liabilities  of the  Depositor  and  the  Master
Servicer.

      The Depositor and the Master  Servicer  shall each be liable in accordance
herewith only to the extent of the  obligations  specifically  and  respectively
imposed upon and undertaken by them herein.

      SECTION  6.2  Merger  or  Consolidation  of the  Depositor  or the  Master
Servicer.

      The  Depositor  and the Master  Servicer will each keep in full effect its
existence,  rights and franchises as a corporation  under the laws of the United
States or under the laws of one of the states  thereof  and will each obtain and
preserve  its  qualification  to do  business as a foreign  corporation  in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability of this Agreement,  or any of the Mortgage Loans and
to perform its respective duties under this Agreement.

      Any Person into which the  Depositor or the Master  Servicer may be merged
or  consolidated,  or any Person  resulting from any merger or  consolidation to
which the  Depositor  or the  Master  Servicer  shall be a party,  or any person
succeeding to the business of the Depositor or the Master Servicer, shall be the
successor  of the  Depositor  or  the  Master  Servicer,  as the  case  may  be,
hereunder,  without the  execution  or filing of any paper or any further act on
the  part  of  any  of the  parties  hereto,  anything  herein  to the  contrary
notwithstanding;  provided,  however,  that the successor or surviving Person to
the Master Servicer shall be qualified to sell mortgage loans to, and to service
mortgage loans on behalf of, FNMA or FHLMC.

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      SECTION 6.3 Limitation on Liability of the Depositor,  the Master Servicer
and Others.

      None  of the  Depositor,  the  Master  Servicer  or any of the  directors,
officers,  employees or agents of the Depositor or the Master  Servicer shall be
under  any  liability  to the  Certificateholders  for any  action  taken or for
refraining  from  the  taking  of any  action  in good  faith  pursuant  to this
Agreement,  or for errors in judgment;  provided,  however,  that this provision
shall not protect the Depositor,  the Master Servicer or any such Person against
any breach of  representations  or  warranties  made by it herein or protect the
Depositor, the Master Servicer or any such Person from any liability which would
otherwise  be imposed by  reasons  of  willful  misfeasance,  bad faith or gross
negligence in the  performance  of duties or by reason of reckless  disregard of
obligations  and duties  hereunder.  The Depositor,  the Master Servicer and any
director, officer, employee or agent of the Depositor or the Master Servicer may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. The Depositor,
the  Master  Servicer  and any  director,  officer,  employee  or  agent  of the
Depositor or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss,  liability or expense incurred in connection with any
audit,  controversy or judicial  proceeding  relating to a  governmental  taxing
authority or any legal action  relating to this  Agreement or the  Certificates,
other than any loss,  liability or expense related to any specific Mortgage Loan
or  Mortgage  Loans  (except as any such  loss,  liability  or expense  shall be
otherwise  reimbursable  pursuant to this Agreement) and any loss,  liability or
expense incurred by reason of willful misfeasance, bad faith or gross negligence
in the  performance  of duties  hereunder or by reason of reckless  disregard of
obligations and duties hereunder.  Neither the Depositor nor the Master Servicer
shall be under any obligation to appear in, prosecute or defend any legal action
that is not  incidental  to its  respective  duties  hereunder  and which in its
opinion may  involve it in any expense or  liability;  provided,  however,  that
either the Depositor or the Master Servicer may in its discretion  undertake any
such action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and interests of the Trustee and
the Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting  therefrom shall be expenses,  costs and
liabilities of the Trust Fund,  and the Depositor and the Master  Servicer shall
be entitled to be reimbursed therefor out of the Certificate Account.

      SECTION 6.4 Limitation on Resignation of Master Servicer.

      The Master  Servicer  shall not  resign  from the  obligations  and duties
hereby  imposed  on it  except  (a) upon  appointment  of a  successor  servicer
acceptable  to the  Insurer  and  receipt by the  Trustee of a letter  from each
Rating  Agency  that such a  resignation  and  appointment  will not result in a
downgrading  of the  shadow  rating  of any of  the  Certificates,  or (b)  upon
determination  that  its  duties  hereunder  are  no  longer  permissible  under
applicable  law.  Any  such  determination   under  clause  (b)  permitting  the
resignation  of the Master  Servicer shall be evidenced by an Opinion of Counsel
to such effect  delivered  to the Trustee and the Insurer.  No such  resignation
shall become  effective  until the Trustee or other  successor  master  servicer
shall have assumed the Master Servicer's  responsibilities,  duties, liabilities
and obligations hereunder.

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                                   ARTICLE VII
                                     DEFAULT

      SECTION 7.1 Events of Default.

      "Event of Default,"  wherever used herein,  means any one of the following
events:

            (i)   any  failure  by  the  Master   Servicer  to  deposit  in  the
                  Certificate  Account  or  remit  to the  Trustee  any  payment
                  required to be made under the terms of this  Agreement,  which
                  failure shall continue unremedied for five days after the date
                  upon  which  written  notice of such  failure  shall have been
                  given to the Master  Servicer by the Trustee or the  Depositor
                  or to the Master  Servicer  and the  Trustee by the Holders of
                  Certificates  having  not less than 25% of the  Voting  Rights
                  evidenced by the Certificates; or

            (ii)  any  failure by the Master  Servicer  to observe or perform in
                  any material  respect any other of the covenants or agreements
                  on  the  part  of  the  Master  Servicer   contained  in  this
                  Agreement,  which  failure  materially  affects  the rights of
                  Certificateholders,  which failure continues  unremedied for a
                  period of 60 days  after the date on which  written  notice of
                  such failure  shall have been given to the Master  Servicer by
                  the Trustee or the  Depositor,  or to the Master  Servicer and
                  the Trustee by the Holders of Certificates evidencing not less
                  than 25% of the Voting Rights  evidenced by the  Certificates;
                  provided, however, that the 60-day cure period shall not apply
                  to  the  initial  delivery  of the  Mortgage  File  for  Delay
                  Delivery  Mortgage  Loans nor the  failure  to  substitute  or
                  repurchase in lieu thereof; or

            (iii) a  decree  or  order  of a  court  or  agency  or  supervisory
                  authority   having   jurisdiction  in  the  premises  for  the
                  appointment  of a receiver or  liquidator  in any  insolvency,
                  readjustment of debt, marshalling of assets and liabilities or
                  similar  proceedings,  or for the winding-up or liquidation of
                  its  affairs,  shall  have been  entered  against  the  Master
                  Servicer and such decree or order shall have remained in force
                  undischarged or unstayed for a period of 60 consecutive  days;
                  or

            (iv)  the Master  Servicer  shall  consent to the  appointment  of a
                  receiver or  liquidator  in any  insolvency,  readjustment  of
                  debt,   marshalling  of  assets  and  liabilities  or  similar
                  proceedings  of or relating  to the Master  Servicer or all or
                  substantially all of the property of the Master Servicer; or

            (v)   the Master  Servicer  shall admit in writing its  inability to
                  pay its debts generally as they become due, file a petition to
                  take  advantage  of, or commence a voluntary  case under,  any
                  applicable  insolvency  or  reorganization  statute,  make  an
                  assignment  for the benefit of its  creditors,  or voluntarily
                  suspend payment of its obligations; or

            (vi)  a draw under the Policy remains  unreimbursed  for a period of
                  90 days;

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            (vii) the long term senior  unsecured debt rating of First Tennessee
                  Bank National  Association  is not rated at least "BBB" by S&P
                  and at least "Baa2" by Moody's;

            (viii)cumulative  Liquidation  Loss Amounts,  as a percentage of the
                  Pool  Principal  Balance as of the  Closing  Date,  exceed the
                  following percentages:

                  MONTH          PERCENTAGE

                  0  -  24          2.00%
                  25 - 36           2.50%
                  37 - 48           3.00%
                  49 - 60           3.50%
                  61+               4.00%

      If an Event of Default  described in clauses (i),  (ii),  (vi),  (vii) and
(viii) of this Section shall occur,  the Trustee shall promptly  deliver written
notice of the  occurrence  of such Event of Default to the Insurer  and, in each
and  every  such  case,  so long as such  Event of  Default  shall not have been
remedied,  the Trustee may, or at the  direction of the Holders of  Certificates
evidencing  not  less  than  66  2/3%  of the  Voting  Rights  evidenced  by the
Certificates,  the  Trustee  shall by notice in writing  to the Master  Servicer
(with a copy to the Insurer and each Rating Agency), terminate all of the rights
and  obligations  of the Master  Servicer under this Agreement and in and to the
Mortgage  Loans  and  the  proceeds   thereof,   other  than  its  rights  as  a
Certificateholder  hereunder. If an Event of Default described in clauses (iii),
(iv) or (v) of this  Section  shall occur,  the Trustee  shall  immediately,  by
notice in writing to the Master  Servicer  (with a copy to the  Insurer and each
Rating  Agency),  terminate  all of the  rights  and  obligations  of the Master
Servicer  under this  Agreement  and in and to the  Mortgage  Loans and proceeds
thereof,  other than its rights as a Certificateholder  hereunder.  On and after
the receipt by the Master  Servicer of such written  notice,  all  authority and
power of the Master  Servicer  hereunder,  whether  with respect to the Mortgage
Loans or  otherwise,  shall  pass to and be vested  in the  Trustee  or  another
successor to the Master  Servicer  appointed by the Trustee  pursuant to Section
7.2. The Trustee,  in its  capacity as successor to the Master  Servicer,  shall
thereupon make any Advance which the Master  Servicer  failed to make subject to
Section 4.1 hereof.  The Trustee is hereby  authorized  and empowered to execute
and deliver, on behalf of the Master Servicer, as attorney-in-fact or otherwise,
any and all documents and other  instruments,  and to do or accomplish all other
acts or things necessary or appropriate to effect the purposes of such notice of
termination,  whether to complete the transfer and  endorsement or assignment of
the  Mortgage  Loans and  related  documents,  or  otherwise.  Unless  expressly
provided in such written notice, no such termination shall affect any obligation
of the Master  Servicer to pay amounts owed pursuant to Article VIII. The Master

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Servicer  agrees to cooperate  with the Trustee in effecting the  termination of
the Master Servicer's responsibilities and rights hereunder,  including, without
limitation,  the transfer to the Trustee of all cash amounts  which shall at the
time be credited to the  Certificate  Account,  or  thereafter  be received with
respect to the Mortgage Loans. All expenses  incurred in the transferring of the
servicing duties from the Master Servicer to a Successor  Servicer shall be paid
by the Master Servicer,  and if not paid by the Master  Servicer,  shall be paid
from amounts on deposit in the Certificate Account.

      Notwithstanding  any  termination of the activities of the Master Servicer
hereunder,  the Master  Servicer  shall be entitled to receive,  out of any late
collection of a Scheduled  Payment on a Mortgage Loan which was due prior to the
notice  terminating  such Master  Servicer's  rights and  obligations  as Master
Servicer hereunder and received after such notice, that portion thereof to which
such Master  Servicer  would have been entitled  pursuant to Sections  3.8(a)(i)
through (viii),  and any other amounts payable to such Master Servicer hereunder
the  entitlement  to which  arose  prior to the  termination  of its  activities
hereunder.  Any termination of the activities of the Master  Servicer  hereunder
will  simultaneously  result in (i) the  termination  of the  Master  Servicer's
duties  as  a  subservicer   pursuant  to  the  Servicing  Rights  Transfer  and
Subservicing  Agreement  and (ii) the  termination  of FTMSI's  rights under the
Servicing  Rights Transfer and  Subservicing  Agreement,  in each case,  without
payment of any termination fee thereunder, and the servicing rights with respect
to the Mortgage Loans will automatically transfer to the Trust Fund.

      SECTION 7.2 Trustee to Act; Appointment of Successor.

      On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.1 hereof, the Trustee shall,  subject to and to the extent
provided in Section  3.4, be the  successor  to the Master  Servicer  under this
Agreement  and the  transactions  set forth or provided  for herein and shall be
subject to all the  responsibilities,  duties and liabilities  relating  thereto
placed on the Master Servicer by the terms and provisions  hereof and applicable
law  including  the  obligation  to make  Advances  pursuant to Section  4.1. As
compensation  therefor,  the Trustee shall be entitled to all funds  relating to
the Mortgage  Loans that the Master  Servicer would have been entitled to charge
to the Certificate  Account or  Distribution  Account if the Master Servicer had
continued to act hereunder.  Notwithstanding  the foregoing,  if the Trustee has
become the  successor  to the Master  Servicer in  accordance  with  Section 7.1
hereof,  the Trustee may, if it shall be unwilling to so act, or shall, if it is
prohibited by applicable law from making Advances pursuant to Section 4.1 hereof
or if it is  otherwise  unable  to so act,  appoint,  or  petition  a  court  of
competent  jurisdiction  to appoint,  any  established  mortgage loan  servicing
institution  acceptable  to the  Insurer,  the  appointment  of  which  does not
adversely  affect the then current  shadow  rating of the  Certificates  by each
Rating  Agency  as  the  successor  to  the  Master  Servicer  hereunder  in the
assumption of all or any part of the responsibilities,  duties or liabilities of
the Master Servicer hereunder.  Any successor to the Master Servicer shall be an
institution which is a FNMA and FHLMC approved seller/servicer in good standing,
which  has a net  worth of at least  $10,000,000,  which  is  acceptable  to the
Insurer  and which is willing to service the  Mortgage  Loans and  executes  and
delivers to the Depositor and the Trustee an agreement accepting such delegation
and  assignment,  which  contains  an  assumption  by such Person of the rights,
powers,  duties,  responsibilities,  obligations  and  liabilities of the Master
Servicer (other than liabilities of the Master Servicer under Section 6.3 hereof
incurred prior to termination  of the Master  Servicer under Section 7.1),  with
like effect as if originally  named as a party to this  Agreement;  and provided
further  that each  Rating  Agency  acknowledges  that its shadow  rating of the
Certificates in effect  immediately prior to such assignment and delegation will

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not be  qualified or reduced,  as a result of such  assignment  and  delegation.
Pending  appointment  of a  successor  to the  Master  Servicer  hereunder,  the
Trustee,  unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.4 hereof,  act in such  capacity as provided  above.  In connection
with such appointment and assumption, the Trustee may make such arrangements for
the  compensation  of such successor out of payments on Mortgage Loans as it and
such successor shall agree;  provided,  however, that no such compensation shall
be in  excess  of  the  Master  Servicing  Fee  permitted  the  Master  Servicer
hereunder.  The Trustee and such  successor  shall take such action,  consistent
with this  Agreement,  as shall be necessary to effectuate any such  succession.
Neither the Trustee nor any other  successor  master servicer shall be deemed to
be in  default  hereunder  by reason  of any  failure  to make,  or any delay in
making,  any  distribution  hereunder  or any portion  thereof or any failure to
perform, or any delay in performing,  any duties or responsibilities  hereunder,
in either  case  caused by the  failure  of the  Master  Servicer  to deliver or
provide,  or any  delay in  delivering  or  providing,  any  cash,  information,
documents or records to it.

      Any successor to the Master  Servicer as master servicer shall give notice
to the  Mortgagors of such change of servicer and shall,  during the term of its
service as master  servicer  maintain in force the policy or  policies  that the
Master Servicer is required to maintain pursuant to Section 3.18.

      In connection  with the  termination or resignation of the Master Servicer
hereunder,  either (i) the successor Master  Servicer,  including the Trustee if
the Trustee is acting as successor Master Servicer,  shall represent and warrant
that it is a member of MERS in good  standing  and shall  agree to comply in all
material  respects with the rules and procedures of MERS in connection  with the
servicing  of the  Mortgage  Loans that are  registered  with MERS,  or (ii) the
predecessor  Master Servicer shall cooperate with the successor  Master Servicer
either (x) in causing MERS to execute and deliver an  assignment  of Mortgage in
recordable form to transfer the Mortgage from MERS to the Trustee and to execute
and  deliver  such other  notices,  documents  and other  instruments  as may be
necessary or desirable to effect a transfer of such  Mortgage  Loan or servicing
of such mortgage Loan on the MERS(R) System to the successor  Master Servicer or
(y) in causing  MERS to  designate on the MERS(R)  System the  successor  Master
Servicer as the servicer of such Mortgage Loan. The predecessor  Master Servicer
shall file or cause to be filed any such assignment in the appropriate recording
office.  The  successor  Master  Servicer  shall  cause  such  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 7.3 Notification to Certificateholders.

      (a)   Upon any  termination of or appointment of a successor to the Master
            Servicer,  the Trustee shall give prompt  written  notice thereof to
            Certificateholders, the Insurer and each Rating Agency.

      (b)   Within 60 days after the  occurrence  of any Event of  Default,  the
            Trustee shall transmit by mail to all  Certificateholders  notice of
            each such Event of Default  hereunder  known to the Trustee,  unless
            such Event of Default shall have been cured or waived.

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                                  ARTICLE VIII
                             CONCERNING THE TRUSTEE

      SECTION 8.1 Duties of Trustee.

      The  Trustee,  prior to the  occurrence  of an Event of Default of which a
Responsible  Officer of the Trustee has actual knowledge and after the curing of
all Events of Default that may have  occurred,  shall  undertake to perform such
duties and only such duties as are specifically set forth in this Agreement.  In
case an Event of  Default of which a  Responsible  Officer  of the  Trustee  has
actual  knowledge has occurred and remains  uncured,  the Trustee shall exercise
such of the rights and powers vested in it by this  Agreement,  and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.

      The Trustee,  upon receipt of all resolutions,  certificates,  statements,
opinions,  reports,  documents,  orders or other  instruments  furnished  to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement  shall examine them to determine  whether they are in the form
required by this  Agreement;  provided,  however,  that the Trustee shall not be
responsible  for the  accuracy or content of any such  resolution,  certificate,
statement,  opinion, report,  document,  order or other instrument.  If any such
instrument is found not to conform in any material  respect to the  requirements
of this  Agreement,  the Trustee  shall  notify the  Certificateholders  of such
instrument in the event that the Trustee, after so requesting,  does not receive
a satisfactorily corrected instrument.

      No provision of this  Agreement  shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct; provided, however, that:

            (i)   unless an Event of Default of which a  Responsible  Officer of
                  the Trustee has actual  knowledge  shall have  occurred and be
                  continuing, the duties and obligations of the Trustee shall be
                  determined solely by the express provisions of this Agreement,
                  the Trustee shall not be liable except for the  performance of
                  such duties and obligations as are  specifically  set forth in
                  this Agreement,  no implied  covenants or obligations shall be
                  read into this  Agreement  against the Trustee and the Trustee
                  may  conclusively  rely, as to the truth of the statements and
                  the correctness of the opinions  expressed  therein,  upon any
                  certificates   or  opinions   furnished  to  the  Trustee  and
                  conforming  to the  requirements  of this  Agreement  which it
                  believed  in good  faith to be  genuine  and to have been duly
                  executed  by the proper  authorities  respecting  any  matters
                  arising hereunder;

            (ii)  the Trustee  shall not be liable for an error of judgment made
                  in good faith by a Responsible Officer or Responsible Officers
                  of the  Trustee,  unless it shall be finally  proven  that the
                  Trustee was negligent in ascertaining the pertinent facts;

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<PAGE>

            (iii) the  Trustee  shall not be liable  with  respect to any action
                  taken,  suffered or omitted to be taken by it in good faith in
                  accordance  with the  direction  of  Holders  of  Certificates
                  evidencing   not  less  than  25%  of  the  Voting  Rights  of
                  Certificates  relating  to  the  time,  method  and  place  of
                  conducting  any  proceeding  for any remedy  available  to the
                  Trustee,  or exercising any trust or power  conferred upon the
                  Trustee under this Agreement;

            (iv)  the  Trustee  shall not be  required to expend or risk its own
                  funds  or   otherwise   incur   financial   liability  in  the
                  performance of any of its duties  hereunder or the exercise of
                  any of its rights or powers if there is reasonable  ground for
                  believing  that  the  repayment  of  such  funds  or  adequate
                  indemnity against such risk or liability is not assured to it,
                  and none of the provisions  contained in this Agreement  shall
                  in any event require the Trustee to perform, or be responsible
                  for the manner of  performance  of, any of the  obligations of
                  the Master  Servicer under this  Agreement  except during such
                  time, if any, as the Trustee shall be the successor to, and be
                  vested with the rights,  duties, powers and privileges of, the
                  Master Servicer; and

            (v)   without  limiting  the  generality  of this  Section  8.1, 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 deposit 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 (D) to
                  confirm or verify the contents of any reports or  certificates
                  of the  Servicer  delivered  to the  Trustee  pursuant to this
                  Agreement  believed  by the  Trustee to be genuine and to have
                  been signed or presented by the proper party or parties.

      SECTION 8.2 Certain Matters Affecting the Trustee.

      Except as otherwise provided in Section 8.1:

            (i)   the Trustee  may request and rely upon and shall be  protected
                  in acting  or  refraining  from  acting  upon any  resolution,
                  Officers'  Certificate,  certificate  of auditors or any other
                  certificate,  statement,  instrument, opinion, report, notice,
                  request,  consent,  order,  appraisal,  bond or other paper or
                  document  believed by it to be genuine and to have been signed
                  or  presented  by the proper  party or parties and the Trustee
                  shall have no  responsibility  to  ascertain  or  confirm  the
                  genuineness of any signature of any such party or parties;

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<PAGE>

            (ii)  the Trustee may consult with  counsel,  financial  advisers or
                  accountants  and the  advice  of any such  counsel,  financial
                  advisers or  accountants  and any Opinion of Counsel  shall be
                  full and complete  authorization  and protection in respect of
                  any action  taken or  suffered or omitted by it  hereunder  in
                  good faith and in accordance with such Opinion of Counsel;

            (iii) the Trustee shall not be liable for any action taken, suffered
                  or  omitted  by it in  good  faith  and  believed  by it to be
                  authorized  or  within  the  discretion  or  rights  or powers
                  conferred upon it by this Agreement;

            (iv)  the Trustee shall not be bound to make any investigation  into
                  the facts or matters  stated in any  resolution,  certificate,
                  statement,   instrument,  opinion,  report,  notice,  request,
                  consent,  order,  approval,  bond or other paper or  document,
                  unless  requested  in  writing  so to do by the  Insurer or by
                  Holders of  Certificates  evidencing  not less than 25% of the
                  Voting  Rights   allocated  to  each  Class  of  Certificates;
                  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 assured
                  to the Trustee by the security  afforded to it by the terms of
                  this Agreement, the Trustee may require indemnity satisfactory
                  to the Trustee  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 Master  Servicer
                  or, if paid by the  Trustee,  shall be  repaid  by the  Master
                  Servicer upon demand from the Servicer's own funds.

            (v)   the Trustee may execute any of the trusts or powers  hereunder
                  or  perform  any duties  hereunder  either  directly  or by or
                  through agents, accountants or attorneys and the Trustee shall
                  not be  responsible  for any  misconduct  or negligence on the
                  part of such agent,  accountant  or attorney  appointed by the
                  Trustee with due care;

            (vi)  the  Trustee  shall not be  required to risk or expend its own
                  funds  or  otherwise  incur  any  financial  liability  in the
                  performance  of any of its duties or in the exercise of any of
                  its rights or powers  hereunder  if it shall  have  reasonable
                  grounds for believing that repayment of such funds or adequate
                  indemnity against such risk or liability is not assured to it;

            (vii) the Trustee shall not be liable for any loss on any investment
                  of funds pursuant to this  Agreement  (other than as issuer of
                  the investment security);

            (viii)the Trustee shall not be deemed to have  knowledge of an Event
                  of Default  until a  Responsible  Officer of the Trustee shall
                  have  received  written  notice  thereof and in the absence of
                  such notice, the Trustee may conclusively assume that there is
                  no Event of Default;

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            (ix)  the Trustee  shall be under no  obligation  to exercise any of
                  the trusts, rights 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  satisfactory
                  to the Trustee  against the costs,  expenses  and  liabilities
                  which may be incurred therein or thereby;

            (x)   the right 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; and

            (xi)  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 8.3 Trustee Not Liable for Certificates or Mortgage Loans.

      The recitals  contained herein and in the  Certificates  shall be taken as
the statements of the Depositor and the Trustee  assumes no  responsibility  for
their  correctness.  The Trustee makes no  representations as to the validity or
sufficiency of this Agreement or of the  Certificates or of any Mortgage Loan or
related document or of MERS or the MERS(R) System other than with respect to the
Trustee's execution and counter-signature of the Certificates. The Trustee shall
not be  accountable  for the use or  application  by the Depositor or the Master
Servicer of any funds paid to the Depositor or the Master Servicer in respect of
the Mortgage Loans or deposited in or withdrawn from the Certificate  Account by
the Depositor or the Master Servicer.

      SECTION 8.4 Trustee May Own Certificates.

      The Trustee in its  individual or any other  capacity may become the owner
or pledgee of Certificates  with the same rights as it would have if it were not
the Trustee.

      SECTION 8.5 Trustee's Fees and Expenses.

      The  Trustee,  as  compensation  for its  activities  prior to making  the
distributions  pursuant to Section 4.2 hereunder,  shall be entitled to withdraw
from the Distribution  Account on each  Distribution Date an amount equal to the
Trustee Fee for such Distribution  Date. The Trustee and any director,  officer,
employee or agent of the Trustee shall be indemnified by the Master Servicer and
held  harmless  against any loss,  liability  or expense  (including  reasonable
attorney's  fees) (i)  incurred  in  connection  with any claim or legal  action
relating to (a) this Agreement,  (b) the  Certificates or (c) in connection with
the performance of any of the Trustee's duties  hereunder,  other than any loss,
liability  or expense  incurred by reason of willful  misfeasance,  bad faith or
negligence  in the  performance  of any of the  Trustee's  duties  hereunder  or
incurred by reason of any action of the Trustee  taken at the  direction  of the
Certificateholders  and (ii)  resulting from any error in any tax or information
return  prepared  by the Master  Servicer.  Such  indemnity  shall  survive  the
termination  of this  Agreement  or the  resignation  or removal of the  Trustee
hereunder.  Without  limiting the foregoing,  the Master Servicer  covenants and
agrees,  except as  otherwise  agreed upon in writing by the  Depositor  and the
Trustee,  and except for any such expense,  disbursement or advance as may arise
from the  Trustee's  negligence,  bad  faith or  willful  misconduct,  to pay or
reimburse the Trustee, for all reasonable  expenses,  disbursements and advances

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incurred or made by the Trustee in accordance with any of the provisions of this
Agreement with respect to: (A) the reasonable  compensation and the expenses and
disbursements  of its counsel not associated with the closing of the issuance of
the Certificates, (B) the reasonable compensation, expenses and disbursements of
any  accountant,  engineer or appraiser  that is not  regularly  employed by the
Trustee, to the extent that the Trustee must engage such persons to perform acts
or services hereunder and (C) printing and engraving expenses in connection with
preparing any Definitive Certificates.  Except as otherwise provided herein, the
Trustee  shall not be  entitled  to payment  or  reimbursement  for any  routine
ongoing expenses incurred by the Trustee in the ordinary course of its duties as
Trustee,  Registrar,  Tax Matters  Person or Paying  Agent  hereunder or for any
other expenses.  Anything in this Agreement to the contrary notwithstanding,  in
no event shall the Trustee be liable for special, indirect or consequential loss
or damage of any kind  whatsoever  (including  but not limited to lost profits),
even if the Trustee has been  advised of the  likelihood  of such loss or damage
and regardless of the form of action.

      SECTION 8.6 Eligibility Requirements for Trustee.

      The Trustee  hereunder  shall at all times be a corporation or association
organized and doing  business  under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000,  subject to supervision or
examination by federal or state authority,  acceptable to the Insurer and with a
credit  rating  which  would not cause  either of the Rating  Agencies to reduce
their  respective  then current  shadow ratings of the  Certificates  (or having
provided  such  security  from  time to  time as is  sufficient  to  avoid  such
reduction). If such corporation or association publishes reports of condition at
least  annually,  pursuant  to  law  or to the  requirements  of  the  aforesaid
supervising  or examining  authority,  then for the purposes of this Section 8.6
the combined  capital and surplus of such  corporation or  association  shall be
deemed to be its  combined  capital  and surplus as set forth in its most recent
report of condition so published. In case at any time the Trustee shall cease to
be eligible in accordance  with the  provisions of this Section 8.6, the Trustee
shall resign  immediately in the manner and with the effect specified in Section
8.7 hereof.  The entity  serving as Trustee  may have  normal  banking and trust
relationships  with the Depositor and its affiliates or the Master  Servicer and
its affiliates;  provided,  however,  that such entity cannot be an affiliate of
the Master  Servicer  other than the  Trustee  in its role as  successor  to the
Master Servicer.

      SECTION 8.7 Resignation and Removal of Trustee.

      The  Trustee  may at any time  resign  and be  discharged  from the trusts
hereby created by giving  written  notice of  resignation to the Depositor,  the
Master Servicer, the Insurer and each Rating Agency not less than 60 days before
the date specified in such notice when, subject to Section 8.8, such resignation
is to take effect,  and  acceptance by a successor  trustee in  accordance  with
Section 8.8 meeting the qualifications set forth in Section 8.6. If no successor
trustee  meeting  such  qualifications  shall  have been so  appointed  and have
accepted  appointment  within  30  days  after  the  giving  of such  notice  or
resignation,   the  resigning  Trustee  may  petition  any  court  of  competent
jurisdiction for the appointment of a successor trustee.

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      If at any time the Trustee shall cease to be eligible in  accordance  with
the  provisions  of Section  8.6 hereof and shall fail to resign  after  written
request  thereto by the  Depositor,  or if at any time the Trustee  shall become
incapable  of acting,  or shall be  adjudged  as  bankrupt  or  insolvent,  or a
receiver of the Trustee or of its  property  shall be  appointed,  or any public
officer  shall  take  charge or control of the  Trustee  or of its  property  or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed  with  respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different  trustee,  then the Depositor or the Master  Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate,  one copy of which instrument shall be delivered to the Trustee, one
copy of which  shall be  delivered  to the Master  Servicer  and one copy to the
successor trustee.

      The Holders of Certificates  entitled to at least 51% of the Voting Rights
may at any time remove the  Trustee  and appoint a successor  trustee by written
instrument  or  instruments,  in  triplicate,  signed by such  Holders  or their
attorneys-in-fact  duly authorized,  one complete set of which instruments shall
be delivered by the successor  Trustee to the Master Servicer,  one complete set
to the Trustee so removed and one  complete set to the  successor so  appointed.
Notice of any  removal of the  Trustee  shall be given to the  Insurer  and each
Rating Agency by the Successor Trustee.

      Any  resignation or removal of the Trustee and  appointment of a successor
trustee  pursuant to any of the  provisions  of this  Section  8.7 shall  become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.8 hereof.

      SECTION 8.8 Successor Trustee.

      Any  successor  trustee  appointed as provided in Section 8.7 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Master Servicer an instrument  accepting such appointment  hereunder and
thereupon the  resignation  or removal of the  predecessor  trustee shall become
effective  and  such  successor  trustee,  without  any  further  act,  deed  or
conveyance,  shall become fully vested with all the rights,  powers,  duties and
obligations of its predecessor hereunder,  with the like effect as if originally
named as trustee herein. The Depositor,  the Master Servicer and the predecessor
trustee shall execute and deliver such  instruments  and do such other things as
may  reasonably be required for more fully and certainly  vesting and confirming
in the successor trustee all such rights, powers, duties, and obligations.

      No successor trustee shall accept  appointment as provided in this Section
8.8  unless  at the time of such  acceptance  such  successor  trustee  shall be
eligible  under the provisions of Section 8.6 hereof and its  appointment  shall
not adversely affect the then current shadow rating of the Certificates.

      Upon acceptance of appointment by a successor  trustee as provided in this
Section 8.8, the Depositor  shall mail notice of the  succession of such trustee
hereunder to all Holders of  Certificates.  If the Depositor  fails to mail such
notice within 10 days after acceptance of appointment by the successor  trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Depositor.

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      SECTION 8.9 Merger or Consolidation of Trustee.

      Any corporation  into which the Trustee may be merged or converted or with
which it may be  consolidated  or any  corporation  resulting  from any  merger,
conversion  or  consolidation  to which  the  Trustee  shall be a party,  or any
corporation succeeding to the business of the Trustee, shall be the successor of
the Trustee  hereunder,  provided that such corporation  shall be eligible under
the  provisions  of Section 8.6 hereof  without the  execution  or filing of any
paper or further act on the part of any of the parties  hereto,  anything herein
to the contrary notwithstanding.

      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  requirements of any  jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Master Servicer and the Trustee acting jointly shall have the power
and shall  execute and deliver all  instruments  to appoint one or more  Persons
approved by the Trustee to act as  co-trustee  or  co-trustees  jointly with the
Trustee,  or separate  trustee or separate  trustees,  of all or any part of the
Trust Fund, and to vest in such Person or Persons,  in such capacity and for the
benefit of the  Certificateholders and the Insurer, such title to the Trust Fund
or any  part  thereof,  whichever  is  applicable,  and,  subject  to the  other
provisions of this Section 8.10, such powers,  duties,  obligations,  rights and
trusts  as the  Master  Servicer  and the  Trustee  may  consider  necessary  or
desirable.  If the Master  Servicer  shall not have  joined in such  appointment
within 15 days after the  receipt by it of a request to do so, or in the case an
Event of Default shall have occurred and be continuing,  the Trustee alone shall
have the power to make such  appointment.  No  co-trustee  or  separate  trustee
hereunder  shall be  required  to meet the terms of  eligibility  as a successor
trustee under Section 8.6 and no notice to Certificateholders of the appointment
of any co-trustee or separate trustee shall be required under Section 8.8.

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

            (i)   To the extent  necessary  to  effectuate  the purposes of this
                  Section  8.10,  all  rights,  powers,  duties and  obligations
                  conferred  or imposed  upon the Trustee  shall be conferred or
                  imposed  upon and  exercised  or  performed by the Trustee and
                  such  separate   trustee  or  co-trustee   jointly  (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 (whether as Trustee hereunder or as successor to the
                  Master Servicer  hereunder),  the Trustee shall be incompetent
                  or  unqualified  to perform  such act or acts,  in which event
                  such rights,  powers,  duties and  obligations  (including the
                  holding of title to the  applicable  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;

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            (ii)  No trustee hereunder shall be held personally liable by reason
                  of any act or omission of any other trustee hereunder and such
                  appointment  shall not, and shall not be deemed to, constitute
                  any  such  separate  trustee  or  co-trustee  as  agent of the
                  Trustee;

            (iii) The  Trustee  may at any time  accept  the  resignation  of or
                  remove any separate trustee or co-trustee; and

            (iv)  The Master Servicer,  and not the Trustee, shall be liable for
                  the  payment of  reasonable  compensation,  reimbursement  and
                  indemnification to any such separate trustee or co-trustee.

      Any notice,  request or other writing given to the Trustee shall be deemed
to have been given to each of the separate trustees and co-trustees, when and 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 and a copy thereof given to the
Master Servicer and the Depositor.

      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 Tax Matters.

      It is intended  that the assets with respect to which each REMIC  election
is to be made, as set forth in the preliminary  statement shall constitute,  and
that the conduct of matters  relating to such assets shall be such as to qualify
such assets as, a "real estate mortgage investment conduit" as defined in and in
accordance  with the REMIC  Provisions.  In furtherance of such  intention,  the
Trustee  covenants  and agrees  that it shall act as agent  (and the  Trustee is
hereby  appointed  to act as agent) on behalf of any such REMIC and that in such
capacity it shall: (a) prepare and file, or cause to be prepared and filed, in a
timely manner, a U.S. Real Estate Mortgage  Investment Conduit Income Tax Return
(Form 1066 or any successor  form adopted by the Internal  Revenue  Service) and
prepare and file or cause to be  prepared  and filed with the  Internal  Revenue
Service and applicable state or local tax authorities  income tax or information
returns for each taxable year with  respect to any such REMIC,  containing  such
information and at the times and in the manner as may be required by the Code or

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state or local  tax laws,  regulations,  or rules,  and  furnish  or cause to be
furnished to Certificateholders the schedules, statements or information at such
times and in such manner as may be required  thereby;  (b) within thirty days of
the Closing  Date,  furnish or cause to be  furnished  to the  Internal  Revenue
Service,  on Forms 8811 or as otherwise  may be required by the Code,  the name,
title,  address,  and  telephone  number of the person  that the  Holders of the
Certificates  may contact for tax information  relating  thereto,  together with
such  additional  information  as may be required by such Form,  and update such
information at the time or times in the manner required by the Code; (c) make or
cause to be made elections that such assets be treated as a REMIC on the federal
tax return for its first taxable year (and, if necessary, under applicable state
law);  (d) prepare and forward,  or cause to be prepared and  forwarded,  to the
Certificateholders and to the Internal Revenue Service and, if necessary,  state
tax authorities,  all information returns and reports as and when required to be
provided to them in  accordance  with the REMIC  Provisions,  including  without
limitation,  the calculation of any original issue discount using the prepayment
assumption; (e) provide information necessary for the computation of tax imposed
on the  transfer of a Residual  Certificate  to a Person that is not a Permitted
Transferee,  or an agent  (including a broker,  nominee or other middleman) of a
Non-Permitted  Transferee,  or a  pass-through  entity in which a  Non-Permitted
Transferee is the record holder of an interest (the reasonable cost of computing
and  furnishing  such  information  may be charged to the Person liable for such
tax); (f) to the extent that they are under its control conduct matters relating
to such  assets at all times  that any  Certificates  are  outstanding  so as to
maintain the status as a REMIC under the REMIC Provisions;  (g) not knowingly or
intentionally  take any action or omit to take any action  that would  cause the
termination of any REMIC status; (h) pay, from the sources specified in the last
paragraph  of this  Section  8.11,  the  amount  of any  federal  or state  tax,
including  prohibited  transaction taxes as described below, imposed on any such
REMIC  prior to its  termination  when and as the same shall be due and  payable
(but such  obligation  shall not prevent  the  Trustee or any other  appropriate
Person from  contesting  any such tax in appropriate  proceedings  and shall not
prevent the Trustee from  withholding  payment of such tax, if permitted by law,
pending the outcome of such  proceedings);  (i) ensure  that  federal,  state or
local income tax or  information  returns shall be signed by the Trustee or such
other  person as may be  required  to sign such  returns by the Code or state or
local laws,  regulations  or rules;  (j) maintain  records  relating to any such
REMIC, including but not limited to the income, expenses, assets and liabilities
thereof and the fair market value and adjusted basis of the assets determined at
such  intervals  as may be required by the Code,  as may be necessary to prepare
the foregoing returns, schedules, statements or information; and (k) as and when
necessary and  appropriate,  represent any such REMIC in any  administrative  or
judicial  proceedings  relating to an examination  or audit by any  governmental
taxing authority, request an administrative adjustment as to any taxable year of
any such REMIC,  enter into settlement  agreements with any governmental  taxing
agency,  extend any statute of limitations  relating to any tax item of any such
REMIC,  and  otherwise  act on behalf of any such REMIC in  relation  to any tax
matter or controversy involving it.

      In order to enable the Trustee to perform its duties as set forth  herein,
the Depositor shall provide, or cause to be provided,  to the Trustee within ten
(10) days  after  the  Closing  Date all  information  or data that the  Trustee
requests  in writing  and  determines  to be  relevant  for tax  purposes to the
valuations  and  offering  prices  of  the  Certificates,   including,   without
limitation,  the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee  promptly  upon written  request  therefor,  any such  additional
information or data that the Trustee may, from time to time,  reasonably request
in order to enable the  Trustee to perform its duties as set forth  herein.  The
Depositor hereby indemnifies the Trustee for any losses,  liabilities,  damages,
claims or expenses of the Trustee arising from any errors or  miscalculations of
the Trustee  that result from any  failure of the  Depositor  to provide,  or to
cause to be provided,  accurate  information  or data to the Trustee on a timely
basis.

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      In the event that any tax is imposed on "prohibited  transactions"  of any
REMIC as defined in Section  860F(a)(2)  of the Code,  on the "net  income  from
foreclosure property" of any REMIC as defined in Section 860G(c) of the Code, on
any  contribution to any REMIC after the Startup Day pursuant to Section 860G(d)
of the Code, or any other tax is imposed,  if not paid as otherwise provided for
herein,  such tax shall be paid by (i) the Trustee, if any such other tax arises
out of or results from a breach by the Trustee of any of its  obligations  under
this Agreement which breach was caused by its negligence or willful  misconduct,
(ii) the Master  Servicer,  in the case of any such  minimum tax, or if such tax
arises out of or results  from a breach by the Master  Servicer  of any of their
obligations  under this Agreement,  (iii) the Seller, if any such tax arises out
of or results  from the  Seller's  obligation  to  repurchase  a  Mortgage  Loan
pursuant to Section 2.2 or 2.3 or (iv) in all other cases,  or in the event that
the Trustee,  the Master  Servicer or the Seller fails to honor its  obligations
under the preceding  clauses (i), (ii) or (iii),  any such tax will be paid with
amounts  otherwise to be distributed to the  Certificateholders,  as provided in
Section 3.8(b).

      SECTION 8.12 Periodic Filings.

      The Depositor  hereby directs the Trustee to prepare and file on behalf of
the Depositor all periodic reports required under the Securities Exchange Act of
1934 in conformity with the terms of the  "no-action"  relief granted by the SEC
to issuers of asset-backed  securities such as the  Certificates and the Trustee
hereby  agrees to do so. The Master  Servicer  will also prepare and execute any
certifications   to  be  filed  with  the  Form  10-K  as  required   under  the
Sarbanes-Oxley  Act of 2002.  The  Trustee  shall  submit to the  Depositor  for
execution any Form 10-K.  The Depositor  shall execute such Form 10-K and return
it to the  Trustee.  In  connection  with the  preparation  and  filing  of such
periodic reports,  the Depositor and the Master Servicer shall timely provide to
the Trustee all material  information  available to them which is required to be
included in such  reports and not known to them to be in the  possession  of the
Trustee and such other  information  as the Trustee  reasonably may request from
either of them and otherwise  reasonably  shall cooperate with the Trustee.  The
Trustee shall have no liability with respect to any failure to properly  prepare
or file such  periodic  reports  resulting  from or  relating  to the  Trustee's
inability  or failure  to obtain  any  information  not  resulting  from its own
negligence or willful misconduct.

                                   ARTICLE IX
                                   TERMINATION

      SECTION 9.1  Termination  upon  Liquidation  or  Purchase of all  Mortgage
Loans.

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      Subject  to Section  9.3,  the  obligations  and  responsibilities  of the
Depositor,  the Master  Servicer and the Trustee  created hereby with respect to
the Trust Fund shall  terminate  upon the  earlier  of (a) the  purchase  by the
Master  Servicer of all  Mortgage  Loans (and REO  Properties)  remaining in the
Trust  Fund at the price  equal to the sum of (i) 100% of the  Stated  Principal
Balance  of each  Mortgage  Loan  (other  than a  Mortgage  Loan  that  has been
foreclosed and subject to clause (ii)) plus one month's accrued interest thereon
at the applicable  Adjusted  Mortgage Rate, (ii) the lesser of (x) the appraised
value  of any  REO  Property  as  determined  by the  higher  of two  appraisals
completed by two independent  appraisers  selected by the Master Servicer at the
expense of the Master  Servicer  and (y) the  Stated  Principal  Balance of each
Mortgage  Loan related to any REO  Property,  plus  accrued and unpaid  interest
thereon  at the  applicable  Adjusted  Mortgage  Rate,  and  (iii) any costs and
damages  incurred  by the Trust in  connection  with the  noncompliance  of such
Mortgage Loan with any specifically applicable predatory or abusive lending law,
and (b) the later of (i) the maturity or other  liquidation (or any Advance with
respect  thereto) of the last Mortgage Loan  remaining in the Trust Fund and the
disposition of all REO Property and (ii) the distribution to  Certificateholders
of all amounts required to be distributed to them pursuant to this Agreement and
the  distribution  to the  Insurer of all  amounts  due and owing to the Insurer
under the  Insurance  Agreement.  In no event  shall the trusts  created  hereby
continue  beyond the earlier of (i) the expiration of 21 years from the death of
the survivor of the descendants of Joseph P. Kennedy, the late Ambassador of the
United States to the Court of St. James's,  living on the date hereof,  and (ii)
the Latest Possible  Maturity Date. The Master  Servicer's right to purchase all
Mortgage  Loans  and REO  Properties  pursuant  to  clause  (a)  above  shall be
conditioned  upon the aggregate  outstanding  Class  Certificate  Balance of the
Class A Certificates at the time of any such repurchase,  being less than 10% of
the aggregate  Class  Certificate  Balance of the Class A Certificates as of the
Cut-off Date. In addition,  the Master Servicer shall only exercise its right to
purchase all Mortgage Loans and REO  Properties  pursuant to clause (a) above if
such purchase would not cause a draw to be made under the Policy.

      SECTION 9.2 Final Distribution on the Certificates.

      If on any  Determination  Date, the Master Servicer  determines that there
are no Outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other  than the funds in the  Certificate  Account,  the Master  Servicer  shall
direct the Trustee promptly to send a final  distribution  notice to the Insurer
and each Certificateholder. If the Master Servicer elects to terminate the Trust
Fund  pursuant to clause (a) of Section  9.1, at least 20 days prior to the date
notice is to be mailed to the affected  Certificateholders,  the Master Servicer
shall notify the  Depositor,  the Trustee and the Insurer of the date the Master
Servicer  intends to terminate the Trust Fund and of the  applicable  repurchase
price of the Mortgage Loans and REO Properties.

      Notice of any termination of the Trust Fund,  specifying the  Distribution
Date on which Certificateholders may surrender their Certificates for payment of
the final distribution and cancellation,  shall be given promptly by the Trustee
by letter to  Certificateholders  mailed  not  earlier  than the 10th day and no
later  than the 15th day of the month  next  preceding  the month of such  final
distribution. Any such notice shall specify (a) the Distribution Date upon which
final  distribution  on the  Certificates  will be made  upon  presentation  and
surrender of  Certificates at the office therein  designated,  (b) the amount of
such final distribution,  (c) the location of the office or agency at which such
presentation  and surrender must be made, and (d) 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 therein
specified.  The Master  Servicer  will give such notice to each Rating Agency at
the time such notice is given to Certificateholders.

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      In the event such  notice is given,  the Master  Servicer  shall cause all
funds in the  Certificate  Account to be  remitted to the Trustee for deposit in
the   Distribution   Account  on  the  Business  Day  prior  to  the  applicable
Distribution Date in an amount equal to the final distribution in respect of the
Certificates.  Upon such final  deposit  with  respect to the Trust Fund and the
receipt by the  Trustee of a Request  for Release  therefor,  the Trustee  shall
promptly  release to the Master  Servicer  the  Mortgage  Files for the Mortgage
Loans.

      Upon  presentation  and surrender of the  Certificates,  the Trustee shall
cause to be distributed to the  Certificateholders  of each Class,  in the order
set forth in Section 4.2 hereof, on the final  Distribution Date, in the case of
the Certificateholders,  in proportion to their respective Percentage Interests,
with respect to  Certificateholders of the same Class, an amount equal to (i) as
to each Class of Regular  Certificates,  the Class  Certificate  Balance thereof
plus accrued interest  thereon in the case of an interest  bearing  Certificate,
and (ii) as to the Residual  Certificates,  the amount, if any, which remains on
deposit in the  Distribution  Account  (other than the amounts  retained to meet
claims) after application pursuant to clause (i) above.

      In the event  that any  affected  Certificateholders  shall not  surrender
Certificates for cancellation  within six months after the date specified in the
above mentioned  written notice,  the Trustee shall give a second written notice
to  the  remaining   Certificateholders  to  surrender  their  Certificates  for
cancellation and receive the final distribution with respect thereto.  If within
six months after the second  notice all the  applicable  Certificates  shall not
have been surrendered for cancellation,  the Trustee may take appropriate steps,
or may appoint an agent to take  appropriate  steps,  to contact  the  remaining
Certificateholders  concerning  surrender  of their  Certificates,  and the cost
thereof  shall be paid out of the funds and other  assets which remain a part of
the Trust  Fund.  If within one year after the  second  notice all  Certificates
shall not have been  surrendered  for  cancellation,  the Holders of each of the
Class R Certificates  shall be entitled to all unclaimed  funds and other assets
of the Trust  Fund,  held for  distribution  to such  Certificateholders,  which
remain subject hereto.

      SECTION 9.3 Additional Termination Requirements.

      (a)   In the event the Master  Servicer  exercises its purchase  option as
            provided  in Section  9.1,  the Trust  Fund and each  REMIC  created
            hereunder  shall be  terminated  in  accordance  with the  following
            additional  requirements,  unless the Trustee has been supplied with
            an Opinion of Counsel, at the expense of the Master Servicer, to the
            effect  that the  failure to comply  with the  requirements  of this
            Section  9.3  will  not (i)  result  in the  imposition  of taxes on
            "prohibited transactions" on any REMIC as defined in Section 860F of
            the Code,  or (ii)  cause any REMIC to fail to qualify as a REMIC at
            any time that any Certificates are outstanding:

            (1)   Within 90 days prior to the final  Distribution Date set forth
                  in the notice given by the Master  Servicer under Section 9.2,
                  the Master  Servicer  shall  prepare and the  Trustee,  at the
                  expense of the "tax  matters  person,"  shall  adopt a plan of
                  complete  liquidation within the meaning of Section 860F(a)(4)
                  of the  Code  for  each  REMIC  created  hereunder  which,  as
                  evidenced  by an Opinion of Counsel  addressed  to the Trustee
                  (which  opinion  shall not be an expense of the Trustee or the
                  Tax Matters  Person),  meets the  requirements  of a qualified
                  liquidation; and

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            (2)   Within 90 days  after the time of  adoption  of such  plans of
                  complete liquidation, the Trustee shall sell all of the assets
                  of  the  Trust  Fund  to  the  Master  Servicer  for  cash  in
                  accordance with Section 9.1.

      (b)   The  Trustee  as agent for any REMIC  established  hereunder  hereby
            agrees to adopt and sign such a plan of  complete  liquidation  upon
            the written request of the Master  Servicer,  and the receipt of the
            Opinion of Counsel referred to in Section 9.3(a)(1) and to take such
            other action in connection  therewith as may be reasonably requested
            by the Master Servicer.

      (c)   By their acceptance of the Certificates,  the Holders thereof hereby
            authorize  the Master  Servicer  to prepare and the Trustee to adopt
            and sign plans of complete liquidation.

      (d)   Upon payment in full of all amounts owed under the Insurance  Policy
            and  cancellation  of the Class A  Certificates,  the Trustee  shall
            provide  the  Insurer  with  notice of  cancellation  of the Class A
            Certificates and surrender the Insurance Policy to the Insurer.

                                    ARTICLE X
                                   THE INSURER

      SECTION 10.1 Claims upon the Policy.

      (a)   If the Monthly Statement to Certificateholders delivered pursuant to
            Section 4.6 specifies a Deficiency Amount for any Distribution Date,
            the Trustee  shall make a draw on the Policy in an amount  specified
            in  such   Monthly   Statement   to   Certificateholders   for  such
            Distribution  Date.  The  Trustee  shall  deposit  or  cause  to  be
            deposited such draw on the Policy into the  Distribution  Account on
            such  Distribution  Date.  Any Insured  Payment  made by the Insurer
            under the Policy will be applied  solely to the payment of the Class
            A  Certificates  and for no other  purpose.  The  Insurer's  payment
            obligations  under the Policy with respect to particular  Deficiency
            Amounts and  Preference  Amounts  will be  discharged  to the extent
            funds equal to the  applicable  Deficiency  Amounts  and  Preference
            Amounts  are paid by the  Insurer  to, or at the  direction  of, the
            Trustee in  accordance  with the Trustee's  request,  whether or not
            such  funds  are  properly  applied  by  the  Trustee.   Payment  of
            Deficiency  Amounts and Preference  Amounts will be made only at the
            time set forth in the Policy,  and no accelerated  Insured  Payments
            will be made except to the extent that the Insurer has  specified an
            earlier date for payment at its sole option.

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      (b)   The Trustee shall submit, if a Deficiency Amount is specified in any
            Monthly Master Servicer Report furnished to the Trustee,  the notice
            (in the form attached as Exhibit A to the Policy) (the  "Notice") to
            the Insurer and the Fiscal Agent no later than 12:00 noon,  New York
            City time, on the second (2nd)  Business Day prior to the applicable
            Distribution Date; provided,  that if such Notice is received by the
            Fiscal Agent after 12:00 noon,  New York City time, on such Business
            Day, it will be deemed to be received  before  12:00 noon,  New York
            City time, on the following  Business Day. If any such Notice is not
            in proper  form or is  otherwise  insufficient  for the  purpose  of
            making a claim under the Policy,  it will be deemed not to have been
            received for  purposes of making such claim,  and the Insurer or the
            Fiscal  Agent,  as the case may be,  will  promptly  so  advise  the
            Trustee  in  writing  and the  Trustee  may  submit  an  amended  or
            corrected  Notice.  If such an  amended  or  corrected  Notice is in
            proper form and is otherwise  sufficient for the purpose of making a
            claim  under the  Policy,  it will be  deemed  to have  been  timely
            received on the Business Day of such resubmission; provided, that if
            such notice is received  by the Fiscal  Agent after 12:00 noon,  New
            York City time, it shall be deemed to be received before 12:00 noon,
            New York City time, on the following Business Day.

      (c)   The Insurer will have the right to inspect  account  statements  for
            the Distribution Account at reasonable times upon reasonable written
            notice to the Trustee.

      (d)   Only  the  Trustee  on  behalf  of the  Class  A  Certificateholders
            pursuant  to the Monthly  Statement  to  Certificateholders  will be
            entitled to make a claim for an Insured Payment under the Policy.

      (e)   The  Trustee   will   surrender   the  Policy  to  the  Insurer  for
            cancellation  upon the expiration of such Policy in accordance  with
            Section 9.3(d) hereof.

      SECTION 10.2 Preference for Claims Under the Policy.

      (a)   In the event that the  Trustee has  received a  certified  copy of a
            final,  nonappealable  order of an  appropriate  court or other body
            exercising   jurisdiction  that  any  amount  which  was  previously
            distributed  to  a  Class  A   Certificateholder   on  the  Class  A
            Certificates  is  recoverable  and is  sought to be  recovered  as a
            voidable preference from such Class A Certificateholder by a trustee
            in  bankruptcy  pursuant  to Title 11 of the United  States  Code in
            accordance with an Order (such amount, a "Preference  Amount"),  the
            Trustee will so notify the Insurer,  will comply with the provisions
            of the  Policy to obtain  payment  by the  Insurer  of such  avoided
            payment,  and will,  at the time it provides  notice to the Insurer,
            notify the Class A  Certificateholders  by mail  that,  in the event
            that any Class A Certificateholder's payment is so recoverable, such
            Class A  Certificateholder  will be entitled to payment  pursuant to
            the terms of the Policy.  The Insurer will pay any Preference Amount
            when  due to be paid  pursuant  to an  Order,  but in any  event  no
            earlier  than one  Business  Day  following  actual  receipt  by the
            Insurer of (i) a certified copy of a final,  non-appealable order of
            a court or other body  exercising  jurisdiction  in such  insolvency
            proceeding   to  the   effect   that   the   Trustee,   or  Class  A
            Certificateholder,   as  applicable,  is  required  to  return  such
            Preference  Amount paid during the term of the Policy  because  such

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            Preference  Amount  was  avoided  as  a  preferential   transfer  or
            otherwise  rescinded  or  required  to be restored by the Trustee or
            Class A Certificateholder (the "Order"),  (ii) an Opinion of Counsel
            satisfactory to the Insurer that such order is final and not subject
            to appeal, (iii) an assignment,  in form and substance  satisfactory
            to the Insurer,  duly executed and delivered by the Trustee or Class
            A Certificateholder, irrevocably assigning to the Insurer all rights
            and claims of the Trustee or Class A  Certificateholder  relating to
            or arising under the Class A  Certificates  against the debtor which
            paid such  Preference  Amount and (iv)  appropriate  instruments  to
            effect  the  appointment  of the  Insurer  as agent for such Class A
            Certificateholder in any legal proceeding related to such Preference
            Amount; provided, that if such documents are received by the Insurer
            after 12:00 noon,  New York City time,  on such  Business  Day, they
            will be deemed to be received before 12:00 noon, New York City time,
            on the following Business Day. Such payment will be disbursed to the
            receiver, conservator, debtor-in-possession or trustee in bankruptcy
            named  in the  Order,  and  not  to  the  Trustee  or  the  Class  A
            Certificateholder directly, unless the Trustee or the relevant Class
            A  Certificateholder  has made a payment of the Preference Amount to
            the court or such  receiver,  conservator,  debtor-in-possession  or
            trustee in bankruptcy  named in the Order, in which case the Insurer
            will pay the Trustee,  or as directed by the Trustee,  to the extent
            of the payment of the Preference Amount,  subject to the delivery of
            (a) the items referred to in clauses (i), (ii), (iii) and (iv) above
            to the Insurer and (b)  evidence  satisfactory  to the Insurer  that
            payment  has  been  made to such  court  or  receiver,  conservator,
            debtor-in-possession or trustee in bankruptcy named in the Order.

      (b)   The Trustee will  promptly  notify the Insurer of any  proceeding or
            the institution of any action (of which a Responsible Officer of the
            Trustee  has  actual   knowledge)   seeking  the   avoidance   as  a
            preferential  transfer  under  applicable  bankruptcy,   insolvency,
            receivership,   rehabilitation   or  similar  law  (a   "Certificate
            Preference   Claim")   of   any   payment   made   to  a   Class   A
            Certificateholder  that has been deemed a preferential  transfer and
            recoverable,   or   theretofore   recovered,   from  such   Class  A
            Certificateholder  pursuant  to Title 11 of  United  States  Code in
            accordance  with an Order.  Each Class A  Certificateholder,  by its
            purchase of a Class A Certificate, and the Trustee hereby agree that
            so long as no Insurer  Default has occurred and is  continuing,  the
            Insurer may at any time during the  continuation  of any  proceeding
            relating  to a  Certificate  Preference  Claim  direct  all  matters
            relating to such  Certificate  Preference  Claim,  including (i) the
            direction  of any appeal of any order  relating  to any  Certificate
            Preference Claim and (ii) the posting of any surety,  supersedeas or
            performance  bond  pending  any such  appeal at the  expense  of the
            Insurer,  but subject to  reimbursement as provided in the Insurance
            Agreement.  In addition, and without limitation of the foregoing, as
            set forth in Section 10.3,  the Insurer will be  subrogated  to, and
            each Class A  Certificateholder  and the Trustee hereby delegate and
            assign,  to the fullest  extent  permitted by law, the rights of the

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            Trustee  and each Class A  Certificateholder  in the  conduct of any
            proceeding with respect to a Certificate Preference Claim, including
            all  rights  of any party to an  adversary  proceeding  action  with
            respect  to any  court  order  issued  in  connection  with any such
            Certificate Preference Claim.

      SECTION 10.3 Subrogation and Cooperation.

      (a)   Any and all Deficiency  Amounts and Preference  Amounts disbursed by
            the Trustee from claims made under the Policy will not be considered
            payment by the Trust with respect to the Class A  Certificates,  and
            will not  discharge  the  obligations  of the  Issuer  with  respect
            thereto.  The Insurer will, upon any payment pursuant to the Policy,
            in  furtherance  and not in  limitation  of its  equitable  right of
            subrogation  and its rights under the  Insurance  Agreement,  to the
            extent  it  makes  any   payment   with   respect  to  the  Class  A
            Certificates,  become  subrogated  to  the  rights  of any  Class  A
            Certificateholders  to receive any and all amounts due in respect of
            the Class A Certificates as to which such payment was made.  Subject
            to and  conditioned  upon any  payment  with  respect to the Class A
            Certificates by or on behalf of the Insurer, the Trustee will assign
            to the Insurer  all rights to the  payment of interest or  principal
            with  respect  to the  Class A  Certificates  which are then due for
            payment to the extent of all payments  made by the Insurer,  and the
            Insurer may exercise any option, vote, right, power or the like with
            respect to the Class A  Certificates  to the extent that it has made
            payment pursuant to the Policy.  To evidence such  subrogation,  the
            Certificate  Registrar  will note the  Insurer's  rights as subrogee
            upon the  register  of  Class A  Certificateholders.  The  foregoing
            subrogation  will in all cases be subject to the rights of the Class
            A Certificateholders to receive all Deficiency Amounts in respect of
            the Class A  Certificates.  Notwithstanding  anything  herein to the
            contrary, the Insurer shall be paid such principal and interest only
            from  the  sources  and in the  manner  provided  herein  and in the
            Insurance Agreement for the payment of such principal and interest.

      (b)   The Trustee  shall  cooperate  in all respects  with any  reasonable
            request  by the  Insurer  for  action to  preserve  or  enforce  the
            Insurer's  rights or interest  under this Agreement or the Insurance
            Agreement,  consistent with the this Agreement and without  limiting
            the rights of the Class A Certificateholders  as otherwise set forth
            in this Agreement,  including upon the occurrence and continuance of
            an Event of Default hereunder,  a request (which request shall be in
            writing) to take any one or more of the following actions:

            (i)   institute  Proceedings  for the collection of all amounts then
                  payable on the Class A  Certificates  hereunder  in respect to
                  the Class A  Certificates  and all amounts  payable  under the
                  Insurance  Agreement and to enforce any judgment  obtained and
                  collect from the Depositor monies adjudged due;

            (ii)  sell the  Trust  Fund or any  portion  thereof  or  rights  or
                  interest  therein,  at one or more  public  or  private  sales
                  called and conducted in any manner permitted by law;

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<PAGE>

            (iii) file or  record  all  assignments  of  Mortgage  that have not
                  previously been recorded,  if filing is required in accordance
                  with the Section 2.1; and

            (iv)  exercise  any  remedies  of a secured  party under the UCC and
                  take any other  appropriate  action to protect and enforce the
                  rights and remedies of the Insurer hereunder.

      (c)   Following  the  payment  in full of the  Class A  Certificates,  the
            Insurer shall continue to have all rights and privileges provided to
            it under this Section and in all other  provisions of this Agreement
            until all amounts owing to the Insurer under the Insurance Agreement
            have been paid in full.

                                   ARTICLE XI
                            MISCELLANEOUS PROVISIONS

      SECTION 11.1 Amendment.

      This  Agreement  may be amended  from time to time by the  Depositor,  the
Master   Servicer   and  the   Trustee   without  the  consent  of  any  of  the
Certificateholders,  but with the written consent of the Insurer (i) to cure any
ambiguity  or mistake,  (ii) to correct  any  defective  provision  herein or to
supplement  any  provision  herein  which  may be  inconsistent  with any  other
provision herein, (iii) to add to the duties of the Depositor, the Seller or the
Master  Servicer,  (iv) to add any other  provisions  with respect to matters or
questions  arising hereunder or (v) to modify,  alter,  amend, add to or rescind
any of the terms or provisions  contained in this  Agreement;  provided that any
action  pursuant  to clauses  (iv) or (v) above shall not,  as  evidenced  by an
Opinion of Counsel  delivered to the Trustee (which Opinion of Counsel shall not
be an  expense  of the  Trustee  or the  Trust  Fund),  adversely  affect in any
material respect the interests of any Certificateholder; provided, however, that
the amendment  shall not be deemed to adversely  affect in any material  respect
the interests of the  Certificateholders  if the Person requesting the amendment
obtains a letter from each Rating Agency  stating that the  amendment  would not
result in the  downgrading or withdrawal of the  respective  shadow ratings then
assigned  to the  Certificates;  it being  understood  and agreed  that any such
letter in and of itself will not represent a determination as to the materiality
of any such amendment and will represent a  determination  only as to the credit
issues  affecting  any such shadow  rating.  The Trustee,  the Depositor and the
Master  Servicer also may at any time and from time to time amend this Agreement
without the consent of the  Certificateholders  but with the written  consent of
the Insurer to modify,  eliminate or add to any of its provisions to such extent
as shall be necessary or helpful to (i) maintain the  qualification of any REMIC
established hereunder as a REMIC under the Code, (ii) avoid or minimize the risk
of the imposition of any tax on any REMIC established  hereunder pursuant to the
Code  that  would be a claim at any time  prior to the final  redemption  of the
Certificates or (iii) comply with any other  requirements of the Code,  provided
that the Trustee has been provided an Opinion of Counsel, which opinion shall be
an expense of the party  requesting such opinion but in any case shall not be an
expense of the  Trustee or the Trust  Fund,  to the effect  that such  action is
necessary or helpful to, as applicable,  (i) maintain such  qualification,  (ii)
avoid or minimize the risk of the  imposition of such a tax or (iii) comply with
any such requirements of the Code.

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      This Agreement may also be amended from time to time by the Depositor, the
Master Servicer and the Trustee with the consent of the Holders of a Majority in
Interest of each Class of Certificates  affected thereby and with the consent of
the  Insurer  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 shall (i) reduce in any manner the amount of, or delay the timing
of, payments  required to be distributed on any Certificate  without the consent
of the Holder of such Certificate, (ii) adversely affect in any material respect
the interests of the Holders of any Class of Certificates in a manner other than
as described in (i),  without the consent of the Holders of Certificates of such
Class evidencing,  as to such Class,  Percentage  Interests  aggregating 66%, or
(iii) reduce the aforesaid  percentages of Certificates the Holders of which are
required to consent to any such amendment, without the consent of the Holders of
all such Certificates then outstanding.

      Notwithstanding  any  contrary  provision of this  Agreement,  the Trustee
shall not consent to any amendment to this Agreement  unless it shall have first
received an Opinion of  Counsel,  which  opinion  shall not be an expense of the
Trustee or the Trust Fund, to the effect that such  amendment will not cause the
imposition   of  any   tax   on  any   REMIC   established   hereunder   or  the
Certificateholders  or cause any REMIC established  hereunder to fail to qualify
as a REMIC at any time that any Certificates are outstanding.

      Promptly after the execution of any amendment to this Agreement  requiring
the  consent  of   Certificateholders,   the  Trustee  shall   furnish   written
notification   of  the   substance   or  a  copy  of  such   amendment  to  each
Certificateholder, the Insurer and each Rating Agency.

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

      Nothing  in this  Agreement  shall  require  the  Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund),  satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements  for amending  this  Agreement  have been complied  with;  and (ii)
either (A) the amendment does not adversely  affect in any material  respect the
interests  of any  Certificateholder  or (B) the  conclusion  set  forth  in the
immediately  preceding clause (A) is not required to be reached pursuant to this
Section 11.1.

      SECTION 11.2 Recordation of Agreement; Counterparts.

      This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable  jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere,  such recordation
to be effected by the Master Servicer at its expense,  but only upon direction a
majority  of  the   Certificateholders  to  the  effect  that  such  recordation
materially and beneficially affects the interests of the Certificateholders.

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

      SECTION 11.3 Governing Law.

      THIS  AGREEMENT  (OTHER THAN  SECTION 2.1 HEREOF)  SHALL BE  CONSTRUED  IN
ACCORDANCE  WITH AND GOVERNED BY THE  SUBSTANTIVE  LAWS OF THE STATE OF NEW YORK
APPLICABLE TO  AGREEMENTS  MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND
THE   OBLIGATIONS,   RIGHTS  AND   REMEDIES  OF  THE  PARTIES   HERETO  AND  THE
CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. SECTION 2.1
OF THIS  AGREEMENT  SHALL BE  CONSTRUED IN  ACCORDANCE  WITH AND GOVERNED BY THE
SUBSTANTIVE  LAWS OF THE STATE OF DELAWARE  APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF DELAWARE AND THE  OBLIGATIONS,  RIGHTS AND REMEDIES
OF THE PARTIES  HERETO AND THE  CERTIFICATEHOLDERS  UNDER SUCH SECTION  SHALL BE
DETERMINED IN ACCORDANCE WITH SUCH LAWS.

      SECTION 11.4 Intention of Parties.

      It is the express  intent of the parties hereto that the conveyance of the
Trust Fund by the  Depositor  to the Trustee be, and be construed  as,  absolute
sales thereof to the Trustee.  It is, further,  not the intention of the parties
that  such  conveyances  be  deemed a pledge  thereof  by the  Depositor  to the
Trustee. However, in the event that,  notwithstanding the intent of the parties,
such assets are held to be the  property of the  Depositor,  or if for any other
reason this  Agreement  is held or deemed to create a security  interest in such
assets,  then (i) this  Agreement  shall be  deemed to be a  security  agreement
within the meaning of the Uniform  Commercial  Code of the State of New York and
(ii) the  conveyance  provided  for in this  Agreement  shall be deemed to be an
assignment  and a grant by the Depositor to the Trustee,  for the benefit of the
Certificateholders  and the Insurer, of a security interest in all of the assets
that constitute the Trust Fund, whether now owned or hereafter acquired.

      The Depositor,  for the benefit of the Certificateholders and the Insurer,
shall, to the extent consistent with this Agreement, take such actions as may be
necessary to ensure  that,  if this  Agreement  were deemed to create a security
interest  in the Trust  Fund,  such  security  interest  would be deemed to be a
perfected  security  interest of first priority under applicable law and will be
maintained as such  throughout  the term of the Agreement.  The Depositor  shall
arrange  for filing any  Uniform  Commercial  Code  financing  and  continuation
statements in connection with any security  interest  granted or assigned to the
Trustee for the benefit of the Certificateholders and the Insurer.

      SECTION 11.5 Notices.

(a)   The Trustee shall use its best efforts to promptly  provide notice to each
      Rating Agency with respect to each of the following of which it has actual
      knowledge:

                                       96
<PAGE>

      (1)   Any material change or amendment to this Agreement;

      (2)   The occurrence of any Event of Default that has not been cured;

      (3)   The resignation or termination of the Master Servicer or the Trustee
            and the appointment of any successor;

      (4)   The repurchase or substitution of Mortgage Loans pursuant to Section
            2.3; and

      (5)   The final payment to Certificateholders.

      (6)   Any rating  action  involving  the  long-term  credit  rating of the
            Master  Servicer,  which  notice shall be made by  first-class  mail
            within two Business  Days after the Trustee  gains actual  knowledge
            thereof.

      In addition,  the Trustee  shall  promptly  furnish to each Rating  Agency
copies of the following:

      (7)   Each report to Certificateholders described in Section 4.6;

      (8)   Each annual statement as to compliance described in Section 3.16;

      (9)   Each  annual  independent  public   accountants'   servicing  report
            described in Section 3.17; and

      (10)  Any notice of a purchase of a Mortgage Loan pursuant to Section 2.2,
            2.3 or 3.11.

(b)   All directions, demands, authorizations, consents, waivers, communications
      and notices hereunder shall be in writing and shall be deemed to have been
      duly given when delivered to by first class mail, facsimile or courier (a)
      in the case of the Depositor,  First Horizon Asset  Securities  Inc., 4000
      Horizon Way, Irving, Texas 75063, Attention: Alfred Chang; (b) in the case
      of the Master Servicer, First Horizon Home Loan Corporation,  4000 Horizon
      Way, Irving, Texas 75063,  Attention:  Larry P. Cole or such other address
      as may be  hereafter  furnished  to the  Depositor  and the Trustee by the
      Master  Servicer in writing;  (c) in the case of the Trustee,  The Bank of
      New York, 101 Barclay Street, 8W, New York, New York 10286, Attention: MBS
      Structured  Finance  Group,  or such  other  address  as the  Trustee  may
      hereafter furnish to the Depositor or Master Servicer,  (d) in the case of
      the insurer, MBIA Insurance Corporation, 113 King Street, Armonk, New York
      10504, Attention: Insured Portfolio Management - Structured Finance (First
      Horizon ABS Trust  2004-HE4),  and (e) in the case of the Rating Agencies,
      the address specified therefor in the definition corresponding to the name
      of such Rating Agency. Notices to Certificateholders shall be deemed given
      when mailed,  first class postage prepaid,  to their respective  addresses
      appearing in the Certificate Register.

                                       97
<PAGE>

      SECTION 11.6 Severability of Provisions.

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

      SECTION 11.7 Assignment.

      Notwithstanding  anything  to the  contrary  contained  herein,  except as
provided  in Section  6.2,  this  Agreement  may not be  assigned  by the Master
Servicer  without  the prior  written  consent of the  Trustee,  the Insurer and
Depositor.

      SECTION  11.8  Rights  of the  Insurer  to  Exercise  Rights  of  Class  A
Certificateholders.

      Each of the parties hereto, and by accepting its Class A Certificate, each
Class A  Certificateholder,  agrees that the  Insurer is an express  third party
beneficiary of this Agreement and, unless an Insurer Default exists,  shall have
the right to exercise all rights of the Class A Certificateholders  as specified
under this Agreement as if it were a party hereto without any further consent of
any party hereto or the Class A  Certificateholders.  Any right conferred to the
Insurer hereunder shall be suspended and shall run to the benefit of the Class A
Certificateholders during any period in which there exists an Insurer Default.

      SECTION 11.9 Reports to Insurer.

      The Depositor,  the Master Servicer and the Trustee,  as applicable  shall
provide copies to the Insurer of all statements,  reports,  opinions,  officer's
certificates,  requests for consent,  requests  for  amendments  to any document
related  hereto and notices  delivered  under this  Agreement to any other party
hereto, any Rating Agency or any Class A Certificateholder.

      SECTION 11.10 Limitation on Rights of Certificateholders.

      The death or  incapacity  of any  Certificateholder  shall not  operate to
terminate  this  Agreement  or  the  trust  created  hereby,  nor  entitle  such
Certificateholder's  legal  representative or heirs to claim an accounting or to
take any  action or  commence  any  proceeding  in any court for a  petition  or
winding  up of the  trust  created  hereby,  or  otherwise  affect  the  rights,
obligations and liabilities of the parties hereto or any of them.

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

                                       98
<PAGE>

      No Certificateholder  shall have any right by virtue or by availing itself
of any provisions 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 an Event
of Default and of the continuance  thereof,  as herein provided,  and unless the
Holders  of  Certificates  evidencing  not less  than 25% of the  Voting  Rights
evidenced  by the  Certificates  shall  also have made  written  request  to the
Trustee to institute such action,  suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable  indemnity as it
may require against the costs,  expenses, and liabilities to be incurred therein
or  thereby,  and the  Trustee,  for 60 days after its  receipt of such  notice,
request and offer of indemnity  shall have neglected or refused to institute any
such action,  suit or proceeding;  it being  understood and intended,  and being
expressly    covenanted   by   each    Certificateholder    with   every   other
Certificateholder  and the Trustee,  that no one or more Holders of Certificates
shall have any right in any manner  whatever by virtue or by availing  itself or
themselves of any provisions of this  Agreement to affect,  disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this  Agreement,  except in the manner  herein  provided and for the
common benefit of all Certificateholders and the Insurer. For the protection and
enforcement   of  the   provisions  of  this  Section   11.8,   each  and  every
Certificateholder,  the Insurer and the Trustee shall be entitled to such relief
as can be given either at law or in equity.

      SECTION 11.11 Inspection and Audit Rights.

      The Master  Servicer  agrees that,  on reasonable  prior  notice,  it will
permit and will  cause each  Subservicer  to permit  any  representative  of the
Depositor,  the  Trustee or the  Insurer  during the  Master  Servicer's  normal
business hours, to examine all the books of account,  records, reports and other
papers of the Master Servicer relating to the Mortgage Loans, to make copies and
extracts therefrom,  to cause such books to be audited by independent  certified
public accountants selected by the Depositor,  the Trustee or the Insurer and to
discuss its affairs,  finances and accounts  relating to the Mortgage Loans with
its  officers,  employees  and  independent  public  accountants  (and  by  this
provision the Master Servicer hereby authorizes said accountants to discuss with
such representative such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably  requested.  Any  out-of-pocket  expense
incident  to the  exercise by the  Depositor,  the Trustee or the Insurer of any
right  under  this  Section  11.9  shall be borne by the party  requesting  such
inspection; all other such expenses shall be borne by the Master Servicer or the
related Subservicer.

      SECTION 11.12 Certificates Nonassessable and Fully Paid.

      It is the intention of the Depositor that Certificateholders  shall not be
personally  liable for  obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever,  and that the Certificates,  upon due authentication  thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.

                                       99
<PAGE>

      SECTION 11.13 Limitations on Actions; No Proceedings.

(a)   Other than pursuant to this Agreement, or in connection with or incidental
      to the  provisions  or  purposes  of this  Agreement,  the  trust  created
      hereunder shall not (i) issue debt or otherwise  borrow money,  (ii) merge
      or consolidate with any other entity reorganize, liquidate or transfer all
      or substantially all of its assets to any other entity, or (iii) otherwise
      engage in any  activity or  exercise  any power not  provided  for in this
      Agreement.

(b)   Notwithstanding any prior termination of this Agreement,  the Trustee, the
      Master  Servicer and the Depositor  shall not,  prior to the date which is
      one year and one day after the termination of this  Agreement,  acquiesce,
      petition or otherwise  invoke or cause any Person to invoke the process of
      any  court or  government  authority  for the  purpose  of  commencing  or
      sustaining  a case  against  the  Depositor  or the Trust  Fund  under any
      federal or state bankruptcy, insolvency or other similar law or appointing
      a receiver,  liquidator,  assignee,  trustee,  custodian,  sequestrator or
      other  similar  official  of  the  Depositor  or  the  Trust  Fund  or any
      substantial part of their respective property,  or ordering the winding up
      or liquidation of the affairs of the Depositor or the Trust Fund.

      SECTION 11.14 Acknowledgment of Seller.

      Seller hereby acknowledges the provisions of this Agreement, including the
obligations  under Sections  2.1(a),  2.2, 2.3(b) and 8.11 of this Agreement and
further  acknowledges the Depositor's  assignment of its rights and remedies for
the breach of the  representations  and warranties made by the Seller under MLPA
I.

                                   * * * * * *

                                      100
<PAGE>

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

                                       FIRST HORIZON ASSET SECURITIES INC.,
                                       as Depositor

                                       By:_____________________________________
                                          Alfred Chang
                                          Vice President

                                       THE BANK OF NEW YORK,
                                       not in its individual capacity, but
                                       solely as Trustee

                                       By:____________________________________
                                          Diane Pickett
                                          Vice President

                                       FIRST HORIZON HOME LOAN CORPORATION, in
                                       its capacity as Master Servicer

                                       By:____________________________________
                                          Terry McCoy
                                          Senior Vice President

The foregoing agreement is hereby acknowledged and accepted as of the date first
above written:

FIRST HORIZON HOME LOAN CORPORATION,
in its capacity as Seller

By:____________________
   Terry McCoy
   Senior Vice President

<PAGE>

                                   SCHEDULE I

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates Series 2004-HE4

                             Mortgage Loan Schedule

                      [Available Upon Request from Trustee]

                                      I-1
<PAGE>

                                   SCHEDULE II

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates Series 2004-HE4

              Representations and Warranties of the Master Servicer

      First Horizon Home Loan  Corporation  ("First  Horizon")  hereby makes the
representations  and  warranties set forth in this Schedule II to the Depositor,
the Trustee and the Insurer,  as of the Closing Date, or if so specified herein,
as of the Cut-off Date. Capitalized terms used but not otherwise defined in this
Schedule  II  shall  have the  meanings  ascribed  thereto  in the  Pooling  and
Servicing  Agreement  (the  "Pooling and Servicing  Agreement")  relating to the
above-referenced  Series, among First Horizon, as master servicer, First Horizon
Asset Securities Inc., as depositor, and The Bank of New York, as trustee.

      (1) First Horizon is duly organized as a Kansas corporation and is validly
      existing and in good standing under the laws of the State of Kansas and is
      duly   authorized   and   qualified  to  transact  any  and  all  business
      contemplated  by the Pooling and  Servicing  Agreement  to be conducted by
      First Horizon in any state in which a Mortgaged  Property is located or is
      otherwise not required under  applicable law to effect such  qualification
      and, in any event,  is in compliance  with the doing  business laws of any
      such state, to the extent  necessary to ensure its ability to enforce each
      Mortgage Loan, to service the Mortgage Loans in accordance  with the terms
      of the Pooling  and  Servicing  Agreement  and to perform any of its other
      obligations  under the Pooling and Servicing  Agreement in accordance with
      the terms thereof.

      (2) First  Horizon has the full  corporate  power and authority to service
      each Mortgage Loan, and to execute, deliver and perform, and to enter into
      and consummate the transactions  contemplated by the Pooling and Servicing
      Agreement and has duly authorized by all necessary corporate action on the
      part of First  Horizon the  execution,  delivery  and  performance  of the
      Pooling and Servicing Agreement;  and the Pooling and Servicing Agreement,
      assuming the due  authorization,  execution  and  delivery  thereof by the
      other parties thereto,  constitutes a legal,  valid and binding obligation
      of First Horizon, enforceable against First Horizon in accordance with its
      terms,  except  that (a) the  enforceability  thereof  may be  limited  by
      bankruptcy,  insolvency,  moratorium,  receivership and other similar laws
      relating to  creditors'  rights  generally  and (b) the remedy of specific
      performance  and  injunctive  and other forms of  equitable  relief may be
      subject to equitable  defenses and to the  discretion  of the court before
      which any proceeding therefor may be brought.

      (3) The execution  and delivery of the Pooling and Servicing  Agreement by
      First Horizon,  the servicing of the Mortgage Loans by First Horizon under
      the Pooling and Servicing Agreement,  the consummation of any other of the
      transactions  contemplated by the Pooling and Servicing Agreement, and the
      fulfillment  of or  compliance  with the terms thereof are in the ordinary
      course of business of First  Horizon and will not (A) result in a material
      breach of any term or provision of the charter or by-laws of First Horizon
      or (B) materially conflict with, result in a material breach, violation or
      acceleration  of, or result in a material  default under, the terms of any
      other  agreement  or  instrument  to which First  Horizon is a party or by
      which it may be bound,  or (C)  constitute  a  material  violation  of any
      statute,  order or  regulation  applicable  to First Horizon of any court,
      regulatory  body,   administrative  agency  or  governmental  body  having
      jurisdiction  over First  Horizon;  and First  Horizon is not in breach or
      violation  of any  material  indenture  or  other  material  agreement  or
      instrument,  or in violation of any statute,  order or  regulation  of any
      court, regulatory body,  administrative agency or governmental body having
      jurisdiction over it which breach or violation may materially impair First
      Horizon's  ability  to perform  or meet any of its  obligations  under the
      Pooling and Servicing Agreement.

                                      II-1
<PAGE>

      (4) No litigation is pending or, to the best of First Horizon's knowledge,
      threatened  against  First  Horizon that would  prohibit the  execution or
      delivery of, or performance under, the Pooling and Servicing  Agreement by
      First Horizon.

      (5) First Horizon 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  MERS  Mortgage  Loans  for as  along as such
      Mortgage Loans are registered with MERS.

                                      II-2
<PAGE>

                                  SCHEDULE III

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates Series 2004-HE4

                     Form of Monthly Master Servicer Report

                              [Begins on Next Page]

                                     III-1
<PAGE>

                                   EXHIBIT A-1

                          [FORM OF CLASS A CERTIFICATE]

UNLESS THIS  CERTIFICATE  IS PRESENTED BY AN  AUTHORIZED  REPRESENTATIVE  OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION  ("DTC"),  TO THE ISSUER 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.

SOLELY FOR U.S.  FEDERAL  INCOME TAX PURPOSES,  THIS  CERTIFICATE  IS A "REGULAR
INTEREST" IN A "REAL  ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").

                                      A-I-1
<PAGE>

Certificate No.                :
Cut-off Date                   :
First Distribution Date        :
Initial Certificate Balance of
this Certificate ("Denominations")
:                                    $
Initial Certificate
Balances of all
Certificate of this
Class                          :     $
CUSIP                          :

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates, Series 2004-HE4
                             Class A-[1][2][3][4][5]

         evidencing a percentage interest in the distributions allocable to the
         Certificates of the above-referenced Class with respect to a Trust Fund
         consisting primarily of one or more pools of home equity mortgage loans
         (the "Mortgage Loans") secured by second liens on one- to four-family
         residential properties.

                First Horizon Asset Securities Inc., as Depositor

      [Principal in respect of this Certificate is distributable  monthly as set
forth herein. Accordingly,  the Certificate Balance at any time may be less than
the Certificate Balance as set forth herein.] This Certificate does not evidence
an obligation of, or an interest in, and is not guaranteed by the Depositor, the
Master  Servicer  or the Trustee  referred  to below or any of their  respective
affiliates.  Neither this  Certificate  nor the Mortgage Loans are guaranteed or
insured by any governmental agency or instrumentality.

      This certifies  that  __________________  is the  registered  owner of the
Percentage  Interest  evidenced  by this  Certificate  (obtained by dividing the
denomination of this Certificate by the aggregate Initial  Certificate  Balances
of all Certificates of the Class to which this  Certificate  belongs) in certain
monthly  distributions with respect to a Trust Fund consisting  primarily of the
Mortgage  Loans   deposited  by  First  Horizon  Asset   Securities   Inc.  (the
"Depositor").  The Trust Fund was created  pursuant  to a Pooling and  Servicing
Agreement dated as of the Cut-off Date specified above (the  "Agreement")  among
the  Depositor,  First Horizon Home Loan  Corporation,  as master  servicer (the
"Master Servicer"), and The Bank of New York, as trustee (the "Trustee"). To the
extent not defined herein,  the capitalized  terms used herein have the meanings
assigned in the  Agreement.  This  Certificate is issued under and is subject to
the terms,  provisions and conditions of the Agreement,  to which  Agreement the
Holder of this  Certificate  by virtue of the  acceptance  hereof assents and by
which such Holder is bound.

                                       B-1
<PAGE>

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.

                                      B-2
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  December __, 2004

                                        THE BANK OF NEW YORK,
                                        not in its individual capacity, but
                                        solely as Trustee

                                        By: ____________________________________
                                            Authorized Signatory of
                                            THE BANK OF NEW YORK
                                            not in its individual capacity,
                                            but solely as Trustee

Countersigned:

By ___________________________
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee

                                      B-3
<PAGE>

                                    EXHIBIT B

                          [FORM OF CLASS C CERTIFICATE]

SOLELY FOR U.S.  FEDERAL  INCOME TAX PURPOSES,  THIS  CERTIFICATE  IS A "REGULAR
INTEREST" IN A "REAL  ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS THOSE TERMS ARE
DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL REVENUE CODE OF
1986, AS AMENDED (THE "CODE").

[THIS  CERTIFICATE HAS NOT BEEN AND WILL NOT BE REGISTERED  UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE  "SECURITIES  ACT"),  OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES ("BLUE SKY LAWS"),  AND SUCH  CERTIFICATE  MAY NOT BE
OFFERED,  RESOLD,  PLEDGED OR OTHERWISE  TRANSFERRED EXCEPT (A) TO A PERSON WHOM
THE SELLER  REASONABLY  BELIEVES IS A QUALIFIED  INSTITUTIONAL  BUYER WITHIN THE
MEANING OF RULE 144A  UNDER THE  SECURITIES  ACT IN A  TRANSACTION  MEETING  THE
REQUIREMENTS  OF RULE 144A,  (B)  PURSUANT  TO AN  EXEMPTION  FROM  REGISTRATION
PROVIDED  BY RULE 144  UNDER  THE  SECURITIES  ACT (IF  AVAILABLE)  OR (C) TO AN
INSTITUTIONAL ACCREDITED INVESTOR AS DEFINED IN RULE 501(a)(1),  (2), (3) OR (7)
OF  REGULATION  D UNDER THE  SECURITIES  ACT IN A  TRANSACTION  EXEMPT  FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH
ANY APPLICABLE BLUE SKY LAWS. NO  REPRESENTATION  IS MADE AS TO THE AVAILABILITY
OF THE EXEMPTION PROVIDED BY RULE 144 FOR RESALES OF THIS CERTIFICATE.

NEITHER THIS  CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
TRANSFEREE  REPRESENTS  TO THE TRUSTEE THAT SUCH  TRANSFEREE  IS NOT AN EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT  SUBJECT TO THE EMPLOYEE  RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"),  OR A PLAN OR ARRANGEMENT  SUBJECT TO SECTION
4975 OF THE  CODE,  OR,  IF  SUCH  PURCHASER  IS AN  INSURANCE  COMPANY  AND THE
CERTIFICATE   HAS  BEEN   SUBJECT  TO  AN   ERISA-QUALIFYING   UNDERWRITING,   A
REPRESENTATION  IN ACCORDANCE  WITH THE PROVISIONS OF THE AGREEMENT  REFERRED TO
HEREIN,  OR DELIVERS TO THE TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT  REFERRED TO HEREIN.  SUCH  REPRESENTATION  SHALL BE
DEEMED TO HAVE BEEN MADE TO THE  TRUSTEE  BY THE  TRANSFEREE'S  ACCEPTANCE  OF A
CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST
IN A CERTIFICATE  OF THIS CLASS.  NOTWITHSTANDING  ANYTHING ELSE TO THE CONTRARY
HEREIN,  ANY  PURPORTED  TRANSFER  OF THIS  CERTIFICATE  TO OR ON  BEHALF  OF AN
EMPLOYEE  BENEFIT  PLAN  SUBJECT TO ERISA OR TO THE CODE  WITHOUT THE OPINION OF
COUNSEL  SATISFACTORY  TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.

                                      B-4
<PAGE>

Certificate No.                :
Cut-off Date                   :
First Distribution Date        :

Percentage Interest            :     ____%

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates, Series 2004-HE4
                                     Class C

            evidencing a percentage  interest in the distributions  allocable to
            the  Certificates  of the  above-referenced  Class with respect to a
            Trust Fund consisting  primarily of one or more pools of home equity
            mortgage  loans (the  "Mortgage  Loans")  secured by second liens on
            one- to four-family residential properties.

            First Horizon Asset Securities Inc., as Depositor

      This  Certificate  does not evidence an obligation  of, or an interest in,
and is not  guaranteed  by the  Depositor,  the Master  Servicer  or the Trustee
referred  to  below  or  any  of  their  respective  affiliates.   Neither  this
Certificate nor the Mortgage Loans are guaranteed or insured by any governmental
agency or instrumentality.

      This certifies that  ___________ is the registered owner of the Percentage
Interest  evidenced by this  Certificate (as set forth above) in certain monthly
distributions with respect to a Trust Fund consisting  primarily of the Mortgage
Loans deposited by First Horizon Asset  Securities Inc. (the  "Depositor").  The
Trust Fund was created pursuant to a Pooling and Servicing Agreement dated as of
the Cut-off Date specified above (the  "Agreement")  among the Depositor,  First
Horizon Home Loan Corporation,  as master servicer (the "Master Servicer"),  and
The Bank of New York,  as trustee  (the  "Trustee").  To the extent not  defined
herein,  the  capitalized  terms used herein have the  meanings  assigned in the
Agreement.  This  Certificate  is issued  under  and is  subject  to the  terms,
provisions  and conditions of the  Agreement,  to which  Agreement the Holder of
this  Certificate by virtue of the  acceptance  hereof assents and by which such
Holder is bound.

      No  transfer  of a  Certificate  of this Class  shall be made  unless such
transfer  is made  pursuant to an  effective  registration  statement  under the
Securities Act and any applicable  state  securities  laws or is exempt from the
registration  requirements  under  said Act and such  laws.  In the event that a
transfer is to be made in reliance upon an exemption from the Securities Act and
such laws, in order to assure  compliance with the Securities Act and such laws,
the   Certificateholder    desiring   to   effect   such   transfer   and   such
Certificateholder's  prospective transferee shall each certify to the Trustee in
writing the facts surrounding the transfer. In the event that such a transfer is
to be  made  within  two  years  from  the  date  of  the  initial  issuance  of
Certificates  pursuant hereto, there shall also be delivered (except in the case
of a transfer  pursuant  to Rule 144A of the  Securities  Act) to the Trustee an
Opinion of Counsel that such transfer may be made pursuant to an exemption  from
the  Securities  Act and such state  securities  laws,  which Opinion of Counsel
shall not be  obtained  at the expense of the  Trustee,  the Seller,  the Master
Servicer or the  Depositor.  The Holder hereof  desiring to effect such transfer
shall, and does hereby agree to, indemnify the Trustee and the Depositor 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.

                                       B-5
<PAGE>

      No  transfer  of a  Certificate  of this  Class  shall be made  unless the
Trustee  shall have  received  either  (i) a  representation  [letter]  from the
transferee  of  such  Certificate,  acceptable  to and  in  form  and  substance
satisfactory  to the  Trustee,  to the  effect  that such  transferee  is not an
employee benefit plan or arrangement  subject to Section 406 of ERISA or Section
4975 of the  Code,  nor a  person  acting  on  behalf  of any such  plan,  which
representation  letter shall not be an expense of the Trustee , the Depositor or
the Master  Servicer,  (ii) if the  purchaser  is an  insurance  company and the
certificate   has  been   subject  to  an   ERISA-Qualifying   Underwriting,   a
representation  that the  purchaser is an insurance  company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such  term is  defined  in  Section  V(e) of  Prohibited  Transaction  Class
Exemption  95-60  ("PTCE  95-60"))  and that the  purchase  and  holding of such
Certificates  are covered under Sections I and III of PTCE 95-60 or (iii) in the
case of any  such  Certificate  presented  for  registration  in the  name of an
employee  benefit  plan  subject  to  ERISA  or  Section  4975 of the  Code  (or
comparable  provisions of any subsequent  enactments),  or a trustee of any such
plan or any  other  person  acting on behalf of any such  plan,  an  Opinion  of
Counsel  satisfactory  to the Trustee to the effect that the purchase or holding
of such Certificate will not result in prohibited transactions under Section 406
of ERISA and  Section  4975 of the Code and will not subject  the  Trustee,  the
Depositor  or the  Master  Servicer  to any  obligation  in  addition  to  those
undertaken in the Agreement, which Opinion of Counsel shall not be an expense of
the Trustee, the Depositor or the Master Servicer. [Such representation shall be
deemed to have been made to the  Trustee  by the  Transferee's  acceptance  of a
Certificate of this Class and by a beneficial owner's acceptance of its interest
in a Certificate of this Class.]  Notwithstanding  anything else to the contrary
herein, any purported transfer of a Certificate of this Class to or on behalf of
an employee  benefit plan subject to ERISA or to the Code without the opinion of
counsel  satisfactory  to the Trustee as described above shall be void and of no
effect.  Reference is hereby made to the further  provisions of this Certificate
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.

                                      B-7
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  December __, 2004

                                          THE BANK OF NEW YORK,
                                          not in its individual capacity, but
                                          solely as Trustee

                                          By: __________________________________
                                              Authorized Signatory of
                                              THE BANK OF NEW YORK
                                              not in its individual capacity,
                                              but solely as Trustee

Countersigned:

By ___________________________
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee

                                      B-7
<PAGE>

                                    EXHIBIT C

                         [FORM OF RESIDUAL CERTIFICATE]

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES,  THIS CERTIFICATE REPRESENTS ONE OR
MORE "RESIDUAL  INTERESTS" IN A "REAL ESTATE  MORTGAGE  INVESTMENT  CONDUIT," AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED (THE "CODE").

NEITHER THIS  CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
PROPOSED  TRANSFEREE  DELIVERS TO THE TRUSTEE A TRANSFER AFFIDAVIT IN ACCORDANCE
WITH THE PROVISIONS OF THE AGREEMENT REFERRED TO HEREIN.

[THIS CERTIFICATE  REPRESENTS THE "TAX MATTERS PERSON RESIDUAL  INTEREST" ISSUED
UNDER THE  POOLING  AND  SERVICING  AGREEMENT  REFERRED  TO BELOW AND MAY NOT BE
TRANSFERRED  TO ANY  PERSON  EXCEPT IN  CONNECTION  WITH THE  ASSUMPTION  BY THE
TRANSFEREE OF THE DUTIES OF THE SERVICER UNDER SUCH AGREEMENT.]

NEITHER THIS  CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED  UNLESS THE
TRANSFEREE  REPRESENTS  TO THE TRUSTEE THAT SUCH  TRANSFEREE  IS NOT AN EMPLOYEE
BENEFIT PLAN OR ARRANGEMENT  SUBJECT TO THE EMPLOYEE  RETIREMENT INCOME SECURITY
ACT OF 1974, AS AMENDED ("ERISA"),  OR A PLAN OR ARRANGEMENT  SUBJECT TO SECTION
4975  OF  THE  CODE,  OR,  IF  SUCH  PURCHASER  IS  AN  INSURANCE   COMPANY,   A
REPRESENTATION  IN ACCORDANCE  WITH THE PROVISIONS OF THE AGREEMENT  REFERRED TO
HEREIN,  OR DELIVERS TO THE TRUSTEE AN OPINION OF COUNSEL IN ACCORDANCE WITH THE
PROVISIONS OF THE AGREEMENT  REFERRED TO HEREIN.  SUCH  REPRESENTATION  SHALL BE
DEEMED TO HAVE BEEN MADE TO THE  TRUSTEE  BY THE  TRANSFEREE'S  ACCEPTANCE  OF A
CERTIFICATE OF THIS CLASS AND BY A BENEFICIAL OWNER'S ACCEPTANCE OF ITS INTEREST
IN A CERTIFICATE  OF THIS CLASS.  NOTWITHSTANDING  ANYTHING ELSE TO THE CONTRARY
HEREIN,  ANY  PURPORTED  TRANSFER  OF THIS  CERTIFICATE  TO OR ON  BEHALF  OF AN
EMPLOYEE  BENEFIT  PLAN  SUBJECT TO ERISA OR TO THE CODE  WITHOUT THE OPINION OF
COUNSEL  SATISFACTORY  TO THE TRUSTEE AS DESCRIBED ABOVE SHALL BE VOID AND OF NO
EFFECT.

                                      C-1
<PAGE>

Certificate No.                :
Cut-off Date                   :
First Distribution Date        :

Percentage Interest            :     ___%

                        First Horizon ABS Trust 2004-HE4
               Mortgage Pass-Through Certificates, Series 2004-HE4

                  evidencing the distributions allocable to the Class R
         Certificates with respect to a Trust Fund consisting primarily of one
         or more pools of home equity mortgage loans (the "Mortgage Loans")
         secured by second liens on one- to four-family residential properties.

                First Horizon Asset Securities Inc., as Depositor

      This  Certificate  does not evidence an obligation  of, or an interest in,
and is not  guaranteed  by the  Depositor,  the Master  Servicer  or the Trustee
referred  to  below  or  any  of  their  respective  affiliates.   Neither  this
Certificate nor the Mortgage Loans are guaranteed or insured by any governmental
agency or instrumentality.

      This  certifies  that  _________________  is the  registered  owner of the
Percentage  Interest (as set forth above) in certain monthly  distributions with
respect to a Trust Fund  consisting  of the  Mortgage  Loans  deposited by First
Horizon  Asset  Securities  Inc. (the  "Depositor").  The Trust Fund was created
pursuant  to a Pooling and  Servicing  Agreement  dated as of the  Cut-off  Date
specified above (the "Agreement")  among the Depositor,  First Horizon Home Loan
Corporation,  as master  servicer (the "Master  Servicer"),  and The Bank of New
York,  as  trustee  (the  "Trustee").  To the  extent not  defined  herein,  the
capitalized terms used herein have the meanings assigned in the Agreement.  This
Certificate  is  issued  under  and is  subject  to the  terms,  provisions  and
conditions of the Agreement,  to which Agreement the Holder of this  Certificate
by virtue of the acceptance hereof assents and by which such Holder is bound.

      Any distribution of the proceeds of any remaining assets of the Trust Fund
will be made only upon  presentment and surrender of this Class R Certificate at
the Corporate Trust Office or the office or agency  maintained by the Trustee in
New York, New York.  This Class R Certificate  represents an ownership in the RL
Interest and RU Interest, as defined in the Agreement.

      No  transfer  of a Class R  Certificate  shall be made  unless the Trustee
shall have received either (i) a representation  [letter] from the transferee of
such  Certificate,  acceptable to and in form and substance  satisfactory to the
Trustee,  to the effect that such transferee is not an employee  benefit plan or
arrangement  subject to Section 406 of ERISA or Section 4975 of the Code,  nor a
person acting on behalf of any such plan, which representation  letter shall not
be an expense of the Trustee, the Depositor or the Master Servicer,  (ii) if the
purchaser is an insurance  company,  a  representation  that the purchaser is an
insurance  company which is purchasing such  Certificate with funds contained in
an "insurance  company general account" (as such term is defined in Section V(e)

                                       C-2
<PAGE>

of Prohibited  Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificate are covered under Sections I and III of
PTCE  95-60  or  (iii)  in  the  case  of any  such  Certificate  presented  for
registration in the name of an employee benefit plan subject to ERISA or Section
4975 of the Code (or comparable provisions of any subsequent  enactments),  or a
trustee of any such plan or any other person  acting on behalf of any such plan,
an Opinion  of  Counsel  satisfactory  to the  Trustee  to the  effect  that the
purchase or holding of such Class R  Certificate  will not result in  prohibited
transactions  under  Section 406 of ERISA and Section  4975 of the Code and will
not subject the Trustee, the Depositor and the Master Servicer to any obligation
in addition to those undertaken in the Agreement, which Opinion of Counsel shall
not be an expense of the Trustee,  the Depositor or the Master  Servicer.  [Such
representation  shall  be  deemed  to  have  been  made  to the  Trustee  by the
Transferee's  acceptance of this Class R Certificate and by a beneficial owner's
acceptance of its interest in such Certificate.]  Notwithstanding  anything else
to the contrary herein, any purported transfer of a Class R Certificate to or on
behalf of an employee  benefit  plan subject to ERISA or to the Code without the
opinion of counsel  satisfactory to the Trustee as described above shall be void
and of no effect.

      Each Holder of this Class R  Certificate  will be deemed to have agreed to
be bound by the restrictions of the Agreement,  including but not limited to the
restrictions that (i) each person holding or acquiring any Ownership Interest in
this Class R  Certificate  must be a  Permitted  Transferee,  (ii) no  Ownership
Interest in this Class R Certificate may be transferred  without delivery to the
Trustee  of (a) a  transfer  affidavit  of the  proposed  transferee  and  (b) a
transfer certificate of the transferor, each of such documents to be in the form
described in the Agreement, (iii) each person holding or acquiring any Ownership
Interest in this Class R Certificate must agree to require a transfer  affidavit
and to deliver a transfer certificate to the Trustee as required pursuant to the
Agreement,  (iv) each person holding or acquiring an Ownership  Interest in this
Class R  Certificate  must agree not to transfer an  Ownership  Interest in this
Class R Certificate if it has actual  knowledge that the proposed  transferee is
not a Permitted  Transferee  and (v) any attempted or purported  transfer of any
Ownership Interest in this Class R Certificate in violation of such restrictions
will be  absolutely  null  and void and will  vest no  rights  in the  purported
transferee.

      Reference is hereby made to the further provisions of this Certificate set
forth on the reverse  hereof,  which further  provisions  shall for all purposes
have the same effect as if set forth at this place.

      This Certificate  shall not be entitled to any benefit under the Agreement
or be valid for any  purpose  unless  manually  countersigned  by an  authorized
signatory of the Trustee.

                                      C-3
<PAGE>

      IN WITNESS  WHEREOF,  the Trustee has caused this  Certificate  to be duly
executed.

Dated:  December __, 2004

                                        THE BANK OF NEW YORK,
                                        not in its individual capacity, but
                                        solely as Trustee

                                        By: _______________________________
                                            Authorized Signatory of
                                            THE BANK OF NEW YORK
                                            not in its individual capacity,
                                            but solely as Trustee

Countersigned:

By ___________________________
   Authorized Signatory of
   THE BANK OF NEW YORK,
   not in its individual capacity,
   but solely as Trustee

                                      C-4
<PAGE>

                                    EXHIBIT D

                        [Form of Reverse of Certificates]

                        First Horizon ABS Trust 2004-HE4
                       Mortgage Pass-Through Certificates

      This  Certificate  is one  of a  duly  authorized  issue  of  Certificates
designated  as  First   Horizon  ABS  Trust   2004-HE4   Mortgage   Pass-Through
Certificates,  of the Series  specified on the face hereof (herein  collectively
called the "Certificates"),  and representing a beneficial ownership interest in
the Trust Fund created by the Agreement.

      The Certificateholder,  by its acceptance of this Certificate, agrees that
it will look  solely to the funds on deposit  in the  Distribution  Account  for
payment  hereunder and that the Trustee is not liable to the  Certificateholders
for any amount  payable  under this  Certificate  or the Agreement or, except as
expressly  provided  in the  Agreement,  subject  to  any  liability  under  the
Agreement.

      This Certificate does not purport to summarize the Agreement and reference
is made to the Agreement for the  interests,  rights and  limitations of rights,
benefits,  obligations and duties evidenced thereby, and the rights,  duties and
immunities of the Trustee.

      Pursuant to the terms of the Agreement, a distribution will be made on the
25th day of each month or, if such 25th day is not a Business  Day, the Business
Day immediately  following (the  "Distribution  Date"),  commencing on the first
Distribution Date specified on the face hereof, to the Person in whose name this
Certificate is registered at the close of business on the applicable Record Date
in an amount equal to the product of the Percentage  Interest  evidenced by this
Certificate and the amount required to be distributed to Holders of Certificates
of the  Class  to which  this  Certificate  belongs  on such  Distribution  Date
pursuant to the Agreement.  The Record Date applicable to each Distribution Date
is the  last  Business  Day of the  month  next  preceding  the  month  of  such
Distribution Date.

      Distributions  on this  Certificate  shall  be made  by wire  transfer  of
immediately  available  funds to the  account of the Holder  hereof at a bank or
other entity having appropriate  facilities therefor, if such  Certificateholder
shall have so notified the Trustee in writing at least five  Business Days prior
to the  related  Record  Date  and  such  Certificateholder  shall  satisfy  the
conditions  to receive such form of payment set forth in the  Agreement,  or, if
not,   by  check   mailed  by  first   class   mail  to  the   address  of  such
Certificateholder  appearing in the Certificate Register. The final distribution
on each Certificate  will be made in like manner,  but only upon presentment and
surrender  of such  Certificate  at the  Corporate  Trust  Office or such  other
location   specified  in  the  notice  to   Certificateholders   of  such  final
distribution.

      The Agreement  permits,  with certain  exceptions  therein  provided,  the
amendment  thereof and the  modification  of the rights and  obligations  of the
Trustee and the rights of the Certificateholders under the Agreement at any time
by the  Depositor,  the Master  Servicer and the Trustee with the consent of the
Holders of  Certificates  affected by such  amendment  evidencing  the requisite
Percentage  Interest and the  Insurer,  as provided in the  Agreement.  Any such
consent by the Holder of this  Certificate  shall be  conclusive  and binding on
such  Holder  and  upon  all  future  Holders  of  this  Certificate  and of any
Certificate  issued upon the transfer hereof or in exchange  therefor or in lieu
hereof  whether or not notation of such  consent is made upon this  Certificate.
The  Agreement  also  permits  the  amendment   thereof,   in  certain   limited
circumstances,  without the  consent of the Holders of any of the  Certificates,
but with the consent of the Insurer.

                                       D-1
<PAGE>

      As provided in the  Agreement and subject to certain  limitations  therein
set forth,  the transfer of this  Certificate is registrable in the  Certificate
Register of the Trustee upon surrender of this  Certificate for  registration of
transfer at the Corporate Trust Office or the office or agency maintained by the
Trustee in New York, New York,  accompanied by a written  instrument of transfer
in form satisfactory to the Trustee and the Certificate  Registrar duly executed
by the holder hereof or such holder's  attorney duly authorized in writing,  and
thereupon  one  or  more  new  Certificates  of the  same  Class  in  authorized
denominations and evidencing the same aggregate Percentage Interest in the Trust
Fund will be issued to the designated transferee or transferees.

      The  Certificates  are issuable  only as registered  Certificates  without
coupons  in  denominations  specified  in  the  Agreement.  As  provided  in the
Agreement and subject to certain limitations therein set forth, Certificates are
exchangeable for new Certificates of the same Class in authorized  denominations
and  evidencing  the same  aggregate  Percentage  Interest,  as requested by the
Holder surrendering the same.

      No service  charge will be made for any such  registration  of transfer or
exchange,  but the Trustee may require  payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

      The  Depositor,  the Master  Servicer and the Trustee and any agent of the
Depositor or the Trustee may treat the Person in whose name this  Certificate is
registered as the owner hereof for all purposes, and neither the Depositor,  the
Trustee, nor any such agent shall be affected by any notice to the contrary.

      On  any  Distribution  Date  on  which  the  aggregate  outstanding  Class
Certificate  Balance of the Class A Certificates,  after allocation of principal
payments on such  Distribution  Date,  is less than 10% of the  aggregate  Class
Certificate  Balance of the Class A  Certificates  as of the Cut-off  Date,  the
Master Servicer will have the option to purchase,  in whole, from the Trust Fund
all  remaining  Mortgage  Loans and all  property  acquired  in  respect  of the
Mortgage Loans at a purchase price  determined as provided in the Agreement,  so
long as any such  optional  purchase  will not cause a draw to be made under the
Policy. In the event that no such optional  termination  occurs, the obligations
and  responsibilities  created by the Agreement will terminate upon the later of
the maturity or other  liquidation (or any advance with respect  thereto) of the
last  Mortgage  Loan  remaining  in the  Trust  Fund or the  disposition  of all
property in respect thereof and the  distribution to  Certificateholders  of all
amounts  required  to be  distributed  pursuant to the  Agreement.  In no event,
however,  will the trust created by the Agreement continue beyond the expiration
of 21 years from the death of the last survivor of the descendants living at the
date of the Agreement of a certain person named in the Agreement.

      Any term used  herein  that is  defined  in the  Agreement  shall have the
meaning  assigned  in  the  Agreement,   and  nothing  herein  shall  be  deemed
inconsistent with that meaning.

                                      D-2
<PAGE>

      ASSIGNMENT

      FOR  VALUE  RECEIVED,  the  undersigned  hereby  sell(s),   assign(s)  and
transfer(s) unto

                         ------------------------------
                        (Please insert social security or
                      other identifying number of assignee)

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

    ------------------------------------------------------------------------
                   (Please print or typewrite name and address
                     including postal zip code of assignee)

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

     the Percentage Interest evidenced by the within Certificate and hereby
     authorizes the transfer of registration of such Percentage Interest to
     assignee on the Certificate Register of the Trust Fund.

      I (We)  further  direct the Trustee to issue a new  Certificate  of a like
denomination and Class, to the above named assignee and deliver such Certificate
to the following address:

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

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

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

Dated:   __________________

                                       --------------------------------------
                                       Signature by or on behalf of assignor

                            DISTRIBUTION INSTRUCTIONS

      The assignee should include the following for purposes of distribution:

      Distributions shall be made, by wire transfer or otherwise, in immediately
available  funds to  ______________________________________,  for the account of
_____________________,  account number  ___________,  or, if mailed by check, to
___________________________.   Applicable   statements   should   be  mailed  to
___________________________.

      This information is provided by  ________________________________________,
the assignee named above, or _________________, as its agent.

                                      D-3
<PAGE>

                                    EXHIBIT E

                   FORM OF INITIAL CERTIFICATION OF CUSTODIAN

                                     [date]

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

MBIA Insurance Corporation
113 King Street
Armonk, New York  10504

      Re:   Custodial  Agreement  dated as of December 30, 2004 by and among the
            Bank of New York, as Trustee,  First Horizon Home Loan  Corporation,
            as  Servicer  and First  Tennessee  Bank  National  Association,  as
            Custodian

Gentlemen:

      In accordance with Section 2 of the  above-captioned  Custodial  Agreement
(the "Custodial Agreement"), the undersigned, as Trustee, hereby certifies that,
as to each Mortgage  Loan listed in the Mortgage  Loan Schedule  (other than any
Mortgage Loan listed in the attached schedule), it has received:

      (i) the  original  Mortgage  Note,  endorsed as provided in the  following
form: "Pay to the order of ________, without recourse"; and

      (ii) a duly executed  assignment of the Mortgage (which may be included in
a blanket assignment or assignments); provided, however, that it has received no
assignment with respect to any Mortgage for which the related Mortgaged Property
is located in the Commonwealth of Puerto Rico.

      Based  on  its  review  and  examination  and  only  as to  the  foregoing
documents,  such  documents  appear  regular on their  face and  related to such
Mortgage Loan.

      The Trustee has made no independent examination of any documents contained
in each Mortgage File beyond the review  specifically  required in the Custodial
Agreement.  The  Trustee  makes  no  representations  as to:  (i) the  validity,
legality,  sufficiency,  enforceability  or  genuineness of any of the documents
contained in each Mortgage File of any of the Mortgage  Loans  identified on the
Mortgage Loan Schedule, or (ii) the collectability,  insurability, effectiveness
or suitability of any such Mortgage Loan.

                                      E-1
<PAGE>

      Capitalized  words and  phrases  used  herein  shall  have the  respective
meanings assigned to them in the Custodial Agreement.

                                             THE BANK OF NEW YORK
                                             as Trustee

                                             By:   ____________________________
                                             Name: ____________________________
                                             Title:____________________________

                                      E-2
<PAGE>

                                    EXHIBIT F

                                   [RESERVED]

                                      F-1

<PAGE>

                                    EXHIBIT G

                    FORM OF FINAL CERTIFICATION OF CUSTODIAN

                                     [date]

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

MBIA Insurance Corporation_
113 King Street
Armonk, New York  10504

      Re:   Custodial  Agreement  dated as of December 30, 2004 by and among the
            Bank of New York, as Trustee,  First Horizon Home Loan  Corporation,
            as Servicer,  and First  Tennessee  Bank  National  Association,  as
            Custodian

Ladies and Gentlemen:

      In accordance with Section 2 of the  above-captioned  Custodial  Agreement
(the "Custodial Agreement"),  the undersigned, as 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 attached Document  Exception Report)
it has received:

      (i)   (A) The  original  Mortgage  Note  endorsed  by manual or  facsimile
            signature  in  blank in the  following  form:  "Pay to the  order of
            ____________  without  recourse," with all intervening  endorsements
            showing a complete chain of endorsements  from the originator to the
            Person  endorsing  the Mortgage  Note (each such  endorsement  being
            sufficient to transfer all right, title and interest of the party so
            endorsing,  as  noteholder  or  assignee  thereof,  in and  to  that
            Mortgage Note); or

            (B) with respect to any Lost  Mortgage  Note, a lost note  affidavit
            from the Seller stating that the original  Mortgage Note was lost or
            destroyed, together with a copy of such Mortgage Note;

      (ii)  except as provided  below and for each  Mortgage  Loan that is not a
            MERS Mortgage Loan, the original recorded Mortgage or a copy of such
            Mortgage  certified by the Seller as being a true and complete  copy
            of the  Mortgage  and in the case of each MERS  Mortgage  Loan,  the
            original  Mortgage,  noting the  presence of the MIN of the Mortgage
            Loans and either language indicating that the Mortgage Loan is a MOM
            Loan if the Mortgage  Loan is a MOM Loan or if the Mortgage Loan was
            not a MOM  Loan  at  origination,  the  original  Mortgage  and  the
            assignment  thereof to MERS,  with  evidence of recording  indicated
            thereon, or a copy of the Mortgage certified by the public recording
            office in which such Mortgage has been recorded;

                                       G-1
<PAGE>

      (iii) in the case of each Mortgage Loan that is not a MERS Mortgage  Loan,
            a duly  executed  assignment  of the Mortgage in blank (which may be
            included in a blanket  assignment or  assignments),  together  with,
            except as provided below, all interim  recorded  assignments of such
            mortgage each such assignment,  when duly and validly completed,  to
            be in recordable form and sufficient to effect the assignment of and
            transfer to the  assignee  thereof,  under the Mortgage to which the
            assignment related);  provided that, if the related Mortgage has not
            been returned from the  applicable  public  recording  office,  such
            assignment  of  the  Mortgage  may  exclude  the  information  to be
            provided by the recording office;

      (iv)  the  original or copies of each  assumption,  modification,  written
            assurance or substitution agreement, if any;

      (v)   for any Mortgage Loan other than a Combo Mortgage  Loan,  either the
            original or duplicate  original  title policy  (including all riders
            thereto)  with  respect  to  the  related  Mortgaged  Property,   if
            available,  provided  that the title  policy  (including  all riders
            thereto) for a Mortgage  Loan other than a Combo  Mortgage Loan will
            be  delivered  as soon as it  becomes  available,  and if the  title
            policy is not  available,  and to the extent  required  pursuant  to
            Section 2.1(b) of the Custodial  Agreement,  a written commitment or
            interim  binder or  preliminary  report  of the title  issued by the
            title  insurance or escrow  company  with  respect to the  Mortgaged
            Property, and

      (vi)  in the case of a  Cooperative  Loan,  the originals of the following
            documents or instruments:

            (a)   The Coop Shares, together with a stock power in blank;

            (b)   The executed Security Agreement;

            (c)   The executed Proprietary Lease;

            (d)   The  executed  UCC-1  financing  statement  with  evidence  of
                  recording thereon which have been filed in all places required
                  to perfect  the  Seller's  interest in the Coop Shares and the
                  Proprietary Lease; and

            (e)   Executed UCC-3 financing  statements or their  appropriate UCC
                  financing  statements  required  by state  law,  evidencing  a
                  complete and unbroken  line from the  mortgagee to the Trustee
                  with evidence of recording  thereon (or in a form suitable for
                  recordation).

      Based  on  its  review  and  examination  and  only  as to  the  foregoing
documents,  (a) such documents  appear regular on their face and related to such
Mortgage Loan,  and (b) the  information  set forth in items (i),  (ii),  (iii),
(iv), (vi) and (xi) of the definition of the "Mortgage Loan Schedule" in Article
I of the Pooling and Servicing  Agreement  accurately  reflects  information set
forth in the Mortgage File.

                                       G-2
<PAGE>

      The Trustee has made no independent examination of any documents contained
in each Mortgage File beyond the review  specifically  required in the Custodial
Agreement.  The  Trustee  makes  no  representations  as to:  (i) the  validity,
legality,  sufficiency,  enforceability  or  genuineness of any of the documents
contained in each Mortgage File of any of the Mortgage  Loans  identified on the
Mortgage Loan Schedule, or (ii) the collectability,  insurability, effectiveness
or suitability of any such Mortgage Loan. Notwithstanding anything herein to the
contrary,  the Trustee has made no determination and makes no representations as
to whether (i) any endorsement is sufficient to transfer all right,  title,  and
interest of the party so endorsing, as noteholder or assignee thereof, in and to
that Mortgage Note or (ii) any assignment is in recordable form or sufficient to
effect  the  assignment  of and  transfer  to the  assignee  thereof,  under the
Mortgage to which the assignment relates.

      Capitalized  words and  phrases  used  herein  shall  have the  respective
meanings assigned to them in the Custodial Agreement.

                                           THE BANK OF NEW YORK,
                                           as Trustee

                                           By:      ___________________________
                                           Name:    ___________________________
                                           Title:   ___________________________

                                      G-3
<PAGE>

                                    EXHIBIT H

                               TRANSFER AFFIDAVIT

                        First Horizon ABS Trust 2004-HE4
                       Mortgage Pass-Through Certificates
                                 Series 2004-HE4

STATE OF          _________ )
                  _________ ) ss.:
COUNTY OF         _________ )

      The undersigned, being first duly sworn, deposes and says as follows:

      1. The undersigned is an officer of __________, the proposed Transferee of
an  Ownership  Interest  in a Class R  Certificate  (the  "Certificate")  issued
pursuant to the Pooling and Servicing Agreement, (the "Agreement"),  relating to
the  above-referenced  Series, by and among First Horizon Asset Securities Inc.,
as depositor (the "Depositor"),  First Horizon Home Loan Corporation,  as master
servicer, and The Bank of New York, as trustee.  Capitalized terms used, but not
defined herein or in Exhibit 1 hereto,  shall have the meanings ascribed to such
terms in the Agreement.  The  Transferee has authorized the  undersigned to make
this affidavit on behalf of the Transferee.

      2. The Transferee  is, as of the date hereof,  and will be, as of the date
of the  Transfer,  a Permitted  Transferee.  The  Transferee  is  acquiring  its
Ownership  Interest in the Certificate either (i) for its own account or (ii) as
nominee,  trustee  or agent  for  another  Person  and has  attached  hereto  an
affidavit from such Person in substantially the same form as this affidavit. The
Transferee has no knowledge that any such affidavit is false.

      3. The Transferee has been advised of, and understands  that (i) a tax may
be imposed on Transfers  of the  Certificate  to Persons that are not  Permitted
Transferees;  (ii)  such tax will be  imposed  on the  transferor,  or,  if such
Transfer is through an agent (which includes a broker, nominee or middleman) for
a Person that is not a Permitted Transferee,  on the agent; and (iii) the Person
otherwise  liable for the tax shall be relieved of liability  for the tax if the
subsequent transferee furnished to such Person an affidavit that such subsequent
transferee is a Permitted  Transferee and, at the time of Transfer,  such Person
does not have actual knowledge that the affidavit is false.

      4. The Transferee has been advised of, and  understands  that a tax may be
imposed on a "pass-through entity" holding the Certificate if at any time during
the  taxable  year of the  pass-through  entity a Person that is not a Permitted
Transferee  is the record holder of an interest in such entity.  The  Transferee
understands  that such tax will not be imposed  for any period  with  respect to
which the record holder furnishes to the  pass-through  entity an affidavit that
such record holder is a Permitted  Transferee and the  pass-through  entity does
not have actual  knowledge  that such affidavit is false.  (For this purpose,  a
"pass-through  entity" includes a regulated  investment  company,  a real estate
investment  trust or common  trust fund,  a  partnership,  trust or estate,  and
certain  cooperatives  and,  except as may be provided in Treasury  Regulations,
persons  holding  interests  in  pass-through  entities as a nominee for another
Person.)

                                       H-1
<PAGE>

      5. The  Transferee  has reviewed the  provisions of Section  5.2(c) of the
Agreement  (attached hereto as Exhibit 2 and  incorporated  herein by reference)
and  understands  the legal  consequences  of the  acquisition  of an  Ownership
Interest in the Certificate including,  without limitation,  the restrictions on
subsequent  Transfers  and the  provisions  regarding  voiding the  Transfer and
mandatory sales. The Transferee  expressly agrees to be bound by and to abide by
the provisions of Section 5.2(c) of the Agreement and the restrictions  noted on
the face of the  Certificate.  The  Transferee  understands  and agrees that any
breach of any of the  representations  included herein shall render the Transfer
to the Transferee contemplated hereby null and void.

      6. The Transferee  agrees to require a Transfer  Affidavit from any Person
to whom the  Transferee  attempts  to  Transfer  its  Ownership  Interest in the
Certificate,  and in  connection  with any  Transfer  by a  Person  for whom the
Transferee is acting as nominee,  trustee or agent,  and the Transferee will not
Transfer  its  Ownership   Interest  or  cause  any  Ownership  Interest  to  be
Transferred  to  any  Person  that  the  Transferee  knows  is  not a  Permitted
Transferee.  In  connection  with  any  such  Transfer  by the  Transferee,  the
Transferee  agrees to deliver to the Trustee a certificate  substantially in the
form set forth as Exhibit I to the Agreement (a "Transferor Certificate") to the
effect that such Transferee has no actual knowledge that the Person to which the
Transfer is to be made is not a Permitted Transferee.

      7. The Transferee  does not have the intention to impede the assessment or
collection  of  any  tax  legally  required  to be  paid  with  respect  to  the
Certificate.

      8. The Transferee's taxpayer identification number is ______.

      9. The  Transferee  is either a U.S.  Person as  defined  in Code  Section
7701(a)(30) or the Transferee has furnished the Transferor a properly  completed
Internal Revenue Service Form W-8ECI.

      10. Any  distribution of the proceeds of any remaining assets of the Trust
Fund  will  be  made  only  upon  presentment  and  surrender  of  this  Class R
Certificate at the Corporate Trust Office or the office or agency  maintained by
the  Trustee in New York,  New York.  This  Class R  Certificate  represents  an
ownership in the RL Interest and RU Interest, as defined in the Agreement.

      11. The Transferee is not an employee benefit plan or arrangement  subject
to Section 406 of ERISA or a plan or arrangement  subject to Section 4975 of the
Code, nor a person acting on behalf of any such plan or  arrangement,  nor using
the assets of any such plan or arrangement to effect such transfer.

      12. The  Transferee has  historically  paid its debts as they came due and
the  Transferee  will  continue to pay its debts as they come due in the future;
the  Transferee  understands  that,  as  the  holder  of  the  Certificate,  the
Transferee may incur tax  liabilities  in excess of any cash flows  generated by
the Certificate and the Transferee  intends to pay taxes associated with holding
the Certificate as they become due.

      13.  The  Transferee  is a  domestic  corporation  taxable  as  a  regular
corporation  for U.S.  federal  income  tax  purposes  (a  "taxable  domestic  C
corporation") and is not a real estate investment  trust,  regulated  investment
company or REMIC.  The Transferee  will not cause income from the Certificate to
be attributable,  for U.S. federal income tax purposes, to a non-U.S.  permanent
establishment  or fixed base  (within  the meaning of an  applicable  income tax
treaty) of the Transferee or another U.S. taxpayer. At the time of the Transfer,
and at the close of each of the Transferee's two fiscal years preceding the year
of the Transfer,  the Transferee's gross assets for financial reporting purposes
exceeded $10 million (together,  the "Asset  Requirements"),  and the Transferee
hereby covenants that any subsequent  Transfer of its Ownership  Interest in the
Certificate  will be to another taxable,  domestic C corporation  satisfying the
Asset Requirements

                                       H-2
<PAGE>

      IN WITNESS  WHEREOF,  the  Transferee  has caused  this  instrument  to be
executed on its behalf,  pursuant to authority of its Board of Directors, by its
duly  authorized  officer and its corporate  seal to be hereunto  affixed,  duly
attested, this ___ day of _________, 20__.

                                           ------------------------------
                                           Print Name of Transferee

                                           By:___________________________
                                           Name:_________________________
                                           Title:________________________

      Personally appeared before me the above-named  ________________,  known or
proved to me to be the same person who executed the foregoing  instrument and to
be the  _________________  of the Transferee,  and acknowledged that he executed
the same as his free act and deed and the free act and deed of the Transferee.

      Subscribed and sworn before me this _____ day of ___________, 20____.

                                           _____________________________________
                                           NOTARY PUBLIC

                                           My Commission expires the ___ day of
                                           ________________, 20___.

                                      H-3
<PAGE>
                                                          EXHIBIT 1 to EXHIBIT H

                               Certain Definitions

      "Ownership  Interest":  As to any Certificate,  any ownership  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.

      "Permitted  Transferee":  Any Person other than (i) the United States, any
State or political  subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government,  International  Organization or any
agency or  instrumentality  of either of the  foregoing,  (iii) an  organization
(except  certain  farmers'  cooperatives  described  in section 521 of the Code)
which is exempt  from tax  imposed by Chapter 1 of the Code  (including  the tax
imposed by section 511 of the Code on unrelated  business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any  Certificate,  (iv) rural electric and telephone  cooperatives  described in
section  1381(a)(2)(C)  of the Code,  (v) an  "electing  large  partnership"  as
defined in section  775 of the Code,  (vi) a Person that is not (a) a citizen or
resident of the United States, (b) a corporation,  partnership,  or other entity
created  or  organized  in or under  the laws of the  United  States,  any state
thereof or the  District of  Columbia,  (c) an estate  whose income 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 (d) a trust if a court within the
United States is able to exercise primary supervision over the administration of
the trust and one or more United  States  persons have the  authority to control
all  substantial  decisions of the trust,  unless such Person has  furnished the
transferor and the Trustee with a duly completed  Internal  Revenue Service Form
W-8ECI  or any  applicable  successor  form,  and  (vii)  any  other  Person  so
designated by the  Depositor  based upon an Opinion of Counsel that the Transfer
of an  Ownership  Interest in a  Certificate  to such Person may cause any REMIC
created pursuant to the Agreement to fail to qualify as a REMIC at any time that
the  Certificates  (as  defined in the  Agreement)  are  outstanding;  provided,
however, that if a person is classified as a partnership or a disregarded entity
under the Code,  such person shall only be a Permitted  Transferee if all of its
beneficial  owners are  described in  subclauses  (a), (b), (c) or (d) of clause
(vi) and the  governing  documents  of such  person  prohibits a transfer of any
interest  in such  person to any  person  described  in clause  (vi).  The terms
"United  States,"  "State"  and  "International  Organization"  shall  have  the
meanings  set  forth in  section  7701 of the Code or  successor  provisions.  A
corporation will not be treated as an instrumentality of the United States or of
any State or  political  subdivision  thereof  for these  purposes if all of its
activities  are subject to tax and,  with the exception of the Federal Home Loan
Mortgage  Corporation,  a majority of its board of  directors is not selected by
such government unit.

      "Person":  Any  individual,   corporation,   partnership,  joint  venture,
association,   bank,  joint-stock  company,  trust  (including  any  beneficiary
thereof),  unincorporated  organization or government or any agency or political
subdivision thereof.

      "Transfer":  Any  direct or  indirect  transfer  or sale of any  Ownership
Interest in a  Certificate,  including the  acquisition  of a Certificate by the
Depositor.

      "Transferee":  Any Person  who is  acquiring  by  Transfer  any  Ownership
Interest in a Certificate.

                                      H-4
<PAGE>

                             EXHIBIT 2 to EXHIBIT H

                         Section 5.2(c) of the Agreement

      (c) 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
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  Ownership  Interest  in  a  Residual  Certificate  may  be
registered on the Closing Date or thereafter transferred,  and the Trustee shall
not register the Transfer of any Residual Certificate unless, in addition to the
certificates  required to be delivered  to the Trustee  under  subparagraph  (b)
above,  the Trustee  shall have been  furnished  with an  affidavit (a "Transfer
Affidavit") of the initial owner or the proposed transferee in the form attached
hereto as Exhibit H.

            (iii) Each Person  holding or acquiring any Ownership  Interest in a
Residual  Certificate  shall agree (A) to obtain a Transfer  Affidavit  from any
other Person to whom such Person attempts to Transfer its Ownership  Interest in
a Residual  Certificate,  (B) to obtain a Transfer Affidavit from any Person for
whom such Person is acting as nominee,  trustee or agent in connection  with any
Transfer  of a  Residual  Certificate  and (C)  not to  Transfer  its  Ownership
Interest in a Residual  Certificate  or to cause the  Transfer  of an  Ownership
Interest  in a  Residual  Certificate  to any  other  Person  if it  has  actual
knowledge that such Person is not a Permitted Transferee.

            (iv) Any attempted or purported  Transfer of any Ownership  Interest
in a Residual  Certificate in violation of the provisions of this Section 5.2(c)
shall be  absolutely  null and void and shall  vest no  rights in the  purported
Transferee.  If any  purported  transferee  shall  become a Holder of a Residual
Certificate in violation of the provisions of this Section 5.2(c), then the last
preceding Permitted Transferee shall 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 Section 5.2(b) and this Section 5.2(c) or for making any payments due on such
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 Transfer was
registered  after  receipt  of  the  related  Transfer   Affidavit,   Transferor
Certificate,  and in the case of a Residual  Certificate which is also a Private
Certificate,  either the Rule 144A Letter or the Investment  Letter. The Trustee
shall be entitled  but not  obligated  to recover  from any Holder of a Residual
Certificate that was in fact not a Permitted  Transferee at the time it became a
Holder  or,  at  such  subsequent  time  as it  became  other  than a  Permitted
Transferee,  all payments made on such Residual  Certificate at and after either
such time.  Any such  payments so  recovered  by the  Trustee  shall be paid and
delivered  by the Trustee to the last  preceding  Permitted  Transferee  of such
Certificate.

                                      H-6
<PAGE>

            (v) The Depositor shall use its best efforts to make available, upon
receipt of written  request  from the  Trustee,  all  information  necessary  to
compute  any tax  imposed  under  Section  860E(e)  of the Code as a result of a
Transfer of an Ownership Interest in a Residual Certificate to any Holder who is
not a Permitted Transferee.

      The restrictions on Transfers of a Residual  Certificate set forth in this
Section 5.2(c) shall cease to apply (and the  applicable  portions of the legend
on a Residual  Certificate  may be deleted) with respect to Transfers  occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund,  the Trustee or the Master  Servicer,
to the effect that the elimination of such restrictions will not cause any REMIC
created  hereunder  to  fail  to  qualify  as a  REMIC  at  any  time  that  the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a  Certificateholder  or another Person.  Each Person holding or acquiring
any  Ownership  Interest  in a  Residual  Certificate  hereby  consents  to  any
amendment of this Agreement which,  based on an Opinion of Counsel  furnished to
the Trustee, is reasonably necessary (a) to ensure that the record ownership of,
or any  beneficial  interest  in, a  Residual  Certificate  is not  transferred,
directly or indirectly,  to a Person that is not a Permitted  Transferee and (b)
to provide for a means to compel the Transfer of a Residual Certificate which is
held by a  Person  that is not a  Permitted  Transferee  to a  Holder  that is a
Permitted Transferee.

                                      H-7
<PAGE>

                                    EXHIBIT I

                         FORM OF TRANSFEROR CERTIFICATE

                                                          _______________, 20___

First Horizon Asset Securities Inc.
First Horizon Home Loan Corporation
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286

            Re:   First  Horizon  ABS  Trust  2004-HE4   Mortgage   Pass-Through
                  Certificates, Series 2004-HE4, Class -----

Ladies and Gentlemen:

      In connection  with our  disposition of the above  Certificates we certify
that (a) to the extent we are disposing of a Private Certificate,  we understand
that the Private Certificate has not been registered under the Securities Act of
1933,  as amended (the "Act"),  and is being  disposed of by us in a transaction
that is exempt from the  registration  requirements  of the Act, (b) we have not
offered or sold any Certificates to, or solicited offers to buy any Certificates
from,  any person,  or otherwise  approached or negotiated  with any person with
respect  thereto,  in a manner that would be deemed,  or taken any other  action
which  would  result in, a  violation  of  Section 5 of the Act,  and (c) to the
extent we are  disposing of a Residual  Certificate,  we have no  knowledge  the
transferee is not a Permitted Transferee.

      Capitalized  terms used  herein  shall have the  meaning  ascribed to such
terms in the Pooling and  Servicing  Agreement  dated as of December 1, 2004, by
and among First Horizon Asset Securities Inc., as depositor,  First Horizon Home
Loan  Corporation,  as master  servicer,  and The Bank of New York,  as trustee,
pursuant to which the Residual Certificates were issued.

                                               Very truly yours,

                                               ________________________________
                                               Print Name of Transferor

                                               By:_____________________________
                                                   Authorized Officer

                                      I-1
<PAGE>

                                    EXHIBIT J

                    FORM OF INVESTMENT LETTER (NON-RULE 144A)
                                                            _____________, 20___

First Horizon Asset Securities Inc.
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286__
Attention:  Mortgage-Backed Securities Group

            Re:   First  Horizon  ABS  Trust  2004-HE4   Mortgage   Pass-Through
                  Certificates, Series 2004-HE4, Class ___

Ladies and Gentlemen:

      In connection  with our  acquisition of the above  Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of  the  Act  and  any  such  laws,  (b)  we  are an
"accredited  investor,"  as defined in Regulation D under the Act, and have such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase the Certificates, (d) either (i) we are not an employee benefit plan or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any such plan or  arrangement  nor are we using  the  assets of any such plan or
arrangement   to  effect   such   acquisition   or  (ii)  if,  in  the  case  of
ERISA-Restricted  Certificates that have been the subject of an ERISA-Qualifying
Underwriting,  we are an  insurance  company,  a  representation  that we are an
insurance  company which is purchasing such Certificates with funds contained in
an "insurance  company general account" (as such term is defined in Section V(e)
of Prohibited  Transaction  Class  Exemption  95-60 ("PTCE 95-60")) and that the
purchase and holding of such  Certificates  are covered under Sections I and III
of PTCE 95-60,  (e) we are acquiring the Certificates for investment for our own
account  and not  with a view to any  distribution  of  such  Certificates  (but
without  prejudice to our right at all times to sell or otherwise dispose of the
Certificates  in accordance  with clause (g) below),  (f) we have not offered or
sold any Certificates to, or solicited offers to buy any Certificates  from, any
person,  or  otherwise  approached  or  negotiated  with any person with respect
thereto,  or taken any other action which would result in a violation of Section
5 of the Act,  and (g) we will not sell,  transfer or  otherwise  dispose of any

                                       J-1
<PAGE>

Certificates  unless  (1)  such  sale,  transfer  or other  disposition  is made
pursuant to an effective  registration statement under the Act or is exempt from
such registration requirements, and if requested, we will at our expense provide
an opinion of counsel  satisfactory to the addressees of this  Certificate  that
such sale,  transfer or other  disposition  may be made pursuant to an exemption
from the Act, (2) the purchaser or transferee of such  Certificate  has executed
and  delivered to you a  certificate  to  substantially  the same effect as this
certificate, and (3) the purchaser or transferee has otherwise complied with any
conditions for transfer set forth in the Pooling and Servicing Agreement.

                                                   Very truly yours,

                                                   _____________________________
                                                   Print Name of Transferee

                                                   By:__________________________
                                                       Authorized Officer

                                      J-2
<PAGE>

                                    EXHIBIT K

                            FORM OF RULE 144A LETTER

                                                               ___________, 20__

First Horizon Asset Securities Inc.
4000 Horizon Way
Irving, Texas  75063

The Bank of New York_______
101 Barclay Street, 8W_____
New York, New York  10286__
Attention:  Mortgage-Backed Securities Group

            Re:   First  Horizon  ABS  Trust  2004-HE4   Mortgage   Pass-Through
                  Certificates, Series 2004-HE4, Class ___

Ladies and Gentlemen:

      In connection  with our  acquisition of the above  Certificates we certify
that (a) we understand that the  Certificates are not being registered under the
Securities Act of 1933, as amended (the "Act"), or any state securities laws and
are  being  transferred  to  us  in  a  transaction  that  is  exempt  from  the
registration  requirements  of the Act  and  any  such  laws,  (b) we have  such
knowledge and  experience in financial and business  matters that we are capable
of evaluating the merits and risks of investments  in the  Certificates,  (c) we
have had the  opportunity  to ask  questions  of and  receive  answers  from the
Depositor  concerning the purchase of the  Certificates and all matters relating
thereto or any  additional  information  deemed  necessary  to our  decision  to
purchase  the  Certificates,  (d)  we  are  not  an  employee  benefit  plan  or
arrangement  that is subject to the Employee  Retirement  Income Security Act of
1974, as amended,  or a plan or  arrangement  that is subject to Section 4975 of
the Internal  Revenue Code of 1986,  as amended,  nor are we acting on behalf of
any  such  plan  or  arrangement  nor  using  the  assets  of any  such  plan or
arrangement to effect such acquisition, (e) if an insurance company, in the case
of   ERISA-restricted   Certificates   that   have  been  the   subject   of  an
ERISA-Qualifying  Underwriting,  we are purchasing the  Certificates  with funds
contained in an "insurance  company general account" (as defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and our purchase
and holding of the  Certificates  are covered  under  Sections I and III of PTCE
95-60,  (f)  we  have  not,  nor  has  anyone  acting  on  our  behalf  offered,
transferred,  pledged,  sold or  otherwise  disposed  of the  Certificates,  any
interest in the  Certificates or any other similar security to, or solicited any
offer  to  buy  or  accept  a  transfer,  pledge  or  other  disposition  of the
Certificates,  any interest in the  Certificates  or any other similar  security
from, or otherwise  approached or negotiated  with respect to the  Certificates,
any interest in the  Certificates or any other similar security with, any person
in any manner, or made any general  solicitation by means of general advertising
or in any other  manner,  or taken any other  action,  that would  constitute  a

                                       K-1
<PAGE>

distribution  of the  Certificates  under  the  Act or  that  would  render  the
disposition  of the  Certificates a violation of Section 5 of the Act or require
registration  pursuant  thereto,  nor  will  act,  nor  has  authorized  or will
authorize  any person to act, in such manner with  respect to the  Certificates,
(g) we are a  "qualified  institutional  buyer" as that term is  defined in Rule
144A  under the Act  ("Rule  144A")  and have  completed  either of the forms of
certification  to that effect  attached hereto as Annex 1 or Annex 2, (h) we are
aware that the sale to us is being made in reliance on Rule 144A, and (i) we are
acquiring the  Certificates  for our own account or for resale  pursuant to Rule
144A and further,  understand that such  Certificates may be resold,  pledged or
transferred  only  (A)  to a  person  reasonably  believed  to  be  a  qualified
institutional  buyer that  purchases for its own account or for the account of a
qualified institutional buyer to whom notice is given that the resale, pledge or
transfer  is being made in  reliance  on Rule 144A,  or (B)  pursuant to another
exemption from registration under the Act.

                                                   Very truly yours,

                                                   _____________________________
                                                   Print Name of Transferee

                                                   By:__________________________
                                                      Authorized Officer

                                      K-2
<PAGE>

                                                            ANNEX 1 TO EXHIBIT K

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

          [For Transferees Other Than Registered Investment Companies]

      The undersigned  (the "Buyer") hereby  certifies as follows to the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates with respect to the Certificates described therein:

      1. As indicated below,  the undersigned is the President,  Chief Financial
Officer, Senior Vice President or other executive officer of the Buyer.

      2. In connection  with  purchases by the Buyer,  the Buyer is a "qualified
institutional  buyer" as that term is defined in Rule 144A under the  Securities
Act of 1933,  as  amended  ("Rule  144A")  because  (i) the Buyer  owned  and/or
invested  on a  discretionary  basis $ ______1  in  securities  (except  for the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being  calculated in accordance with Rule 144A and (ii)
the Buyer satisfies the criteria in the category marked below.

            ___ Corporation, etc. The Buyer is a corporation (other than a bank,
savings and loan association or similar  institution),  Massachusetts or similar
business trust,  partnership,  or charitable  organization  described in Section
501(c)(3) of the Internal Revenue Code of 1986, as amended.

            ___ Bank.  The Buyer (a) is a national  bank or banking  institution
organized  under the laws of any State,  territory  or the District of Columbia,
the business of which is substantially  confined to banking and is supervised by
the State or territorial  banking commission or similar official or is a foreign
bank or  equivalent  institution,  and (b) has an audited  net worth of at least
$25,000,000 as demonstrated in its latest annual financial statements, a copy of
which is attached hereto.

            ___  Savings  and  Loan.  The  Buyer  (a)  is  a  savings  and  loan
association,   building  and  loan  association,   cooperative  bank,  homestead
association or similar institution,  which is supervised and examined by a State
or Federal  authority  having  supervision  over any such  institutions  or is a
foreign  savings and loan  association or equivalent  institution and (b) has an
audited net worth of at least  $25,000,000 as  demonstrated in its latest annual
financial statements, a copy of which is attached hereto.

            ___  Broker-dealer.  The Buyer is a dealer  registered  pursuant  to
Section 15 of the Securities Exchange Act of 1934.

--------
1     Buyer  must  own  and/or  invest  on  a   discretionary   basis  at  least
      $100,000,000  in securities  unless Buyer is a dealer,  and, in that case,
      Buyer must own and/or invest on a discretionary basis at least $10,000,000
      in securities.

                                      K-3
<PAGE>

            ___  Insurance  Company.  The Buyer is an  insurance  company  whose
primary and  predominant  business  activity is the writing of  insurance or the
reinsuring of risks underwritten by insurance  companies and which is subject to
supervision by the insurance  commissioner or a similar  official or agency of a
State, territory or the District of Columbia.

            ___  State or  Local  Plan.  The  Buyer  is a plan  established  and
maintained  by  a  State,   its  political   subdivisions,   or  any  agency  or
instrumentality of the State or its political  subdivisions,  for the benefit of
its employees.

            ___ ERISA  Plan.  The Buyer is an employee  benefit  plan within the
meaning of Title I of the Employee Retirement Income Security Act of 1974.

            ___  Investment   Advisor.   The  Buyer  is  an  investment  advisor
registered under the Investment Advisors Act of 1940.

            ___ Small  Business  Investment  Company.  Buyer is 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.

            ___ Business  Development  Company.  Buyer is a business development
company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940.

      3. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated with the Buyer,  (ii) securities that are part of an
unsold  allotment  to or  subscription  by the Buyer,  if the Buyer is a dealer,
(iii)  securities  issued  or  guaranteed  by the  U.S.  or any  instrumentality
thereof,  (iv)  bank  deposit  notes  and  certificates  of  deposit,  (v)  loan
participations,  (vi) repurchase agreements,  (vii) securities owned but subject
to a repurchase  agreement  and (viii)  currency,  interest  rate and  commodity
swaps.

      4. For purposes of determining  the aggregate  amount of securities  owned
and/or invested on a discretionary  basis by the Buyer,  the Buyer used the cost
of such  securities  to the  Buyer  and did not  include  any of the  securities
referred to in the preceding  paragraph,  except (i) where the Buyer reports its
securities  holdings in its  financial  statements  on the basis of their market
value,  and  (ii) no  current  information  with  respect  to the  cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market.  Further,  in determining such aggregate
amount,  the Buyer may have included  securities  owned by  subsidiaries  of the
Buyer,  but only if such  subsidiaries  are  consolidated  with the Buyer in its
financial  statements  prepared in accordance with generally accepted accounting
principles  and if the  investments of such  subsidiaries  are managed under the
Buyer's direction.  However, such securities were not included if the Buyer is a
majority-owned,  consolidated  subsidiary of another enterprise and the Buyer is
not itself a reporting  company  under the  Securities  Exchange Act of 1934, as
amended.

      5.  The  Buyer  acknowledges  that  it is  familiar  with  Rule  144A  and
understands  that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements  made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

                                      K-4
<PAGE>

      6. Until the date of purchase of the Rule 144A Securities,  the Buyer will
notify each of the parties to which this certification is made of any changes in
the information and conclusions herein.  Until such notice is given, the Buyer's
purchase  of  the   Certificates   will  constitute  a  reaffirmation   of  this
certification  as of the date of such purchase.  In addition,  if the Buyer is a
bank or  savings  and loan is  provided  above,  the Buyer  agrees  that it will
furnish to such parties updated annual financial  statements promptly after they
become available.

                                                  ______________________________
                                                  Print Name of Transferee

                                                  By:___________________________
                                                  Name:_________________________
                                                  Title:________________________

                                                  Date:_________________________

                                      K-5
<PAGE>

                              ANNEX 2 TO EXHIBIT K

            QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

           [For Transferees That are Registered Investment Companies]

      The undersigned  (the "Buyer") hereby  certifies as follows to the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates with respect to the Certificates described therein:

      1. As indicated below,  the undersigned is the President,  Chief Financial
Officer or Senior Vice  President  of the Buyer or, if the Buyer is a "qualified
institutional  buyer" as that term is defined in Rule 144A under the  Securities
Act of 1933,  as  amended  ("Rule  144A")  because  Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.

      2. In  connection  with  purchases  by Buyer,  the  Buyer is a  "qualified
institutional  buyer" as  defined in SEC Rule 144A  because  (i) the Buyer is an
investment  company  registered  under the  Investment  Company Act of 1940,  as
amended and (ii) as marked  below,  the Buyer  alone,  or the Buyer's  Family of
Investment Companies,  owned at least $100,000,000 in securities (other than the
excluded  securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining  the amount of securities  owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was  used,  except  (i)  where the  Buyer or the  Buyer's  Family of  Investment
Companies  reports its  securities  holdings in its financial  statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those  securities  has been  published.  If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

            ___ The  Buyer  owned  $ in  securities  (other  than  the  excluded
securities  referred to below) as of the end of the Buyer's  most recent  fiscal
year (such amount being calculated in accordance with Rule 144A).

            ___ The  Buyer is part of a Family  of  Investment  Companies  which
owned in the  aggregate  $ in  securities  (other than the  excluded  securities
referred  to below) as of the end of the Buyer's  most recent  fiscal year (such
amount being calculated in accordance with Rule 144A).

      3. The term "Family of  Investment  Companies" as used herein means two or
more  registered  investment  companies  (or series  thereof) that have the same
investment  adviser or  investment  advisers that are  affiliated  (by virtue of
being majority owned  subsidiaries  of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

      4. The term "securities" as used herein does not include (i) securities of
issuers that are affiliated  with the Buyer or are part of the Buyer's Family of
Investment  Companies,  (ii) securities  issued or guaranteed by the U.S. or any
instrumentality  thereof,  (iii) bank deposit notes and certificates of deposit,
(iv) loan participations,  (v) repurchase agreements,  (vi) securities owned but
subject  to a  repurchase  agreement  and  (vii)  currency,  interest  rate  and
commodity swaps.

                                       K-6
<PAGE>

      5. The Buyer is familiar with Rule 144A and  understands  that the parties
listed in the Rule  144A  Transferee  Certificate  to which  this  certification
relates  are relying and will  continue  to rely on the  statements  made herein
because  one or more sales to the Buyer  will be in  reliance  on Rule 144A.  In
addition, the Buyer will only purchase for the Buyer's own account.

      6. Until the date of purchase of the  Certificates,  the undersigned  will
notify the parties listed in the Rule 144A Transferee  Certificate to which this
certification  relates of any changes in the information and conclusions herein.
Until such  notice is given,  the  Buyer's  purchase  of the  Certificates  will
constitute a reaffirmation  of this  certification  by the undersigned as of the
date of such purchase.

                                                _______________________________
                                                Print Name of Transferee

                                                By:_____________________________
                                                Name:___________________________
                                                Title:__________________________

                                                IF AN ADVISER:

                                                _______________________________
                                                Print Name of Buyer

                                                Date:__________________________

                                      K-7
<PAGE>

                                    EXHIBIT L

                               REQUEST FOR RELEASE

                     [Substitution of Deleted Mortgage Loans
                                       or
                          Mortgage Loans Paid in Full]

      ____________________________________ Mortgage Loan Files

      _____________________  hereby  certifies  that  he/she  is an  officer  of
_____________________,  holding the office set forth beneath his/her  signature,
and hereby further certifies as follows:

(Check One)

|_|   With respect to the  mortgage  loans  described in the attached  schedule,
      each such mortgage loan  constitutes a "Substitute  Mortgage Loan" (as the
      term is defined in the Pooling and Servicing Agreement).

|_|   With  respect  to the  "Mortgage  Loans"  (as the term is  defined  in the
      custodial agreement) described in the attached schedule:

      All payments of principal,  premium (if any),  and interest have been made
with respect to the following:

      Loan Number:_________________________________

      Borrower's Name: ____________________________

      County: _____________________________________

      We hereby certify that all amounts to be received in connection  with such
      payments have been received.

_____________________________

Dated: ______________________

/  / Vice President

/  / Assistant Vice President

                                      L-1
<PAGE>

                                    EXHIBIT M

                         REQUEST FOR RELEASE AND RECEIPT
                         [For Servicing and Foreclosure]

                             ________________________________Mortgage Loan Files

LOAN INFORMATION

         Name of Mortgagor:         __________________________________

         Loan No.:  _______         __________________________________

      The  undersigned  hereby  acknowledges  that it has  received  from  FIRST
TENNESSEE  BANK  NATIONAL  ASSOCIATION,  as Custodian  for  ____________________
Mortgage Loan Files,  the  documents  referred to below (the  "Documents").  All
capitalized  terms not otherwise defined in this Request for Release and Receipt
shall have the meanings ascribed to them in the Custodial  Agreement dated as of
__________________  among  ___________________ and FIRST TENNESSEE BANK NATIONAL
ASSOCIATION, as Custodian (the "Custodial Agreement").

                             [COMPLETE AS NECESSARY]

      The undersigned hereby acknowledges an agrees as follows:

      (1) The undersigned  shall hold and retain  possession of the Documents in
trust for the benefit of __________________, solely for the purposes provided in
the Custodial Agreement.

      (2) The  undersigned  shall not cause or permit  the  Documents  to become
subject to, or encumbered  by, any claim,  liens,  security  interest,  charges,
writs of attachment or other  impositions  nor shall the  undersigned  assert or
seek to assert any claims or rights of setoff to or against the Documents or any
proceeds thereof.

      (3) The  undersigned  shall  return  each and  every  Document  previously
requested  from the Mortgage  File to the  Custodian  when the need  therefor no
longer  exists,  unless the Mortgage  Loan  relating to the  Documents  has been
liquidated.

Date:    _____________________

                                                     NAME

                                                     By:   _____________________
                                                     Name: _____________________
                                                     Title:_____________________

                                      M-1MORTGAGE LOAN PURCHASE AGREEMENT

      THIS MORTGAGE LOAN PURCHASE AGREEMENT dated as of December 30, 2004 by and
between  FIRST  HORIZON  HOME  LOAN  CORPORATION,   a  Kansas  corporation  (the
"Seller"), and FIRST TENNESSEE BANK NATIONAL ASSOCIATION (the "Purchaser").

      WHEREAS,  the Seller owns certain Mortgage Loans (as hereinafter  defined)
which  Mortgage Loans are more  particularly  listed and described in Schedule A
attached hereto and made a part hereof.

      WHEREAS, the Seller and the Purchaser wish to set forth the terms pursuant
to which the Mortgage Loans,  excluding the servicing rights thereto,  are to be
sold by the Seller to the Purchaser.

      WHEREAS, the Seller will simultaneously  transfer the servicing rights for
the Mortgage Loans to First Tennessee Mortgage Services, Inc. ("FTMSI") pursuant
to the Servicing Rights Transfer and Subservicing  Agreement (Home Equity Loans)
(as hereinafter defined).

      WHEREAS,  the  Purchaser  will engage FTMSI to service the Mortgage  Loans
pursuant  to  the  Servicing  Agreement  (Home  Equity  Loans)  (as  hereinafter
defined).

      NOW, THEREFORE, in consideration of the foregoing, other good and valuable
consideration,  and the mutual terms and covenants contained herein, the parties
hereto agree as follows:

                                    ARTICLE I
                                   DEFINITIONS

      Agreement:  This  Mortgage  Loan  Purchase  Agreement,  as the same may be
amended, supplemented or otherwise modified from time to time in accordance with
the terms hereof.

      Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking  institutions  in the City of Dallas,  or the State of Texas or
New York City is located are  authorized or obligated by law or executive  order
to be closed.

      Closing Date: December 30, 2004

      Code:  The  Internal  Revenue  Code of 1986,  including  any  successor or
amendatory provisions.

      Cooperative Corporation: The entity that holds title (fee or an acceptable
leasehold  estate)  to the  real  property  and  improvements  constituting  the
Cooperative  Property  and  which  governs  the  Cooperative   Property,   which
Cooperative  Corporation must qualify as a Cooperative Housing Corporation under
Section 216 of the Code.

      Coop Shares: Shares issued by a Cooperative Corporation.

      Cooperative  Loan:  Any  Mortgage  Loan  secured  by  Coop  Shares  and  a
Proprietary Lease.

<PAGE>

      Cooperative  Property:  The real  property and  improvements  owned by the
Cooperative  Corporation,  including the allocation of individual dwelling units
to the holders of the Coop Shares of the Cooperative Corporation.

      Cooperative  Unit:  A single  family  dwelling  located  in a  Cooperative
Property.

      Custodian:  First Tennessee Bank National Association,  and its successors
and assigns, as custodian under the Custodial Agreement dated as of December 30,
2004 by and among The Bank of New York,  as  trustee,  First  Horizon  Home Loan
Corporation, as master servicer, and the Custodian.

      Cut-Off Date: December 1, 2004.

      Cut-off  Date  Principal  Balance:  As to any  Mortgage  Loan,  the actual
principal  balance of such  Mortgage  Loan as  reflected  on the  Mortgage  Loan
Schedule.

      Debt Service Reduction:  With respect to any Mortgage Loan, a reduction by
a court of competent  jurisdiction in a proceeding  under the Bankruptcy Code in
the   Scheduled   Payment  for  such   Mortgage  Loan  which  became  final  and
non-appealable,  except such a reduction resulting from a Deficient Valuation or
any reduction that results in a permanent forgiveness of principal.

      Deficient  Valuation:  With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the  then-outstanding  indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any Scheduled Payment that
results in a permanent  forgiveness of principal,  which  valuation or reduction
results  from an order of such  court  which is final  and  non-appealable  in a
proceeding under the United States Bankruptcy Reform Act of 1978, as amended.

      Delay  Delivery  Mortgage  Loans:  The  Mortgage  Loans for which all or a
portion of a related  Mortgage  File is not  delivered  to the Trustee or to the
Custodian  on its  behalf on the  Closing  Date.  The  number of Delay  Delivery
Mortgage Loans shall not exceed 25% of the aggregate number of Mortgage Loans as
of the Closing Date.

      Deleted Mortgage Loan: As defined in Section 4.1(c) hereof.

      Determination  Date:  The earlier of (i) the third  Business Day after the
15th day of each month,  and (ii) the second  Business Day prior to the 25th day
of each month,  or if such 25th day is not a Business  Day, the next  succeeding
Business Day.

      GAAP:  Generally applied  accounting  principals as in effect from time to
time in the United States of America.

      Insurance Proceeds:  Proceeds paid by an insurer pursuant to any insurance
policy,  including all riders and endorsements thereto in effect,  including any
replacement  policy or policies,  in each case other than any amount included in
such Insurance Proceeds in respect of expenses covered by such insurance policy.

                                       2
<PAGE>

      Liquidation Proceeds:  Amounts, including Insurance Proceeds,  received in
connection with the partial or complete liquidation of defaulted Mortgage Loans,
whether  through  trustee's  sale,  foreclosure  sale or  otherwise  or  amounts
received in connection  with any  condemnation or partial release of a Mortgaged
Property.

      MERS:  Mortgage  Electronic  Registration  Systems,  Inc.,  a  corporation
organized and existing under the laws of the State of Delaware, or any successor
thereto.

      MERS Mortgage  Loan:  Any Mortgage Loan  registered  with MERS on the MERS
System.

      MERS  (R)  System:   The  system  of  recording   transfers  of  mortgages
electronically maintained by MERS.

      MIN: The Mortgage Identification Number for any MERS Mortgage Loan.

      MOM Loan:  Any  Mortgage  Loan as to which  MERS is  acting as  mortgagee,
solely as nominee for the  originator of such  Mortgage Loan and its  successors
and assigns.

      Mortgage: The mortgage, deed of trust or other instrument creating a first
lien on the property securing a Mortgage Note.

      Mortgage File: The mortgage  documents listed in Section 3.1 pertaining to
a particular Mortgage Loan and any additional  documents required to be added to
the Mortgage File pursuant to this Agreement.

      Mortgage Loans: The mortgage loans  transferred,  sold and conveyed by the
Seller to the Purchaser, pursuant to this Agreement.

      Mortgage Loan Purchase  Price:  With respect to any Mortgage Loan required
to be purchased by the Seller pursuant to Section 4.1(c) hereof, an amount equal
to the sum of (i) 100% of the unpaid  principal  balance of the Mortgage Loan on
the date of such purchase,  and (ii) accrued  interest thereon at the applicable
Mortgage  Rate  from the  date  through  which  interest  was  last  paid by the
Mortgagor  to the first day in the month in which  the  Mortgage  Loan  Purchase
Price is to be distributed to the Purchaser or its designees.

      Mortgage   Note:   The  original   executed  note  or  other  evidence  of
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

      Mortgaged  Property:  The  underlying  property  securing a Mortgage Loan,
which,  with  respect to a  Cooperative  Loan,  is the  related  Coop Shares and
Proprietary Lease.

      Mortgagor: The obligor(s) on a Mortgage Note.

      Principal  Prepayment:  Any  payment  of  principal  by a  Mortgagor  on a
Mortgage  Loan that is received in advance of its  scheduled Due Date and is not
accompanied  by an amount  representing  scheduled  interest  due on any date or
dates in any month or months subsequent to the month of prepayment.

                                       3
<PAGE>

      Proprietary  Lease:  With  respect  to any  Cooperative  Unit,  a lease or
occupancy  agreement  between a Cooperative  Corporation and a holder of related
Coop Shares.

      Purchase Price: $235,257,077.58.

      Purchaser:  First Tennessee Bank National Association,  in its capacity as
purchaser of the Mortgage Loans from the Seller pursuant to this Agreement.

      Recognition Agreement:  With respect to any Cooperative Loan, an agreement
between the  Cooperative  Corporation  and the  originator of such Mortgage Loan
which establishes the rights of such originator in the Cooperative Property.

      Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
the  first day of the month  allocable  to  principal  and/or  interest  on such
Mortgage Loan which, unless otherwise specified herein, shall give effect to any
related Debt Service  Reduction  and any  Deficient  Valuation  that affects the
amount of the monthly payment due on such Mortgage Loan.

      Security  Agreement:  The security agreement with respect to a Cooperative
Loan.

      Seller: First Horizon Home Loan Corporation, a Kansas corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans.

      Servicing  Agreement  (Home Equity Loans):  The servicing  agreement (home
equity loans),  dated as of December 1, 2004 by and between First Tennessee Bank
National  Association and its assigns,  as owner,  and First Tennessee  Mortgage
Services, Inc., as servicer.

      Servicing Rights Transfer and Subservicing  Agreement (Home Equity Loans):
The servicing  rights transfer and  subservicing  agreement (home equity loans),
dated as of December 1, 2004 by and between First Horizon Home Loan Corporation,
as transferor and subservicer,  and First Tennessee Mortgage Services,  Inc., as
transferee and servicer.

      Stated  Principal  Balance:  As to any Mortgage Loan, the unpaid principal
balance of such Mortgage Loan as specified in the  amortization  schedule at the
time relating  thereto (before any adjustment to such  amortization  schedule by
reason of any  moratorium or similar waiver or grace period) after giving effect
to any previous partial Principal Prepayments and Liquidation Proceeds allocable
to principal  (other than with respect to any  Liquidated  Mortgage Loan) and to
the payment of principal due on such date and irrespective of any delinquency in
payment by the related Mortgagor.

      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 a Request for Release,  (i) have a Stated Principal Balance,  after deduction
of the  principal  portion  of  the  Scheduled  Payment  due  in  the  month  of
substitution,  not in excess  of,  and not more  than 10% less  than the  Stated
Principal  Balance of the  Deleted  Mortgage  Loan;  (ii) have an  Adjusted  Net
Mortgage  Rate not lower than the lower of (a) the Adjusted Net Mortgage Rate of
the Deleted Mortgage Loan or (b) 5.865%;  provided that the Master Servicing Fee
for the  Substitute  Mortgage  Loan  shall  be the  same as that of the  Deleted
Mortgage  Loan;  (iii)  have a CLTV  Ratio no higher  than  that of the  Deleted
Mortgage  Loan;  (iv) have a remaining term to maturity no greater than (and not
more than one year less than that of) the Deleted  Mortgage  Loan;  (v) not be a
Cooperative  Loan unless the Deleted  Mortgage Loan was a  Cooperative  Loan and
(vi)  comply  with each  representation  and  warranty  set forth in  Schedule B
attached hereto.

                                       4
<PAGE>

      Trustee:  The Bank of New  York and its  successors  and,  if a  successor
trustee is appointed hereunder, such successor.

                                   ARTICLE II
                                PURCHASE AND SALE

      Section 2.1 Purchase Price. In consideration  for the payment to it of the
Purchase Price on the Closing Date, pursuant to written  instructions  delivered
by the Seller to the  Purchaser  on the  Closing  Date,  the Seller  does hereby
transfer,  sell and convey to the Purchaser on the Closing Date, but with effect
from the Cut-off  Date,  (i) all right,  title and interest of the Seller in the
Mortgage  Loans,  excluding  the  servicing  rights  thereto,  and all  property
securing such Mortgage Loans,  including all interest and principal  received or
receivable  by the Seller  with  respect to the  Mortgage  Loans on or after the
Cut-off  Date and all  interest and  principal  payments on the  Mortgage  Loans
received on or prior to the Cut-off Date in respect of  installments of interest
and  principal  due  thereafter,  but not  including  payments of principal  and
interest  due and payable on the Mortgage  Loans on or before the Cut-off  Date,
and (ii) all proceeds  from the  foregoing.  Items (i) and (ii) in the preceding
sentence are herein referred to collectively as "Mortgage Assets."

      Section 2.2 Timing.  The sale of the Mortgage Assets  hereunder shall take
place on the Closing Date.

                                  ARTICLE III
                             CONVEYANCE AND DELIVERY

      Section 3.1 Delivery of Mortgage  Files.  In connection  with the transfer
and  assignment  set forth in Section  2.1 above,  the Seller has  delivered  or
caused to be delivered to the Trustee or to the  Custodian on its behalf (or, in
the case of the Delay  Delivery  Mortgage  Loans,  will  deliver  or cause to be
delivered to the Trustee or to the  Custodian on its behalf  within  thirty (30)
days  following the Closing Date) the following  documents or  instruments  with
respect to each Mortgage Loan so assigned (collectively, the "Mortgage Files"):

      (a)   (1) the  original  Mortgage  Note  endorsed  by manual or  facsimile
            signature  in  blank in the  following  form:  "Pay to the  order of
            ________________,    without   recourse,"   with   all   intervening
            endorsements  showing  a  complete  chain  of  endorsement  from the
            originator  to the Person  endorsing  the  Mortgage  Note (each such
            endorsement  being  sufficient  to  transfer  all  right,  title and
            interest  of the  party so  endorsing,  as  noteholder  or  assignee
            thereof, in and to that Mortgage Note); or

            (2) with respect to any Lost  Mortgage  Note, a lost note  affidavit
            from the Seller stating that the original  Mortgage Note was lost or
            destroyed, together with a copy of such Mortgage Note;

                                       5
<PAGE>

      (b)   except as provided  below and for each  Mortgage  Loan that is not a
            MERS Mortgage Loan, the original recorded Mortgage or a copy of such
            Mortgage  certified by Seller as being a true and  complete  copy of
            the  Mortgage  and in the  case  of each  MERS  Mortgage  Loan,  the
            original  Mortgage,  noting the  presence of the MIN of the Mortgage
            Loans and either language indicating that the Mortgage Loan is a MOM
            Loan if the Mortgage  Loan is a MOM Loan or if the Mortgage Loan was
            not a MOM  Loan  at  origination,  the  original  Mortgage  and  the
            assignment  thereof to MERS,  with  evidence of recording  indicated
            thereon, or a copy of the Mortgage certified by the public recording
            office in which such Mortgage has been recorded;

      (c)   in the case of a Mortgage Loan that is not a MERS  Mortgage  Loan, a
            duly  executed  assignment  of the  Mortgage in blank  (which may be
            included in a blanket  assignment or  assignments),  together  with,
            except as provided below, all interim  recorded  assignments of such
            mortgage (each such assignment,  when duly and validly completed, to
            be in recordable form and sufficient to effect the assignment of and
            transfer to the  assignee  thereof,  under the Mortgage to which the
            assignment relates);  provided that, if the related Mortgage has not
            been returned from the  applicable  public  recording  office,  such
            assignment  of  the  Mortgage  may  exclude  the  information  to be
            provided by the recording office;

      (d)   the  original or copies of each  assumption,  modification,  written
            assurance or substitution agreement, if any;

      (e)   for any Mortgage Loan other than a Combo Mortgage  Loan,  either the
            original or duplicate  original  title policy  (including all riders
            thereto)  with  respect  to  the  related  Mortgaged  Property,   if
            available,  provided  that the title  policy  (including  all riders
            thereto) for any Mortgage Loan other than a Combo Mortgage Loan will
            be  delivered  as soon as it  becomes  available,  and if the  title
            policy is not available,  and to the extent required pursuant to the
            second  paragraph  below, a written  commitment or interim binder or
            preliminary  report of the title  issued by the title  insurance  or
            escrow company with respect to the Mortgaged Property, and

      (f)   in the case of a  Cooperative  Loan,  the originals of the following
            documents or instruments:

            (1)   The Coop Shares, together with a stock power in blank;

            (2)   The executed Security Agreement;

            (3)   The executed Proprietary Lease;

            (4)   The executed Recognition Agreement;

            (5)   The  executed  UCC-1  financing  statement  with  evidence  of
                  recording thereon which have been filed in all places required
                  to perfect  the  Seller's  interest in the Coop Shares and the
                  Proprietary Lease; and

                                       6
<PAGE>

            (6)   Executed UCC-3 financing  statements or other  appropriate UCC
                  financing  statements  required  by state  law,  evidencing  a
                  complete and unbroken  line from the  mortgagee to the Trustee
                  with evidence of recording  thereon (or in a form suitable for
                  recordation).

      In the event that in connection  with any Mortgage Loan that is not a MERS
Mortgage Loan the Seller cannot  deliver (i) the original  recorded  Mortgage or
(ii) all interim recorded assignments  satisfying the requirements of clause (b)
or (c) above, respectively,  concurrently with the execution and delivery hereof
because such document or documents  have not been  returned from the  applicable
public  recording  office,  the  Seller  shall  promptly  deliver or cause to be
delivered to the Trustee or the Custodian on its behalf such  original  Mortgage
or such  interim  assignment,  as the case may be, with  evidence  of  recording
indicated  thereon upon receipt thereof from the public recording  office,  or a
copy thereof,  certified, if appropriate,  by the relevant recording office, but
in no event  shall any such  delivery  of the  original  Mortgage  and each such
interim assignment or a copy thereof, certified, if appropriate, by the relevant
recording  office,  be made  later than one year  following  the  Closing  Date;
provided,  however,  in the event the Seller is unable to deliver or cause to be
delivered by such date each Mortgage and each such interim  assignment by reason
of the fact that any such  documents  have not been returned by the  appropriate
recording office, or, in the case of each such interim  assignment,  because the
related Mortgage has not been returned by the appropriate  recording office, the
Seller shall deliver or cause to be delivered  such  documents to the Trustee or
the Custodian on its behalf as promptly as possible upon receipt thereof and, in
any event,  within 720 days following the Closing Date. The Seller shall forward
or cause to be forwarded to the Trustee or the  Custodian on its behalf (i) from
time  to  time  additional  original  documents   evidencing  an  assumption  or
modification  of a Mortgage  Loan and (ii) any other  documents  required  to be
delivered by the Seller to the Trustee.  In the event that the original Mortgage
is not  delivered  and in  connection  with the  payment in full of the  related
Mortgage Loan and the public  recording  office  requires the  presentation of a
"lost instruments  affidavit and indemnity" or any equivalent document,  because
only a copy of the Mortgage can be delivered with the instrument of satisfaction
or  reconveyance,  the Seller shall  execute and deliver or cause to be executed
and delivered such a document to the public recording  office. In the case where
a public recording office retains the original  recorded Mortgage or in the case
where a Mortgage is lost after  recordation in a public  recording  office,  the
Seller shall deliver or cause to be delivered to the Trustee or the Custodian on
its behalf a copy of such Mortgage  certified by such public recording office to
be a true and complete copy of the original recorded Mortgage.

      In addition, in the event that in connection with any Mortgage Loan (other
than a Combo  Mortgage Loan) the Seller cannot deliver the original or duplicate
original  lender's title policy (together with all riders  thereto),  satisfying
the  requirements  of clause  (e) above,  concurrently  with the  execution  and
delivery  hereof  because the related  Mortgage has not been  returned  from the
applicable  public  recording  office,  the Seller shall promptly deliver to the
Trustee,  or the Custodian on its behalf,  such  original or duplicate  original
lender's title policy  (together with all riders  thereto) upon receipt  thereof
from the applicable  title  insurer,  but in no event shall any such delivery of
the original or duplicate  original lender's title policy be made later than one
year following the Closing Date;  provided,  however, in the event the Seller is
unable to deliver by such date the original or duplicate original lender's title
policy  (together  with all riders  thereto) for any Mortgage Loan (other than a
Combo Mortgage  Loan) because the related  Mortgage has not been returned by the
appropriate  recording  office,  the Seller shall deliver such  documents to the
Trustee,  or the  Custodian on its behalf,  as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date.

                                       7
<PAGE>

                                   ARTICLE IV
                         REPRESENTATIONS AND WARRANTIES

      Section 4.1  Representations  and Warranties of the Seller. (a) The Seller
hereby represents and warrants to the Purchaser, the Trustee and the Insurer, as
of the date of execution and delivery hereof, that:

            (1) The  Seller is duly  organized  as a Kansas  corporation  and is
validly  existing and in good standing under the laws of the State of Kansas and
is duly  authorized and qualified to transact any and all business  contemplated
by this  Agreement  to be  conducted  by the  Seller  in any  state  in  which a
Mortgaged  Property is located or is otherwise not required under applicable law
to effect such  qualification and, in any event, is in compliance with the doing
business laws of any such state,  to the extent  necessary to ensure its ability
to enforce each Mortgage Loan and to perform any of its other  obligations under
this Agreement in accordance with the terms thereof.

            (2) The Seller has the full  corporate  power and  authority to sell
each Mortgage Loan, and to execute,  deliver and perform,  and to enter into and
consummate  the  transactions  contemplated  by  this  Agreement  and  has  duly
authorized  by all  necessary  corporate  action on the part of the  Seller  the
execution,  delivery and  performance  of this  Agreement;  and this  Agreement,
assuming the due  authorization,  execution  and  delivery  thereof by the other
parties  thereto,  constitutes  a legal,  valid and  binding  obligation  of the
Seller, enforceable against the Seller in accordance with its terms, except that
(a)  the  enforceability  thereof  may be  limited  by  bankruptcy,  insolvency,
moratorium,  receivership  and other similar laws relating to creditors'  rights
generally and (b) the remedy of specific  performance  and  injunctive and other
forms of  equitable  relief  may be  subject to  equitable  defenses  and to the
discretion of the court before which any proceeding therefor may be brought.

            (3) The execution and delivery of this Agreement by the Seller,  the
sale of the Mortgage Loans by the Seller under this Agreement,  the consummation
of any  other  of the  transactions  contemplated  by  this  Agreement,  and the
fulfillment of or compliance  with the terms thereof are in the ordinary  course
of  business  of the Seller and will not (a) result in a material  breach of any
term or  provision  of the  charter or  by-laws of the Seller or (b)  materially
conflict with,  result in a material  breach,  violation or acceleration  of, or
result  in a  material  default  under,  the  terms of any  other  agreement  or
instrument  to which the  Seller is a party or by which it may be bound,  or (c)
constitute a material violation of any statute,  order or regulation  applicable
to  the  Seller  of  any  court,  regulatory  body,   administrative  agency  or
governmental body having  jurisdiction over the Seller; and the Seller is not in
breach or  violation of any material  indenture or other  material  agreement or
instrument,  or in violation of any statute,  order or  regulation of any court,
regulatory body,  administrative agency or governmental body having jurisdiction
over it which breach or violation may materially  impair the Seller's ability to
perform or meet any of its obligations under this Agreement.

                                       8
<PAGE>

            (4) No  litigation  is  pending  or,  to the  best  of the  Seller's
knowledge,  threatened  against the Seller that would  prohibit the execution or
delivery of, or performance under, this Agreement by the Seller.

            (5) The Seller 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 MERS Mortgage Loans for as long as such Mortgage Loans
are registered with MERS.

      (b)   The Seller hereby makes the representations and warranties set forth
            in Schedule B hereto to the  Purchaser  and the  Insurer,  as of the
            Closing Date, or if so specified therein, as of the Cut-off Date.

      (c)   Upon  discovery  by  either of the  parties  hereto of a breach of a
            representation  or warranty  made pursuant to Schedule B hereto that
            materially and adversely affects the interests of the Purchaser, the
            Trustee or the Insurer in any Mortgage Loan,  the party  discovering
            such breach shall give prompt notice thereof to the other party. The
            Seller  hereby  covenants  that within 90 days of the earlier of its
            discovery or its receipt of written notice from the  Purchaser,  the
            Trustee or the Insurer of a breach of any representation or warranty
            made  pursuant to Schedule B hereto which  materially  and adversely
            affects the interests of the  Purchaser,  the Trustee or the Insurer
            in any  Mortgage  Loan,  it shall cure such  breach in all  material
            respects,  and if such  breach is not so cured,  shall,  (i) if such
            90-day period expires prior to the second anniversary of the Closing
            Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from the
            pool of mortgages  listed on Schedule B hereto and substitute in its
            place a Substitute  Mortgage  Loan, in the manner and subject to the
            conditions  set  forth  in  this  Section;  or (ii)  repurchase  the
            affected  Mortgage Loan or Mortgage  Loans from the Purchaser at the
            Mortgage  Loan  Purchase  Price in the manner set forth below.  With
            respect to the  representations  and  warranties  described  in this
            Section which are made to the best of the Seller's knowledge,  if it
            is discovered by either the Seller,  the  Purchaser,  the Trustee or
            the Insurer that the substance of such  representation  and warranty
            is inaccurate and such inaccuracy  materially and adversely  affects
            the  value of the  related  Mortgage  Loan or the  interests  of the
            Purchaser,  the Trustee or the Insurer therein,  notwithstanding the
            Seller's  lack of knowledge  with  respect to the  substance of such
            representation or warranty, such inaccuracy shall be deemed a breach
            of the applicable representation or warranty.

      With respect to any  Substitute  Mortgage Loan or Loans,  the Seller shall
deliver to the Trustee or to the Custodian on its behalf the Mortgage  Note, the
Mortgage,  the related assignment of the Mortgage,  and such other documents and
agreements  as are required by Section 3.1,  with the Mortgage Note endorsed and
the Mortgage  assigned as required by Section 3.1. No  substitution is permitted
to be made in any calendar  month after the  Determination  Date for such month.
Scheduled Payments due with respect to Substitute Mortgage Loans in the month of
substitution  will be  retained  by the  Seller.  Upon  such  substitution,  the
Substitute  Mortgage  Loan or  Loans  shall  be  subject  to the  terms  of this
Agreement  in all  respects,  and the  Seller  shall be deemed to have made with
respect  to  such  Substitute  Mortgage  Loan  or  Loans,  as  of  the  date  of
substitution,  the  representations  and warranties  made pursuant to Schedule B
hereto with respect to such Mortgage Loan.

                                       9
<PAGE>

      It is understood  and agreed that the  obligation  under this Agreement of
the Seller to cure, repurchase or replace any Mortgage Loan as to which a breach
has occurred and is  continuing  shall  constitute  the sole remedy  against the
Seller  respecting  such breach  available to the  Purchaser on its behalf.  The
representations  and  warranties  contained  in  this  Agreement  shall  not  be
construed  as a warranty or guaranty by the Seller as to the future  payments by
any Mortgagor.

      It is understood  and agreed that the  representations  and warranties set
forth in this Section 4.1 shall  survive the sale of the  Mortgage  Loans to the
Purchaser hereunder.

                                    ARTICLE V
                                  MISCELLANEOUS

      Section 5.1  Transfer  Intended as Sale.  It is the express  intent of the
parties  hereto that the  conveyance of the Mortgage  Loans by the Seller to the
Purchaser be, and be construed  as, an absolute sale thereof in accordance  with
GAAP and for  regulatory  purposes.  It is,  further,  not the  intention of the
parties that such  conveyances  be deemed a pledge  thereof by the Seller to the
Purchaser.  However,  in the  event  that,  notwithstanding  the  intent  of the
parties,  the  Mortgage  Loans are held to be the  property of the Seller or the
Purchaser,  respectively,  or if for any other reason this  Agreement is held or
deemed to create a security  interest in such  assets,  then (i) this  Agreement
shall be deemed to be a security  agreement  within the  meaning of the  Uniform
Commercial  Code of the State of Texas and (ii) the  conveyance  of the Mortgage
Loans provided for in this  Agreement  shall be deemed to be an assignment and a
grant by the  Seller  to the  Purchaser  of a  security  interest  in all of the
Mortgage Loans, whether now owned or hereafter acquired.

      The Seller and the Purchaser  shall,  to the extent  consistent  with this
Agreement,  take  such  actions  as may be  necessary  to ensure  that,  if this
Agreement were deemed to create a security  interest in the Mortgage Loans, such
security  interest would be deemed to be a perfected  security interest of first
priority under applicable law and will be maintained as such throughout the term
of the  Agreement.  The Seller and the  Purchaser  shall  arrange for filing any
Uniform Commercial Code continuation  statements in connection with any security
interest granted hereby.

                                       10
<PAGE>

      Section 5.2 Seller's Consent to Assignment. The Seller hereby acknowledges
the  Purchaser's  right to assign,  transfer  and convey all of the  Purchaser's
rights under this  Agreement to a third party and that the  representations  and
warranties made by the Seller to the Purchaser  pursuant to this Agreement will,
in the case of such assignment,  transfer and conveyance,  be for the benefit of
such third party.  The Seller hereby consents to such  assignment,  transfer and
conveyance.

      Section  5.3  Specific  Performance.  Either  party or its  assignees  may
enforce specific performance of this Agreement.

      Section 5.4 Notices.  All notices,  demands and requests that may be given
or that are  required  to be given  hereunder  shall  be sent by  United  States
certified mail,  postage prepaid,  return receipt  requested,  to the parties at
their respective addresses as follows:

                           If to
                           the Purchaser:          165 Madison Avenue
                                                   Memphis, Tennessee 38103
                                                   Attn: Clyde A. Billings, Jr.

                           If to the Seller:       4000 Horizon Way
                                                   Irving, Texas 75063
                                                   Attn: Larry P. Cole

      Section 5.5 Choice of Law. This Agreement shall be construed in accordance
with and governed by the  substantive  laws of the State of Texas  applicable to
agreements  made and to be performed in the State of Texas and the  obligations,
rights and remedies of the parties hereto shall be determined in accordance with
such laws.

      Section  5.6 Third Party  Beneficiaries.  The  benefits of this  Agreement
shall inure to the Insurer and the  Trustee,  their  respective  successors  and
assigns. The Insurer and the Trustee,  their respective  successors and assigns,
each in its own name and for its own interest and benefit,  shall be entitled to
enforce this Agreement, and each part and aspect hereof.

                  [remainder of page intentionally left blank]

<PAGE>

         IN WITNESS WHEREOF, the Purchaser and the Seller have caused their
names to be signed hereto by their respective officers thereunto duly authorized
as of the 30th day of December, 2004.

                                 FIRST HORIZON HOME LOAN CORPORATION, as Seller

                                 By:
                                    --------------------------------------------
                                    Terry McCoy
                                    Senior Vice President

                                 FIRST TENNESSEE BANK NATIONAL ASSOCIATION,
                                 as Purchaser

                                 By:
                                    --------------------------------------------
                                    Wade Walker
                                    Senior Vice President - Asset Securitization

<PAGE>

                                   SCHEDULE A

                              [BEGINS ON NEXT PAGE]

                      [Available Upon Request From Trustee]

<PAGE>

                                   SCHEDULE B

             REPRESENTATIONS AND WARRANTIES AS TO THE MORTGAGE LOANS

      First  Horizon  Home Loan  Corporation  (the  "Seller")  hereby  makes the
representations  and  warranties  set forth in this  Schedule  B on which  First
Tennessee Bank National  Association (the  "Purchaser")  relies in accepting the
Mortgage Loans.  Such  representations  and warranties speak as of the execution
and delivery of the Mortgage Loan Purchase  Agreement,  dated as of December 30,
2004 (the "MLPA"),  between First Horizon Home Loan Corporation,  as seller, and
the Purchaser and as of the Closing Date, or if so specified  herein,  as of the
Cut-off Date or date of origination of the Mortgage Loans, but shall survive the
sale,  transfer,  and  assignment of the Mortgage Loans to the Purchaser and any
subsequent  sale,  transfer and  assignment  by the  Purchaser to a third party.
Capitalized  terms used but not otherwise  defined in this Schedule B shall have
the meanings ascribed thereto in the MLPA.

      (1)   The information set forth on Schedule A to the MLPA, with respect to
            each Mortgage  Loan is true and correct in all material  respects as
            of the Closing Date.

      (2)   Each  Mortgage  is a  valid  and  enforceable  second  lien  on  the
            Mortgaged  Property  subject  only to (a) the lien of  nondelinquent
            current real property taxes and  assessments  and liens or interests
            arising  under or as a result of any  federal,  state or local  law,
            regulation  or ordinance  relating to hazardous  wastes or hazardous
            substances  and,  if the related  Mortgaged  Property is a unit in a
            condominium project or Planned Unit Development, any lien for common
            charges  permitted by statute or  homeowner  association  fees,  (b)
            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  generally
            acceptable to mortgage lending  institutions in the area wherein the
            related Mortgaged  Property is located or specifically  reflected in
            the appraisal made in connection with the origination of the related
            Mortgage  Loan,  (c) other  matters  to which  like  properties  are
            commonly subject which do not materially interfere with the benefits
            of the security intended to be provided by such Mortgage and (d) any
            senior liens.

      (3)   Immediately  prior to the  assignment  of the Mortgage  Loans to the
            Purchaser,  the Seller had good title to, and was the sole owner of,
            each Mortgage Loan free and clear of any pledge,  lien,  encumbrance
            or security  interest (other than, with respect to any Mortgage Loan
            in a second lien position,  the lien of the related first  mortgage)
            and  had  full  right  and  authority,  subject  to no  interest  or
            participation  of, or agreement  with, any other party,  to sell and
            assign the same pursuant to this Agreement.

      (4)   As of the date of origination  of each Mortgage  Loan,  there was no
            delinquent  tax or  assessment  lien  against the related  Mortgaged
            Property.

                                       B-1
<PAGE>

      (5)   There is no valid offset,  defense or  counterclaim  to any Mortgage
            Note or Mortgage,  including the  obligation of the Mortgagor to pay
            the unpaid principal of or interest on such Mortgage Note.

      (6)   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 item
            (11) below.

      (7)   To the best of the Seller's  knowledge,  no  Mortgaged  Property has
            been  materially  damaged  by water,  fire,  earthquake,  windstorm,
            flood,  tornado or similar  casualty  (excluding  casualty  from the
            presence of hazardous  wastes or hazardous  substances,  as to which
            the Seller makes no  representation)  so as to affect  adversely the
            value  of the  related  Mortgaged  Property  as  security  for  such
            Mortgage Loan.

      (8)   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,  truth-in-lending  and disclosure laws and  specifically
            applicable  predatory and abusive lending laws, or any noncompliance
            does not have a material  adverse effect on the value of the related
            Mortgage Loan.

      (9)   No  Mortgage  Loan is a "high cost loan" as defined by the  specific
            applicable predatory and abusive lending laws.

      (10)  Except as reflected in a written  document  contained in the related
            Mortgage  File,  the Seller has not  modified  the  Mortgage  in any
            material respect; satisfied, cancelled or subordinated such Mortgage
            in whole or in part;  released  the  related  Mortgaged  Property in
            whole or in part from the lien of such  Mortgage;  or  executed  any
            instrument of release,  cancellation,  modification  or satisfaction
            with respect thereto.

      (11)  A lender's  policy of title  insurance  together  with a condominium
            endorsement and extended coverage endorsement,  if applicable, in an
            amount at least equal to the Cut-off Date Principal  Balance of each
            such  Mortgage  Loan or a commitment  (binder) 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.

      (12)  To the best of the Seller's knowledge, 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, unless such failure
            to be wholly within such  boundaries and  restriction  lines or such
            encroachment, as the case may be, does not have a material effect on
            the value of such Mortgaged Property.

                                       B-2
<PAGE>

      (13)  To the best of the Seller's knowledge, as of the date of origination
            of each Mortgage  Loan, no  improvement  located on or being part of
            the Mortgaged  Property is in violation of any applicable zoning law
            or  regulation  unless  such  violation  would  not have a  material
            adverse effect on the value of the related  Mortgaged  Property.  To
            the best of the Seller's  knowledge,  all inspections,  licenses and
            certificates  required  to be made or  issued  with  respect  to all
            occupied portions of the Mortgaged Property and, with respect to the
            use  and  occupancy  of the  same,  including  but  not  limited  to
            certificates of occupancy and fire underwriting  certificates,  have
            been made or obtained from the appropriate  authorities,  unless the
            lack thereof would not have a material  adverse  effect on the value
            of such Mortgaged Property.

      (14)  The Mortgage Note and the related Mortgage are genuine,  and each is
            the  legal,  valid and  binding  obligation  of the  maker  thereof,
            enforceable in accordance with its terms and under applicable law.

      (15)  The  proceeds of the  Mortgage  Loan have been fully  disbursed  and
            there is no requirement for future advances thereunder.

      (16)  The related Mortgage contains  customary and enforceable  provisions
            which 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.

      (17)  With  respect  to each  Mortgage  constituting  a deed of  trust,  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, and no fees or expenses are or will become payable by
            the holder of the  Mortgage to the trustee  under the deed of trust,
            except in  connection  with a  trustee's  sale after  default by the
            Mortgagor.

      (18)  As of  the  Closing  Date,  the  improvements  upon  each  Mortgaged
            Property are covered by a valid and existing hazard insurance policy
            with a  generally  acceptable  carrier  that  provides  for fire and
            extended  coverage  and  coverage  for  such  other  hazards  as are
            customarily required by institutional single family mortgage lenders
            in the area where the Mortgaged Property is located,  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  including  flood  insurance at the
            Mortgagor's cost and expense.  Anything to the contrary in this item
            (18) notwithstanding, no breach of this item (18) shall be deemed to
            give  rise  to  any  obligation  of  the  Seller  to  repurchase  or
            substitute  for such affected  Mortgage Loan or Loans so long as the
            Seller maintains a blanket policy.

      (19)  If at the time of  origination  of each Mortgage  Loan,  related the
            Mortgaged  Property  was in an area then  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 then-current  requirements of the Flood Insurance Administration
            is in  effect  with  respect  to  such  Mortgaged  Property  with  a
            generally acceptable carrier.

                                       B-3
<PAGE>

      (20)  To the  best  of the  Seller's  knowledge,  there  is no  proceeding
            pending or threatened for the total or partial  condemnation  of any
            Mortgaged Property, nor is such a proceeding currently occurring.

      (21)  To best of the Seller's knowledge, there is 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  non-monetary
            default,  breach,  violation  or event  of  acceleration  under  the
            Mortgage or the related Mortgage Note; and the Seller has not waived
            any material  non-monetary  default,  breach,  violation or event of
            acceleration.

      (22)  Any leasehold  estate  securing a Mortgage Loan has a stated term at
            least as long as the term of the related Mortgage Loan.

      (23)  Each  Mortgage   Loan  was  selected  from  among  the   outstanding
            fixed-rate  one-  to  four-family  mortgage  loans  in the  Seller's
            portfolio  at the Closing Date as to which the  representations  and
            warranties made with respect to the Mortgage Loans set forth in this
            Schedule  B can be  made.  No such  selection  was  made in a manner
            intended    to    adversely    affect   the    interests    of   the
            Certificateholders.

      (24)  Approximately  73.13% of the  Mortgage  Loans are  balloon  Mortgage
            Loans.   The   remaining   Mortgage   Loans  provide  for  the  full
            amortization  of the  amount  financed  over  a  series  of  monthly
            payments.

      (25)  At  origination,  substantially  all of the  Mortgage  Loans  in the
            Mortgage Pools had stated terms to maturity of 15 years.

      (26)  Scheduled  monthly  payments made by the  Mortgagors on the Mortgage
            Loans  either  earlier or later than their Due Dates will not affect
            the  amortization  schedule  or  the  relative  application  of  the
            payments to principal and interest.

      (27)  The  Mortgage  Loans  may be  prepaid  at any  time  by the  related
            Mortgagors without penalty.

      (28)  The latest stated  maturity date of any Mortgage Loan is December 1,
            2019, and the earliest  stated maturity date of any Mortgage Loan is
            December 1, 2018.

      (29)  No Mortgage  Loan was  delinquent  30 days or more as of the Cut-off
            Date.

      (30)  As of the Cut-Off Date,  the Combined  Loan-to-Value  Ratio for each
            Mortgage Loan was not in excess of 100.00%.

      (31)  Each Mortgage Loan  constitutes  a "qualified  mortgage"  within the
            meaning of Section 860G(a)(3) of the Code.

                                       B-4
<PAGE>

      (32)  None of the  Mortgage  Loans are  subject  to Section 32 of the Home
            Ownership and Equity Protection Act of 1994 ("HOEPA").

      (33)  None of the Mortgage Loans is a reverse mortgage loan.

      (34)  All of the Mortgage Loans, by aggregate  Principal Balance as of the
            Cut-Off Date, are secured by second liens.

      (35)  With respect to each Mortgage Loan secured by a second lien,  either
            (a) no consent for such  Mortgage Loan was required by the holder or
            holders of the related  prior lien and no consent for such  Mortgage
            Loan was  required  by  relevant  law or (b) such  consent  has been
            obtained and is contained in the related Mortgage File.

      (36)  No  Mortgage  Loan is a "high cost loan" as defined by the  specific
            applicable  predatory  and abusive  lending  laws.  In addition,  no
            Mortgage  Loan  is a  "High  Cost  Loan"  or a  "Covered  Loan",  as
            applicable (as such terms are defined in the then current Standard &
            Poor's LEVELS(R) Glossary which is now Version 5.6 Revised, Appendix
            E) and no  Mortgage  Loan  originated  on or after  October  1, 2002
            through March 6, 2003 is governed by the Georgia Fair Lending Act.

      (37)  Appraisal  form 704, 2065 or 2055 with an exterior  only  inspection
            for  junior  lien  mortgages  combined  with  first  lien  mortgages
            (including  home equity  lines of credit) has been  obtained for all
            related mortgaged  properties,  other than condominiums,  investment
            properties,  two to four unit properties and exempt properties,  for
            which  appraisal  form  1004 or form  2055  has not  been  obtained.
            Appraisal  form 704, 2065 or 2055 with an exterior  only  inspection
            for all  other  junior  lien  mortgages  has been  obtained  for all
            related  mortgaged  properties,  other than those related  mortgaged
            properties that qualify for an Automated Valuation Model.

                                      B-5

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