Document:

ACE SECURITIES CORP.

                                    Depositor

                WELLS FARGO BANK MINNESOTA, NATIONAL ASSOCIATION

                                 Master Servicer

                                       and

                            FIRST UNION NATIONAL BANK

                                     Trustee

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

                         POOLING AND SERVICING AGREEMENT
                          Dated as of November 1, 2001

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

          ACE Securities Corp. Home Equity Loan Trust, Series 2001-HE1
                     Asset Backed Pass-Through Certificates

<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01.  Defined Terms.................................................-4-
               Accepted Master Servicing Practices...........................-4-
               Account ......................................................-4-
               Accrued Certificate Interest..................................-4-
               Adjustable Rate Mortgage Loan.................................-5-
               Adjustment Date...............................................-5-
               Administration Fees...........................................-5-
               Administration Fee Rate.......................................-5-
               Affiliate.....................................................-5-
               Aggregate Loss Severity Percentage............................-5-
               Agreement.....................................................-5-
               Allocated Realized Loss Amount................................-5-
               Assignment....................................................-5-
               Assignment....................................................-6-
               Available Distribution Amount.................................-6-
               Bankruptcy Code...............................................-6-
               Bankruptcy Loss...............................................-6-
               Basis Risk Shortfall..........................................-6-
               Book-Entry Certificate........................................-7-
               Book-Entry Custodian..........................................-7-
               Business Day..................................................-7-
               Cash-Out Refinancing..........................................-7-
               Certificate...................................................-7-
               Certificate Factor............................................-7-
               Certificate Margin............................................-7-
               Certificateholder" or "Holder.................................-8-
               Certificate Owner.............................................-8-
               Certificate Principal Balance.................................-8-
               Certificate Register..........................................-8-
               Class ........................................................-9-
               Class A Certificate...........................................-9-
               Class A Principal Distribution Amount.........................-9-
               Class A-IO Certificate........................................-9-
               Class A-IO Pass-Through Rate..................................-9-
               Class CE Certificate..........................................-9-
               Class M-1 Certificate.........................................-9-
               Class M-1 Principal Distribution Amount.......................-9-
               Class M-2 Certificate........................................-10-

                                      -ii-
<PAGE>

               Class M-2 Principal Distribution Amount......................-10-
               Class M-3 Certificate........................................-10-
               Class M-3 Principal Distribution Amount......................-10-
               Class P Certificate..........................................-11-
               Class R-I Certificates.......................................-11-
               Class R-II Certificates......................................-11-
               Class R-III Certificates.....................................-11-
               Closing Date.................................................-11-
               Code ........................................................-11-
               Commission...................................................-11-
               Corporate Trust Office.......................................-11-
               Corresponding Certificate....................................-11-
               Credit Enhancement Percentage................................-11-
               Custodial Agreement..........................................-11-
               Custodian....................................................-11-
               Cut-off Date.................................................-12-
               Debt Service Reduction.......................................-12-
               Deficient Valuation..........................................-12-
               Definitive Certificates......................................-12-
               Deleted Mortgage Loan........................................-12-
               Delinquency Percentage.......................................-12-
               Depositor....................................................-12-
               Depository...................................................-12-
               Depository Institution.......................................-12-
               Depository Participant.......................................-13-
               Determination Date...........................................-13-
               Disqualified Organization....................................-13-
               Distribution Account.........................................-13-
               Distribution Account Deposit Date............................-13-
               Distribution Date............................................-13-
               Due Date ....................................................-13-
               Due Period...................................................-13-
               Eligible Account.............................................-13-
               ERISA .......................................................-14-
               Estate in Real Property......................................-14-
               Excess Liquidation Proceeds..................................-14-
               Expense Adjusted Mortgage Rate...............................-14-
               Extra Principal Distribution Amount..........................-14-
               Fannie Mae...................................................-14-
               FDIC ........................................................-14-
               Final Recovery Determination.................................-14-
               First Union..................................................-14-
               First Union Custodial Agreement..............................-14-

                                      -iii-
<PAGE>

               Fitch .......................................................-14-
               Freddie Mac..................................................-15-
               Gross Margin.................................................-15-
               HomeStar ....................................................-15-
               HomeStar MLPA................................................-15-
               Independent..................................................-15-
               Index .......................................................-15-
               Insurance Proceeds...........................................-15-
               Interest Accrual Period......................................-15-
               Interest Carry Forward Amount................................-16-
               Interest Determination Date..................................-16-
               Interest Distribution Amount.................................-16-
               Interest Remittance Amount...................................-16-
               Late Collections.............................................-16-
               Liquidation Event............................................-16-
               Liquidation Proceeds.........................................-16-
               Loan-to-Value Ratio..........................................-17-
               London Business Day..........................................-17-
               Loss Mitigation Advisor......................................-17-
               Loss Mitigation Advisory Agreement...........................-17-
               Loss Mitigation Fee..........................................-17-
               Loss Mitigation Fee Rate.....................................-17-
               Loss Severity Percentage.....................................-17-
               Master Servicer..............................................-17-
               Master Servicer Collection Account...........................-17-
               Master Servicer Event of Default.............................-17-
               Master Servicer Fee Rate.....................................-17-
               Master Servicing Fee.........................................-17-
               Marker Rate..................................................-18-
               Maximum II-LTZZ Uncertificated Interest Deferral Amount......-18-
               Maximum Mortgage Rate........................................-18-
               Meritech Servicing Agreement.................................-18-
               Mezzanine Certificate........................................-18-
               MGIC ........................................................-18-
               MGIC Fee ....................................................-18-
               MGIC Fee Rate................................................-19-
               MGIC PMI Mortgage Loans......................................-19-
               MGIC PMI Policy..............................................-19-
               Minimum Mortgage Rate........................................-19-
               Monthly Payment..............................................-19-
               Moody's .....................................................-19-
               Mortgage ....................................................-19-
               Mortgage File................................................-19-

                                      -iv-
<PAGE>

               Mortgage Loan................................................-19-
               Mortgage Loan Documents......................................-19-
               Mortgage Loan Purchase Agreement.............................-19-
               Mortgage Loan Schedule.......................................-19-
               Mortgage Note................................................-22-
               Mortgage Rate................................................-22-
               Mortgaged Property...........................................-22-
               Mortgagor....................................................-22-
               NC Capital...................................................-22-
               NC Capital MLPA..............................................-22-
               Net Monthly Excess Cashflow..................................-22-
               Net Mortgage Rate............................................-22-
               Net WAC Pass-Through Rate....................................-22-
               Nonrecoverable P&I Advance...................................-23-
               Nonrecoverable Servicing Advance.............................-23-
               Non-United States Person.....................................-23-
               Notional Amount..............................................-23-
               Offered Certificates.........................................-24-
               Officers' Certificate........................................-24-
               One-Month LIBOR..............................................-24-
               One-Month LIBOR Pass-Through Rate............................-25-
               Opinion of Counsel...........................................-25-
               Overcollateralization Amount.................................-25-
               Overcollateralization Increase Amount........................-25-
               Overcollateralization Reduction Amount.......................-25-
               Ownership Interest...........................................-25-
               Pass-Through Rate............................................-25-
               Percentage Interest..........................................-26-
               Periodic Rate Cap............................................-27-
               Permitted Investments........................................-27-
               Permitted Transferee.........................................-28-
               Person ......................................................-28-
               P&I Advance..................................................-28-
               Plan ........................................................-28-
               Prepayment Assumption........................................-28-
               Prepayment Charge............................................-28-
               Prepayment Interest Shortfall................................-28-
               Prepayment Period............................................-29-
               Principal Distribution Amount................................-29-
               Principal Prepayment.........................................-29-
               Principal Remittance Amount..................................-29-
               Protected Account............................................-29-
               Purchase Price...............................................-29-

                                       -v-
<PAGE>

               Qualified Substitute Mortgage Loan...........................-30-
               Rate/Term Refinancing........................................-30-
               Rating Agency or Rating Agencies.............................-31-
               Realized Loss................................................-31-
               Record Date..................................................-31-
               Reference Banks..............................................-32-
               Refinanced Mortgage Loan.....................................-32-
               Regular Certificate..........................................-32-
               Regular Interest.............................................-32-
               Relief Act...................................................-32-
               Relief Act Interest Shortfall................................-32-
               REMIC .......................................................-32-
               REMIC I .....................................................-32-
               REMIC I Regular Interest.....................................-33-
               REMIC I Regular Interest I-LTA...............................-33-
               REMIC I Regular Interest I-LTB...............................-33-
               REMIC I Regular Interest I-LTC...............................-33-
               REMIC I Regular Interest I-LT................................-33-
               REMIC I Regular Interest I-LTE...............................-33-
               REMIC I Regular Interest I-LTP...............................-33-
               REMIC I Remittance Rate......................................-34-
               REMIC II ....................................................-34-
               REMIC II Interest Loss Allocation Amount.....................-34-
               REMIC II Overcollateralization Amount........................-34-
               REMIC II Principal Loss Allocation Amount....................-34-
               REMIC II Regular Interest....................................-34-
               REMIC II Regular Interest II-LTAA............................-35-
               REMIC II Regular Interest II-LTA.............................-35-
               REMIC II Regular Interest II-LTM1............................-35-
               REMIC II Regular Interest II-LTM2............................-35-
               REMIC II Regular Interest II-LTM3............................-35-
               REMIC II Regular Interest II-LTZZ............................-35-
               REMIC II Regular Interest II-LTIO............................-35-
               REMIC II Regular Interest II-LTP.............................-36-
               REMIC II Remittance Rate.....................................-36-
               REMIC II Required Overcollateralization Amount...............-36-
               REMIC III....................................................-36-
               REMIC III Certificate........................................-36-
               REMIC III Certificateholder..................................-36-
               REMIC Provisions.............................................-36-
               Remittance Report............................................-36-
               Rents from Real Property.....................................-36-
               REO Disposition..............................................-36-

                                      -vi-
<PAGE>

               REO Imputed Interest.........................................-36-
               REO Principal Amortization...................................-36-
               REO Property.................................................-37-
               Required Overcollateralization Amount........................-37-
               Reserve Fund.................................................-37-
               Reserve Interest Rate........................................-37-
               Residential Dwelling.........................................-37-
               Residual Certificate.........................................-37-
               Residual Interest............................................-37-
               Responsible Officer..........................................-37-
               S&P .........................................................-38-
               Scheduled Principal Balance..................................-38-
               Seller ......................................................-38-
               Senior Interest Distribution Amount..........................-38-
               Servicer ....................................................-39-
               Servicer Remittance Date.....................................-39-
               Servicing Advances...........................................-39-
               Servicing Agreement..........................................-39-
               Servicing Fee................................................-39-
               Servicing Fee Rate...........................................-39-
               Servicing Officer............................................-39-
               Single Certificate...........................................-39-
               SouthStar....................................................-39-
               Startup Day..................................................-39-
               Stated Principal Balance.....................................-39-
               Stayed Funds.................................................-40-
               Stepdown Date................................................-40-
               Substitution Shortfall Amount................................-40-
               Tax Returns..................................................-40-
               Telerate Page 3750...........................................-41-
               Termination Price............................................-41-
               Terminator...................................................-41-
               Transfer ....................................................-41-
               Transferee...................................................-41-
               Transferor...................................................-41-
               Trigger Event................................................-41-
               Trust    ....................................................-41-
               Trust REMIC..................................................-41-
               Trustee  ....................................................-41-
               Trust Fund...................................................-41-
               Uncertificated Balance.......................................-41-
               Uncertificated Interest......................................-42-
               Uncertificated Notional Amount...............................-42-

                                     -vii-
<PAGE>

               Uncertificated REMIC Regular Interest........................-42-
               Uninsured Cause..............................................-42-
               United States Person.........................................-42-
               Unpaid Basis Risk Shortfall..................................-43-
               U.S. Bank....................................................-43-
               U.S. Bank Custodial Agreement................................-43-
               Value    ....................................................-43-
               Voting Rights................................................-43-
SECTION 1.02.  Allocation of Certain Interest Shortfalls....................-44-

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

SECTION 2.01.  Conveyance of the Mortgage Loans.............................-46-
SECTION 2.02.  Acceptance of REMIC I by Trustee.............................-46-
SECTION 2.03.  Repurchase or Substitution of Mortgage Loans.................-47-
SECTION 2.04.  [Reserved]...................................................-51-
SECTION 2.05.  Representations, Warranties and Covenants of the Master
               Servicer.....................................................-51-
SECTION 2.06.  Issuance of the REMIC I Regular Interests and the Class R-I
               Certificates.................................................-53-
SECTION 2.07.  Conveyance of the REMIC I Regular Interests; Acceptance of
               REMIC II by the Trustee......................................-53-
SECTION 2.08.  Issuance of Class R-II Certificates..........................-53-
SECTION 2.09.  Conveyance of the REMIC II Regular Interests; Acceptance of
               REMIC III by the Trustee.....................................-53-
SECTION 2.10.  Issuance of Class R-III Certificates.........................-54-
SECTION 2.11   Establishment of the Trust...................................-54-

                                  ARTICLE III

                          ADMINISTRATION AND SERVICING
                         OF THE MORTGAGE LOANS; ACCOUNTS

SECTION 3.01.  Master Servicer..............................................-55-
SECTION 3.02.  REMIC-Related Covenants......................................-56-
SECTION 3.03.  Monitoring of Servicers......................................-56-
SECTION 3.04.  Fidelity Bond................................................-57-
SECTION 3.05.  Power to Act; Procedures.....................................-57-
SECTION 3.06.  Due-on-Sale Clauses; Assumption Agreements...................-58-
SECTION 3.07.  Release of Mortgage Files....................................-58-

                                     -viii-
<PAGE>

SECTION 3.08.  Documents, Records and Funds in Possession of Master
               Servicer To Be Held for Trustee..............................-59-
SECTION 3.09.  Standard Hazard Insurance and Flood Insurance Policies.......-60-
SECTION 3.10.  Presentment of Claims and Collection of Proceeds.............-60-
SECTION 3.11.  Maintenance of the Primary Mortgage Insurance Policies.......-61-
SECTION 3.12.  Trustee to Retain Possession of Certain Insurance Policies
               and Documents................................................-61-
SECTION 3.13.  Realization Upon Defaulted Mortgage Loans....................-61-
SECTION 3.14.  Compensation for the Master Servicer.........................-62-
SECTION 3.15.  REO Property.................................................-62-
SECTION 3.16.  Annual Officer's Certificate as to Compliance................-63-
SECTION 3.17.  Annual Independent Accountant's Servicing Report.............-63-
SECTION 3.18.  Reports Filed with Securities and Exchange Commission........-64-
SECTION 3.19.  UCC..........................................................-64-
SECTION 3.20.  Obligation of the Master Servicer in respect of Prepayment
               Interest Shortfalls..........................................-65-
SECTION 3.21.  MGIC PMI Policy; Claims Under the MGIC PMI Policy............-65-
SECTION 3.22.  Protected Accounts...........................................-65-
SECTION 3.23.  Master Servicer Collection Account...........................-66-
SECTION 3.24.  Permitted Withdrawals and Transfers from the Master Servicer
               Collection Account...........................................-67-
SECTION 3.25.  Distribution Account.........................................-68-
SECTION 3.26.  Permitted Withdrawals and Transfers from the Distribution
               Account......................................................-68-
SECTION 3.27   Reserve Fund.................................................-71-
SECTION 3.28   Duties of the Loss Mitigation Advisor........................-72-
SECTION 3.29   Limitation Upon Liability of the Loss Mitigation Advisor.....-72-
SECTION 3.30   Prepayment Penalty Verification..............................-73-
SECTION 3.31   Servicing Advance Facility...................................-74-

                                   ARTICLE IV

                         PAYMENTS TO CERTIFICATEHOLDERS

SECTION 4.01   Distributions................................................-74-
SECTION 4.02.  Statements to Certificateholders.............................-83-
SECTION 4.03.  Remittance Reports; P&I Advances.............................-87-
SECTION 4.04.  Allocation of Realized Losses................................-87-
SECTION 4.05.  Compliance with Withholding Requirements.....................-89-

                                      -ix-
<PAGE>

                                    ARTICLE V

                                THE CERTIFICATES

SECTION 5.01.  The Certificates.............................................-90-
SECTION 5.02.  Registration of Transfer and Exchange of Certificates........-92-
SECTION 5.03.  Mutilated, Destroyed, Lost or Stolen Certificates............-96-
SECTION 5.04.  Persons Deemed Owners........................................-96-
SECTION 5.05.  Certain Available Information................................-96-

                                   ARTICLE VI

                      THE DEPOSITOR AND THE MASTER SERVICER

SECTION 6.01.  Liability of the Depositor and the Master Servicer...........-98-
SECTION 6.02.  Merger or Consolidation of the Depositor or the Master
               Servicer.....................................................-98-
SECTION 6.03.  Limitation on Liability of the Depositor, the Master
               Servicer and Others..........................................-98-
SECTION 6.04   Limitation on Resignation of the Master Servicer.............-99-
SECTION 6.05   Assignment of Master Servicing...............................-99-
SECTION 6.06   Rights of the Depositor in Respect of the Master Servicer...-100-

                                   ARTICLE VII

                                     DEFAULT

SECTION 7.01.  Master Servicer Events of Default...........................-101-
SECTION 7.02.  Trustee to Act; Appointment of Successor....................-102-
SECTION 7.03.  Notification to Certificateholders..........................-104-
SECTION 7.04.  Waiver of Master Servicer Events of Default.................-104-

                                  ARTICLE VIII

                             CONCERNING THE TRUSTEE

SECTION 8.01.  Duties of Trustee...........................................-105-
SECTION 8.02.  Certain Matters Affecting the Trustee.......................-106-
SECTION 8.03.  Trustee not Liable for Certificates or Mortgage Loans.......-107-
SECTION 8.04.  Trustee May Own Certificates................................-108-
SECTION 8.05.  Trustee's Fees and Expenses.................................-108-
SECTION 8.06.  Eligibility Requirements for Trustee and Trustee............-108-
SECTION 8.07.  Resignation and Removal of the Trustee......................-108-
SECTION 8.08.  Successor Trustee...........................................-109-
SECTION 8.09.  Merger or Consolidation of Trustee..........................-110-

                                       -x-
<PAGE>

                                TABLE OF CONTENTS

SECTION                                                                    PAGE
-------                                                                    ----

SECTION 8.10.  Appointment of Co-Trustee or Separate Trustee...............-110-
SECTION 8.11.  Appointment of Office or Agency.............................-111-
SECTION 8.12.  Representations and Warranties..............................-111-

                                   ARTICLE IX

                                   TERMINATION

SECTION 9.01.  Termination Upon Repurchase or Liquidation of All
               Mortgage Loans..............................................-113-
SECTION 9.02.  Additional Termination Requirements.........................-115-

                                    ARTICLE X

                                REMIC PROVISIONS

SECTION 10.01. REMIC Administration........................................-116-
SECTION 10.02. Prohibited Transactions and Activities......................-118-

SECTION 10.03. Master Servicer and Trustee Indemnification.

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

SECTION 11.01. Amendment...................................................-120-
SECTION 11.02. Recordation of Agreement; Counterparts......................-121-
SECTION 11.03. Limitation on Rights of Certificateholders..................-121-
SECTION 11.04. Governing Law...............................................-122-
SECTION 11.05. Notices.....................................................-122-
SECTION 11.06. Severability of Provisions..................................-123-
SECTION 11.07. Notice to Rating Agencies...................................-123-
SECTION 11.08. Article and Section References..............................-124-
SECTION 11.09. Grant of Security Interest..................................-124-
SECTION 11.10. Third Party Beneficiaries...................................-124-

                                      -xi-
<PAGE>

Exhibits
--------
Exhibit A-1    Form of Class A-1 Certificate
Exhibit A-2    Form of Class A-IO Certificate
Exhibit A-3    Form of Class M-1 Certificate
Exhibit A-4    Form of Class M-2 Certificate
Exhibit A-5    Form of Class M-3 Certificate
Exhibit A-6    Form of Class P Certificate
Exhibit A-7    Form of Class CE Certificate
Exhibit A-8    Form of Class R-I Certificate
Exhibit A-9    Form of Class R-II Certificate
Exhibit A-10   Form of Class R-III Certificate
Exhibit B-1    Form of Transferor Representation Letter and Form of
               Transferee Representation Letter in Connection with Transfer
               of the Class P Certificates, Class CE Certificates and
               Residual Certificates Pursuant to Rule 144A Under the 1933 Act
Exhibit B-2    Form of Transferor Representation Letter and Form of
               Transferee Representation Letter in Connection with Transfer
               of the Class P Certificates, Class CE Certificates and
               Residual Certificates Pursuant to Rule 501 (a) Under the 1933
               Act
Exhibit B-3    Form of Transfer Affidavit and Agreement and Form of Transferor
               Affidavit in Connection with Transfer of Residual Certificates
Schedule 1     Mortgage Loan Schedule
Schedule 2     Prepayment Charge Schedule
Schedule 3     MGIC PMI Mortgage Loans

                                      -xii-
<PAGE>

     This Pooling and Servicing Agreement, is dated and effective as of November
1, 2001,  among ACE SECURITIES  CORP. as Depositor,  WELLS FARGO BANK MINNESOTA,
NATIONAL  ASSOCIATION  as Master  Servicer  and  FIRST  UNION  NATIONAL  BANK as
Trustee.

                             PRELIMINARY STATEMENT:

     The  Depositor  intends  to sell  pass-through  certificates  to be  issued
hereunder in multiple  classes,  which in the aggregate will evidence the entire
beneficial  ownership  interest of the Trust Fund created  hereunder.  The Trust
Fund will  consist of a  segregated  pool of assets  comprising  of the Mortgage
Loans and certain other related assets subject to this Agreement.

                                    REMIC I

     As provided herein,  the Trustee will elect to treat the segregated pool of
assets consisting of the Mortgage Loans and certain other related assets subject
to this  Agreement  (other than the Reserve Fund) as a REMIC for federal  income
tax purposes,  and such  segregated  pool of assets will be designated as "REMIC
I". The Class R-I Certificates will be the sole class of "residual interests" in
REMIC I for purposes of the REMIC Provisions (as defined herein).  The following
table  irrevocably sets forth the designation,  the REMIC I Remittance Rate, the
initial  Uncertificated  Balance and, solely for purposes of satisfying Treasury
regulation Section 1.860G-1(a)(4)(iii),  the "latest possible maturity date" for
each of the REMIC I Regular  Interests (as defined herein).  None of the REMIC I
Regular Interests will be certificated.

                   REMIC I                Initial              Latest Possible
Designation    Remittance Rate     Uncertificated Balance      Maturity Date(1)
-----------    ---------------     ----------------------     -----------------

I-LTA            Variable(2)          $511,228,411.95         November 20, 2031
I-LTB            Variable(2)          $ 31,515,417.85         November 20, 2031
I-LTC            Variable(2)          $ 72,365,000.00         November 20, 2031
I-LTD            Variable(2)          $ 50,660,000.00         November 20, 2031
I-LTE            Variable(2)          $ 57,890,000.00         November 20, 2031
I-LTP            Variable(2)          $        100.00         November 20, 2031

----------
(1)  Solely  for  purposes  of  Section   1.860G-1(a)(4)(iii)  of  the  Treasury
     regulations,  the Distribution Date immediately following the maturity date
     for the Mortgage Loan with the latest  maturity date has been designated as
     the "latest possible maturity date" for each REMIC I Regular Interest.

(2)  Calculated in accordance  with the definition of "REMIC I Remittance  Rate"
     herein.

                                       -1-
<PAGE>

                                    REMIC II

     As provided herein,  the Trustee will elect to treat the segregated pool of
assets consisting of the REMIC I Regular Interests as a REMIC for federal income
tax purposes,  and such  segregated  pool of assets will be designated as "REMIC
II". The Class R-II Certificates will be the sole class of "residual  interests"
in  REMIC  II  for  purposes  of  the  REMIC  Provisions.  The  following  table
irrevocably  sets  forth the  designation,  the REMIC II  Remittance  Rate,  the
initial  Uncertificated  Balance and, solely for purposes of satisfying Treasury
regulation Section 1.860G-1(a)(4)(iii),  the "latest possible maturity date" for
each of the REMIC II Regular Interests (as defined herein). None of the REMIC II
Regular Interests will be certificated.

                                         Initial
                   REMIC II           Uncertificated        Latest Possible
Designation     Remittance Rate          Balance            Maturity Date(1)
-----------     ---------------       --------------       -----------------

II-LTAA           Variable(2)        $709,185,653.20       November 20, 2031
II-LTA            Variable(2)          $6,802,380.00       November 20, 2031
II-LTM 1          Variable(2)            $217,100.00       November 20, 2031
II-LTM 2          Variable(2)            $108,550.00       November 20, 2031
II-LTM 3          Variable(2)             $72,370.00       November 20, 2031
II-LTZZ           Variable(2)          $7,272,776.60       November 20, 2031
II-LTIO           Variable(2)                    N/A(3)    November 20, 2031
II-LTP            Variable(2)                $100.00       November 20, 2031

----------
(1)  Solely  for  purposes  of  Section   1.860G-1(a)(4)(iii)  of  the  Treasury
     regulations,  the Distribution Date immediately following the maturity date
     for the Mortgage Loan with the latest  maturity date has been designated as
     the "latest possible maturity date" for each REMIC II Regular Interest.

(2)  Calculated in accordance with the definition of "REMIC II Remittance  Rate"
     herein.

(3)  REMIC II Regular Interest  II-LTIO will not have an Initial  Uncertificated
     Balance, but will accrue interest on its respective Uncertificated Notional
     Amount outstanding from time to time, as defined herein.

                                    REMIC III

     As provided herein,  the Trustee will elect to treat the segregated pool of
assets  consisting  of the REMIC II  Regular  Interests  as a REMIC for  federal
income tax purposes,  and such  segregated  pool of assets will be designated as
"REMIC  III." The Class  R-III  Certificates  will  evidence  the sole  class of
"residual  interests"  in REMIC III for  purposes of the REMIC  Provisions.  The
following table irrevocably sets forth the designation,  the Pass-Through  Rate,
the initial aggregate  Certificate Principal Balance and, solely for purposes of
satisfying Treasury regulation Section 1.860G-1(a)(4)(iii), the "latest possible
maturity date" for the indicated Classes of Certificates.

                                       -2-
<PAGE>

                                      Initial Aggregate
                  Pass Through      Certificate Principal      Latest Possible
Designation           Rate                Balance              Maturity Date(1)
-----------       ------------      ---------------------     -----------------

Class A           Variable(2)          $680,238,000.00        November 20, 2031
Class A-IO        6.00%                            N/A        November 20, 2031
Class M-1         Variable(2)           $21,710,000.00        November 20, 2031
Class M-2         Variable(2)           $10,855,000.00        November 20, 2031
Class M-3         Variable(2)            $7,237,000.00        November 20, 2031
Class P           N/A(4)                       $100.00        November 20, 2031
Class CE          N/A(5)                 $3,618,829.80        November 20, 2031

----------
(1)  Solely  for  purposes  of  Section   1.860G-1(a)(4)(iii)  of  the  Treasury
     regulations,  the Distribution Date immediately following the maturity date
     for the Mortgage Loan with the latest  maturity date has been designated as
     the "latest possible maturity date" for each Class of Certificates.

(2)  Calculated in accordance with the definition of "Pass-Through Rate" herein.

(3)  The Class A-IO Certificates do not have a Certificate Principal Balance but
     will receive all amounts distributed to REMIC II Regular Interest II-LTIO.

(4)  The Class P Certificates will not accrue interest.

(5)  The  Class  CE   Certificates   will  accrue  interest  at  their  variable
     Pass-Through  Rate on the  Notional  Amount  of the  Class CE  Certificates
     outstanding from time to time which shall equal the Uncertificated  Balance
     of the  REMIC II  Regular  Interests.  The Class CE  Certificates  will not
     accrue interest on their Certificate Principal Balance.

     As of the Cut-off  Date,  the  Mortgage  Loans had an  aggregate  Scheduled
Principal Balance equal to $723,658,929.80.

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

                                       -3-
<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

     SECTION 1.01. Defined Terms.

     Whenever used in this  Agreement,  including,  without  limitation,  in the
Preliminary  Statement  hereto,  the  following  words and  phrases,  unless the
context otherwise  requires,  shall have the meanings specified in this Article.
Unless otherwise specified,  all calculations  described herein shall be made on
the basis of a 360-day year consisting of twelve 30-day months.

     "Accepted Master Servicing  Practices":  With respect to any Mortgage Loan,
as  applicable,  either (x) those  customary  mortgage  servicing  practices  of
prudent mortgage  servicing  institutions  that master service mortgage loans of
the same type and quality as such  Mortgage Loan in the  jurisdiction  where the
related Mortgaged  Property is located,  to the extent applicable to the Trustee
or the Master Servicer  (except in its capacity as successor to a Servicer),  or
(y) as provided in the applicable Servicing Agreement,  to the extent applicable
to any Servicer, but in no event below the standard set forth in clause (x).

     "Account": The Master Servicer Collection Account and the Protected Account
as the context may require.

     "Accrued  Certificate  Interest":  With respect to any Class A Certificate,
Class A-IO Certificate,  Mezzanine  Certificate or Class CE Certificate and each
Distribution  Date,  interest accrued during the related Interest Accrual Period
at the Pass-Through  Rate for such Certificate for such Distribution Date on the
Certificate  Principal Balance,  in the case of the Class A Certificates and the
Mezzanine Certificates,  or on the Notional Amount in the case of the Class A-IO
Certificates  and the Class CE  Certificates,  of such  Certificate  immediately
prior to such  Distribution  Date. The Class P Certificates  are not entitled to
distributions in respect of interest and, accordingly, will not accrue interest.
All  distributions  of interest on the Class A  Certificates  and the  Mezzanine
Certificates  will be  calculated  on the basis of a 360-day year and the actual
number of days in the applicable  Interest Accrual Period.  All distributions of
interest on the Class A-IO  Certificates  and the Class CE Certificates  will be
based on a 360-day year consisting of twelve 30-day months.  Accrued Certificate
Interest with respect to each Distribution  Date, as to any Class A Certificate,
Class A-IO Certificate,  Mezzanine  Certificate or Class CE Certificate shall be
reduced by an amount equal to the portion allocable to such Certificate pursuant
to Section  1.02  hereof,  if any,  of the sum of (a) the  aggregate  Prepayment
Interest Shortfall, if any, for such Distribution Date to the extent not covered
by payments  pursuant to Section 3.20 and (b) the aggregate amount of any Relief
Act Interest Shortfall, if any, for such Distribution Date. In addition, Accrued
Certificate  Interest with respect to each Distribution Date, as to any Class CE
Certificate,  shall be reduced by an amount  equal to the portion  allocable  to
such Class CE Certificate of Realized Losses,  if any,  pursuant to Section 1.02
and Section 4.04 hereof.  Notwithstanding the foregoing,  for federal income tax
purposes and under the REMIC Provisions,  the Accrued  Certificate  Interest for
the Class A-IO

                                      -4-
<PAGE>

Certificates  and  any  Distribution  Date  will  be  deemed  to be  100% of the
Uncertificated   Interest  for  REMIC  II  Regular  Interest  II-LTIO  for  such
Distribution Date.

     "Adjustable  Rate Mortgage Loan":  Each of the Mortgage Loans identified in
the  Mortgage  Loan  Schedule  as  having a  Mortgage  Rate that is  subject  to
adjustment.

     "Adjustment  Date": With respect to each Adjustable Rate Mortgage Loan, the
first day of the month in which the Mortgage Rate of an Adjustable Rate Mortgage
Loan changes  pursuant to the related  Mortgage Note. The first  Adjustment Date
following the Cut-off Date as to each Adjustable Rate Mortgage Loan is set forth
in the Mortgage Loan Schedule.

     "Administration  Fees":  The  sum of (i) the  Master  Servicing  Fee,  (ii)
Servicing Fee, (iii) the MGIC Fee, (iv) the Loss  Mitigation Fee and (v) the fee
payable to First Union under the First Union Custodial Agreement.

     "Administration  Fee Rate":  The sum of (i) the Master  Servicing Fee Rate,
(ii) the Loss  Mitigation Fee Rate,  (iii) the MGIC Fee Rate, (iv) the Servicing
Fee Rate and (iv) the rate at which the fee payable to U.S.  Bank under the U.S.
Bank Custodial Agreement is calculated.

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

     "Aggregate  Loss  Severity  Percentage":  With respect to any  Distribution
Date,  the  percentage  equivalent of a fraction,  the numerator of which is the
aggregate  amount of Realized  Losses  incurred on any  Mortgage  Loans from the
Cut-off Date to the last day of the preceding calendar month and the denominator
of which is the aggregate  principal  balance of such Mortgage Loans immediately
prior to the liquidation of such Mortgage Loans.

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

     "Allocated Realized Loss Amount": With respect to any Distribution Date and
any  Class  of  Mezzanine  Certificates,  the  sum of (i)  any  Realized  Losses
allocated to such Class of Certificates on such  Distribution  Date and (ii) the
amount of any  Allocated  Realized  Loss  Amount for such Class of  Certificates
remaining  unpaid from the previous  Distribution  Date plus accrued interest on
such amount  calculated at the related  Pass-Through  Rate for the most recently
ended Interest Accrual Period.

     "Assignment":  An assignment of Mortgage,  notice of transfer or equivalent
instrument,  in  recordable  form,  which is  sufficient  under  the laws of the
jurisdiction wherein the related Mortgaged

                                      -5-
<PAGE>

Property  is  located  to  reflect  of record  the sale of the  Mortgage,  which
assignment,  notice of transfer or equivalent  instrument  may be in the form of
one  or  more  blanket  assignments  covering  Mortgages  secured  by  Mortgaged
Properties located in the same county, if permitted by law.

     "Assignment  Agreements":  Shall mean (i) the  Assignment,  Assumption  and
Recognition  Agreement,  dated as  November  20,  2001,  among the  Seller,  the
Depositor and Meritech  Mortgage  Services,  Inc. pursuant to which the Meritech
Servicing  Agreement  was  assigned to the  Depositor  and (ii) the  Assignment,
Assumption and Recognition  Agreement,  dated as of November 20, 2001, among the
Seller, the Depositor and Wells Fargo Home Mortgage,  Inc. pursuant to which the
Wells Fargo Servicing Agreement was assigned to the Trust.

     "Available  Distribution Amount": With respect to any Distribution Date, an
amount  equal to (1) the sum of (a) the  aggregate  of the amounts on deposit in
the Master Servicer Collection Account and Distribution  Account as of the close
of business on the related  Determination Date, (b) the aggregate of any amounts
deposited  in the  Distribution  Account  by the Master  Servicer  in respect of
Prepayment  Interest  Shortfalls for such  Distribution Date pursuant to Section
3.20, (c) the aggregate of any P&I Advances for such  Distribution  Date made by
the  applicable  Servicer  pursuant to the related  Servicing  Agreement  or the
Master  Servicer  pursuant to Section 4.03 and (d) the aggregate of any advances
made by the  Trustee for such  Distribution  Date  pursuant to Section  7.02(b),
reduced  (to not less than zero) by (2) the sum of (x) the portion of the amount
described in clause  (1)(a) above that  represents  (i) Monthly  Payments on the
Mortgage Loans received from a Mortgagor on or prior to the  Determination  Date
but due  during  any Due Period  subsequent  to the  related  Due  Period,  (ii)
Principal   Prepayments  on  the  Mortgage  Loans  received  after  the  related
Prepayment  Period  (together  with any  interest  payments  received  with such
Principal  Prepayments  to the extent  they  represent  the  payment of interest
accrued  on the  Mortgage  Loans  during  a  period  subsequent  to the  related
Prepayment Period),  (iii) Liquidation  Proceeds and Insurance Proceeds received
in respect of the  Mortgage  Loans after the  related  Prepayment  Period,  (iv)
amounts  reimbursable  or payable to the  Depositor,  the Master  Servicer,  any
Servicer,  the Trustee or any Custodian pursuant to Section 3.24 or Section 3.26
or otherwise payable in respect of extraordinary Trust Fund expenses, (v) Stayed
Funds, (vi) amounts deposited in the Master Servicer  Collection  Account or the
Distribution  Account  in error and (vii) the amount of any  Prepayment  Charges
collected or paid by the Servicer in connection with the Principal Prepayment of
any of the Mortgage Loans, and (y) amounts  reimbursable to the Trustee or other
successor  Master  Servicer,  as  applicable,  for an advance  made  pursuant to
Section 7.02(b) which advance the Trustee or other successor Master Servicer, as
applicable, has determined to be nonrecoverable from the Stayed Funds in respect
of which it was made.

     "Bankruptcy  Code":  The  Bankruptcy  Reform  Act of 1978  (Title 11 of the
United States Code), as amended.

     "Bankruptcy  Loss":  With  respect to any Mortgage  Loan,  a Realized  Loss
resulting from a Deficient Valuation or Debt Service Reduction.

                                      -6-
<PAGE>

     "Basis Risk  Shortfall":  With respect to the Class A Certificates  and any
Class  of  Mezzanine  Certificates  and  any  Distribution  Date  on  which  the
Pass-Through  Rate  thereon  calculated  pursuant to the  definition  thereof is
limited to the Net WAC  Pass-Through  Rate, an amount equal to the excess of the
amount of interest the Class A Certificates or the Mezzanine  Certificates would
have been  entitled  to receive on such  Distribution  Date if the Net WAC Pass-
Through  Rate  would  not have  been  applicable  to such  Certificates  on such
Distribution  Date over the amount of interest paid on such Distribution Date at
the Net WAC Pass-Through Rate.

     "Book-Entry  Certificate":   The  Class  A  Certificates,  the  Class  A-IO
Certificates  and the Mezzanine  Certificates for so long as the Certificates of
such Class shall be registered in the name of the Depository or its nominee.

     "Book-Entry Custodian": The custodian appointed pursuant to Section 5.01.

     "Business  Day": Any day other than a Saturday,  a Sunday or a day on which
banking or savings and loan institutions in the States of New York,  Maryland or
Minnesota,  or in 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.

     "Cash-Out  Refinancing":  A Refinanced  Mortgage Loan the proceeds of which
are more  than a  nominal  amount in  excess  of the  principal  balance  of any
existing  first  mortgage  or  subordinate  mortgage  on the  related  Mortgaged
Property and related closing costs.

     "Certificate":  Any  one  of  the  Depositor's  Asset  Backed  Pass-Through
Certificates,  Series 2001-HE1, Class A, Class A-IO, Class M-1, Class M-2, Class
M-3,  Class P, Class CE, Class R-I, Class R-II and Class R-III issued under this
Agreement.

     "Certificate  Factor":With respect to any Class of Certificates (other than
the Residual Certificates) as of any Distribution Date, a fraction, expressed as
a  decimal  carried  to six  places,  the  numerator  of which is the  aggregate
Certificate Principal Balance (or Notional Amount, in the case of the Class A-IO
Certificates  and the Class CE  Certificates)  of such Class of  Certificates on
such  Distribution  Date (after giving effect to any  distributions of principal
and  allocations of Realized  Losses  resulting in reduction of the  Certificate
Principal   Balance  (or  Notional  Amount,  in  the  case  of  the  Class  A-IO
Certificates  and the Class CE Certificates) of such Class of Certificates to be
made on such  Distribution  Date),  and the  denominator of which is the initial
aggregate  Certificate Principal Balance (or Notional Amount, in the case of the
Class  A-IO  Certificates  and the  Class  CE  Certificates)  of such  Class  of
Certificates as of the Closing Date.

     "Certificate  Margin":  With respect to the Class A  Certificates  and, for
purposes of the definition of "Marker Rate",  REMIC II Regular  Interest II-LTA,
0.370%  in the  case  of  each  Distribution  Date  through  and  including  the
Distribution Date on which the aggregate principal balance of the Mortgage Loans
(and  properties  acquired in respect  thereof)  remaining  in the Trust Fund is
reduced to less than 10%

                                      -7-
<PAGE>

of the aggregate  principal balance of the Mortgage Loans as of the Cut-off Date
and 0.740% in the case of each Distribution Date thereafter.

     With  respect  to the Class  M-1  Certificates  and,  for  purposes  of the
definition of "Marker Rate",  REMIC II Regular Interest  II-LTM1,  1.000% in the
case of each  Distribution  Date through and including the Distribution  Date on
which the  aggregate  principal  balance of the Mortgage  Loans (and  properties
acquired in respect thereof) remaining in the Trust Fund is reduced to less than
10% of the aggregate  principal  balance of the Mortgage Loans as of the Cut-off
Date and 1.500% in the case of each Distribution Date thereafter.

     With  respect  to the Class  M-2  Certificates  and,  for  purposes  of the
definition of "Marker Rate",  REMIC II Regular Interest  II-LTM2,  1.400% in the
case of each  Distribution  Date through and including the Distribution  Date on
which the  aggregate  principal  balance of the Mortgage  Loans (and  properties
acquired in respect thereof) remaining in the Trust Fund is reduced to less than
10% of the aggregate  principal  balance of the Mortgage Loans as of the Cut-off
Date and 2.100% in the case of each Distribution Date thereafter.

     With  respect  to the Class  M-3  Certificates  and,  for  purposes  of the
definition of "Marker Rate",  REMIC II Regular Interest  II-LTM3,  2.250% in the
case of each  Distribution  Date through and including the Distribution  Date on
which the  aggregate  principal  balance of the Mortgage  Loans (and  properties
acquired in respect thereof) remaining in the Trust Fund is reduced to less than
10% of the aggregate  principal  balance of the Mortgage Loans as of the Cut-off
Date and 3.375% in the case of each Distribution Date thereafter.

     "Certificateholder"  or "Holder": The Person in whose name a Certificate is
registered in the Certificate Register,  except that a Disqualified Organization
or a Non-United  States  Person shall not be a Holder of a Residual  Certificate
for any  purposes  hereof,  and solely for the  purposes  of giving any  consent
pursuant  to this  Agreement,  any  Certificate  registered  in the  name of the
Depositor, the Seller, the Master Servicer, the Trustee or any Affiliate thereof
shall be  deemed  not to be  outstanding  and the  Voting  Rights to which it is
entitled  shall not be taken into account in  determining  whether the requisite
percentage  of Voting  Rights  necessary  to effect  any such  consent  has been
obtained,  except as  otherwise  provided  in Section  11.01.  The  Trustee  may
conclusively rely upon a certificate of the Depositor,  the Seller or the Master
Servicer in determining  whether a Certificate is held by an Affiliate  thereof.
All  references  herein to "Holders" or  "Certificateholders"  shall reflect the
rights of Certificate Owners as they may indirectly exercise such rights through
the Depository and participating members thereof,  except as otherwise specified
herein; provided,  however, that the Trustee shall be required to recognize as a
"Holder" or  "Certificateholder"  only the Person in whose name a Certificate is
registered in the Certificate Register.

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

                                      -8-
<PAGE>

     "Certificate Principal Balance":  With respect to each Class A Certificate,
Mezzanine  Certificate or Class P Certificate  as of any date of  determination,
the Certificate  Principal  Balance of such Certificate on the Distribution Date
immediately  prior  to  such  date of  determination,  minus  all  distributions
allocable to principal made thereon and Realized Losses  allocated  thereto,  if
any, on such immediately prior Distribution Date (or, in the case of any date of
determination  up to and  including  the first  Distribution  Date,  the initial
Certificate  Principal  Balance  of such  Certificate,  as  stated  on the  face
thereof).  With  respect  to  each  Class  CE  Certificates  as of any  date  of
determination,  an amount  equal to the  Percentage  Interest  evidenced by such
Certificate times the excess,  if any, of (A) the then aggregate  Uncertificated
Balances  of the  REMIC  II  Regular  Interests  over  (B)  the  then  aggregate
Certificate  Principal  Balances  of the  Class A  Certificates,  the  Mezzanine
Certificates  and the  Class P  Certificates  then  outstanding.  The  aggregate
initial Certificate  Principal Balance of each Class of Regular  Certificates is
set forth in the Preliminary Statement hereto.

     "Certificate Register": The register maintained pursuant to Section 5.02.

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

     "Class  A  Certificate":  Any  one of the  Class A  Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-1 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class A Principal  Distribution  Amount": With respect to any Distribution
Date on or  after  the  Stepdown  Date and on  which a  Trigger  Event is not in
effect,  the  excess of (x) the  Certificate  Principal  Balance  of the Class A
Certificates  immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) 88.00% and (ii) the aggregate Stated Principal Balance of
the Mortgage  Loans as of the last day of the related Due Period  (after  giving
effect to scheduled  payments of principal due during the related Due Period, to
the extent  received  or  advanced  and  unscheduled  collections  of  principal
received  during the related  Prepayment  Period) and (B) the  aggregate  Stated
Principal  Balance of the  Mortgage  Loans as of the last day of the related Due
Period (after  giving  effect to scheduled  payments of principal due during the
related  Due  Period,  to  the  extent  received  or  advanced  and  unscheduled
collections of principal  received during the related  Prepayment  Period) minus
$3,618,294.65.

     "Class A-IO Certificate":  Any one of the Class A-IO Certificates executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-2 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class  A-IO  Pass-Through  Rate":  For  each  Distribution  Date  from and
including  the  Distribution   Date  in  December  2001  to  and  including  the
Distribution Date in August 2004, 6.00% per annum and for each Distribution Date
occurring thereafter, 0.00% per annum.

     "Class  CE  Certificate":  Any one of the Class CE  Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-7 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

                                      -9-
<PAGE>

     "Class M-1  Certificate":  Any one of the Class M-1 Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-3 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class M-1 Principal Distribution Amount": With respect to any Distribution
Date on or  after  the  Stepdown  Date and on  which a  Trigger  Event is not in
effect,  the excess of (x) the sum of (i) the Certificate  Principal  Balance of
the Class A  Certificates  (after taking into account the payment of the Class A
Principal   Distribution   Amount  on  such  Distribution  Date)  and  (ii)  the
Certificate Principal Balance of the Class M-1 Certificates immediately prior to
such  Distribution Date over (y) the lesser of (A) the product of (i) 94.00% and
(ii) the aggregate Stated Principal Balance of the Mortgage Loans as of the last
day of the related Due Period  (after  giving  effect to  scheduled  payments of
principal due during the related Due Period,  to the extent received or advanced
and unscheduled  collections of principal received during the related Prepayment
Period) and (B) the aggregate Stated Principal  Balance of the Mortgage Loans as
of the last day of the  related Due Period  (after  giving  effect to  scheduled
payments of principal due during the related Due Period,  to the extent received
or advanced and unscheduled collections of principal received during the related
Prepayment Period) minus $3,618,294.65.

     "Class M-2  Certificate":  Any one of the Class M-2 Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-4 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class M-2 Principal Distribution Amount": With respect to any Distribution
Date on or  after  the  Stepdown  Date and on  which a  Trigger  Event is not in
effect,  the excess of (x) the sum of (i) the Certificate  Principal  Balance of
the Class A  Certificates  (after taking into account the payment of the Class A
Principal  Distribution  Amount on such Distribution Date), (ii) the Certificate
Principal  Balance of the Class M-1 Certificates  (after taking into account the
payment  of the Class M-1  Principal  Distribution  Amount on such  Distribution
Date) and (iii) the Certificate  Principal Balance of the Class M-2 Certificates
immediately  prior to such  Distribution  Date  over (y) the  lesser  of (A) the
product of (i) 97.00% and (ii) the  aggregate  Stated  Principal  Balance of the
Mortgage Loans as of the last day of the related Due Period (after giving effect
to  scheduled  payments of principal  due during the related Due Period,  to the
extent  received or advanced and unscheduled  collections of principal  received
during the related  Prepayment  Period) and (B) the aggregate  Stated  Principal
Balance  of the  Mortgage  Loans as of the last day of the  related  Due  Period
(after giving  effect to scheduled  payments of principal due during the related
Due Period,  to the extent received or advanced and  unscheduled  collections of
principal received during the related Prepayment Period) minus $3,618,294.65.

     "Class M-3  Certificate":  Any one of the Class M-3 Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-5 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class M-3 Principal Distribution Amount": With respect to any Distribution
Date on or  after  the  Stepdown  Date and on  which a  Trigger  Event is not in
effect,  the excess of (x) the sum of (i) the Certificate  Principal  Balance of
the Class A Certificates (after taking into account the payment of the Class

                                      -10-
<PAGE>

A Principal Distribution Amount on such Distribution Date), (ii) the Certificate
Principal  Balance of the Class M-1 Certificates  (after taking into account the
payment  of the Class M-1  Principal  Distribution  Amount on such  Distribution
Date),  (iii) the Certificate  Principal  Balance of the Class M-2  Certificates
(after taking into account the payment of the Class M-2  Principal  Distribution
Amount on such Distribution Date) and (iv) the Certificate  Principal Balance of
the Class M-3 Certificates  immediately prior to such Distribution Date over (y)
the  lesser of (A) the  product  of (i)  99.00%  and (ii) the  aggregate  Stated
Principal  Balance of the  Mortgage  Loans as of the last day of the related Due
Period (after  giving  effect to scheduled  payments of principal due during the
related  Due  Period,  to  the  extent  received  or  advanced  and  unscheduled
collections of principal  received during the related Prepayment Period) and (B)
the aggregate Stated Principal  Balance of the Mortgage Loans as of the last day
of the  related  Due  Period  (after  giving  effect to  scheduled  payments  of
principal due during the related Due Period,  to the extent received or advanced
and unscheduled  collections of principal received during the related Prepayment
Period) minus $3,618,294.65.

     "Class  P  Certificate":  Any  one of the  Class P  Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto  as  Exhibit  A-6 and  evidencing  a  Regular  Interest  in REMIC III for
purposes of the REMIC Provisions.

     "Class R-I Certificates":  Any one of the Class R-I Certificates  executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto as Exhibit  A-8,  and  evidencing  the  Residual  Interest in REMIC I for
purposes of the REMIC Provisions.

     "Class R-II Certificates": Any one of the Class R-II Certificates executed,
authenticated  and delivered by the Trustee,  substantially  in the form annexed
hereto as Exhibit A-9,  and  evidencing  the  Residual  Interest in REMIC II for
purposes of the REMIC Provisions.

     "Class  R-III  Certificates":  Any  one of  the  Class  R-III  Certificates
executed,  authenticated and delivered by the Trustee, substantially in the form
annexed hereto as Exhibit A-10,  and  evidencing the Residual  Interest in REMIC
III for purposes of the REMIC Provisions.

     "Closing Date": November 20, 2001.

     "Code": The Internal Revenue Code of 1986.

     "Commission": The Securities and Exchange Commission.

     "Corporate  Trust  Office":  The  principal  corporate  trust office of the
Trustee which office at the date of the execution of this  instrument is located
at 401 South Tryon Street, NC 1179, Charlotte,  North Carolina 28288-1179, or at
such other address as the Trustee may  designate  from time to time by notice to
the Certificateholders, the Depositor and the Master Servicer.

     "Corresponding  Certificate":  With  respect to REMIC II  Regular  Interest
II-LTA,  REMIC II Regular Interest  II-LTM1,  REMIC II Regular Interest II-LTM2,
REMIC II Regular Interest II-LTM3

                                      -11-
<PAGE>

and  REMIC II  Regular  Interest  II-LTP,  the Class A  Certificates,  Class M-1
Certificates,  Class  M-2  Certificates,  Class  M-3  Certificates  and  Class P
Certificates, respectively.

     "Credit Enhancement Percentage":  For any Distribution Date, the percentage
equivalent  of a fraction,  the  numerator of which is the sum of the  aggregate
Certificate  Principal  Balances of the Mezzanine  Certificates and the Class CE
Certificates,  and the  denominator of which is the aggregate  Stated  Principal
Balance  of  the   Mortgage   Loans,   calculated   after  taking  into  account
distributions  of  principal  on the  Mortgage  Loans  and  distribution  of the
Principal Distribution Amount to the Certificates then entitled to distributions
of principal on such Distribution Date.

     "Custodial  Agreement" Shall mean either the U.S. Bank Custodial  Agreement
or the First Union Custodial Agreement, as applicable.

     "Custodian" Shall mean either U.S. Bank or First Union, as the case may be,
appointed pursuant to the applicable Custodial Agreement.

     "Cut-off Date": With respect to each Mortgage Loan,  November 1, 2001. With
respect to all Qualified  Substitute  Mortgage Loans,  their respective dates of
substitution. References herein to the "Cut-off Date," when used with respect to
more than one Mortgage Loan,  shall be to the respective  Cut-off Dates for such
Mortgage Loans.

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

     "Deficient  Valuation":  With respect to any Mortgage  Loan, a valuation of
the related Mortgaged Property by a court of competent jurisdiction in an amount
less than the then  outstanding  principal  balance of the Mortgage Loan,  which
valuation results from a proceeding initiated under the Bankruptcy Code.

     "Definitive Certificates": As defined in Section 5.01(b).

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

     "Delinquency Percentage": As of the last day of the related Due Period, the
percentage  equivalent  of a fraction,  the  numerator of which is the aggregate
Stated  Principal  Balance of all Mortgage Loans that, as of the last day of the
previous  calendar month,  are 60 or more days  delinquent,  are in foreclosure,
have been  converted  to REO  Properties  or have been  discharged  by reason of
bankruptcy,  and the  denominator  of which is the  aggregate  Stated  Principal
Balance  of the  Mortgage  Loans  and REO  Properties  as of the last day of the
previous calendar month.

     "Depositor": ACE Securities Corp., a Delaware corporation, or its successor
in interest.

                                      -12-
<PAGE>

     "Depository":  The Depository  Trust Company,  or any successor  Depository
hereafter  named.  The  nominee  of the  initial  Depository,  for  purposes  of
registering those Certificates that are to be Book-Entry Certificates, is CEDE &
Co. The Depository shall at all times be a "clearing  corporation" as defined in
Section  8-102(3) of the Uniform  Commercial Code of the State of New York and a
"clearing  agency"  registered  pursuant to the provisions of Section 17A of the
Securities Exchange Act of 1934, as amended.

     "Depository  Institution":  Any  depository  institution  or trust company,
including  the Trustee,  that (a) is  incorporated  under the laws of the United
States of  America or any State  thereof,  (b) is  subject  to  supervision  and
examination  by federal or state  banking  authorities  and (c) has  outstanding
unsecured  commercial paper or other short-term  unsecured debt obligations (or,
in the case of a depository  institution  that is the principal  subsidiary of a
holding  company,  such holding company has unsecured  commercial paper or other
short-term  unsecured debt  obligations) that are rated F-1 by Fitch, A-1 by S&P
and P-1 by Moody's (or, if such Rating Agencies are no longer rating the Offered
Certificates,  comparable ratings by any other nationally recognized statistical
rating agency then rating the Offered Certificates).

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

     "Determination  Date": With respect to each Distribution Date, the 18th day
of the calendar  month in which such  Distribution  Date occurs or, if such 18th
day is not a Business Day, the Business Day immediately preceding such 18th day.

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

     "Distribution   Account":   The  trust  account  or  accounts  created  and
maintained  by the  Trustee  pursuant to Section  3.25,  which shall be entitled
"First Union National Bank, as Trustee, in trust

                                      -13-
<PAGE>

for the  registered  holders of ACE  Securities  Corp.  Home  Equity Loan Trust,
Series 2001- HE1" . The Distribution Account must be an Eligible Account.

     "Distribution  Account  Deposit  Date":  The  Business  Day  prior  to such
Distribution Date.

     "Distribution  Date": The 20th day of any month, or if such 20th day is not
a Business Day, the Business Day immediately following such 20th day, commencing
in December 2001.

     "Due Date": With respect to each Distribution Date, the day of the month on
which the  Monthly  Payment is due on a Mortgage  Loan  during the  related  Due
Period, exclusive of any days of grace.

     "Due Period":  With respect to any Distribution Date, the period commencing
on the second  day of the month  immediately  preceding  the month in which such
Distribution Date occurs and ending on the related Due Date.

     "Eligible  Account":  Any of (i) an account or accounts  maintained  with a
Depository  Institution,  (ii) an account or accounts  the deposits in which are
fully insured by the FDIC or (iii) a trust account or accounts  maintained  with
the  corporate  trust  department  of a federal  or state  chartered  depository
institution or trust company acting in its fiduciary capacity. Eligible Accounts
may bear interest.

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

     "Estate in Real Property": A fee simple estate in a parcel of land.

     "Excess  Liquidation  Proceeds":  To the  extent  that  such  amount is not
required by law to be paid to the  related  mortgagor,  the  amount,  if any, by
which Liquidation Proceeds with respect to a liquidated Mortgage Loan exceed the
sum of (i) the outstanding  principal  balance of such Mortgage Loan and accrued
but unpaid interest at the related Net Mortgage Rate through the last day of the
month  in  which  the  related  Liquidation  Event  occurs,  plus  (ii)  related
liquidation  expenses or other amounts to which the related Servicer is entitled
to be  reimbursed  from  Liquidation  Proceeds  with respect to such  liquidated
Mortgage  Loan  pursuant  to the related  Servicing  Agreement  or Section  3.26
hereof.

     "Expense  Adjusted Mortgage Rate": With respect to any Mortgage Loan or REO
Property, the then applicable Mortgage Rate thereon minus the Administration Fee
Rate.

     "Extra  Principal  Distribution  Amount":  With respect to any Distribution
Date,  the lesser of (i) the Net Monthly Excess  Cashflow for such  Distribution
Date and (ii) the  Overcollateralization  Increase Amount for such  Distribution
Date.

     "Fannie Mae":  Fannie Mae,  formerly known as the Federal National Mortgage
Association, or any successor thereto.

                                      -14-
<PAGE>

     "FDIC": Federal Deposit Insurance Corporation or any successor thereto.

     "Final Recovery Determination": With respect to any defaulted Mortgage Loan
or any REO Property (other than a Mortgage Loan or REO Property purchased by the
applicable  Originator,   the  Seller  or  the  Terminator  pursuant  to  or  as
contemplated  by Section  2.03 or Section  9.01),  a  determination  made by the
applicable Servicer that all Insurance Proceeds,  Liquidation Proceeds and other
payments  or  recoveries  which  such  Servicer,  in its  reasonable  good faith
judgment,  expects to be finally  recoverable  in respect  thereof  have been so
recovered.  The Master  Servicer  shall maintain  records,  based on information
provided by each Servicer, of each Final Recovery Determination made thereby.

     "First Union": First Union National Bank or any successor thereto.

     "First Union Custodial Agreement": Shall mean the Custodial Agreement dated
as of  November  1, 2001,  among the  Trustee,  First Union and Wells Fargo Home
Mortgage,  Inc., as such  agreement  may be amended or  supplement  from time to
time.

     "Fitch": Fitch, Inc., or its successor in interest.

     "Freddie  Mac":  Freddie  Mac,  formerly  known as the  Federal  Home  Loan
Mortgage Corporation, or any successor thereto.

     "Gross  Margin":  With respect to each  Adjustable  Rate Mortgage Loan, the
fixed  percentage  set forth in the related  Mortgage  Note that is added to the
related  Index on each  Adjustment  Date in  accordance  with  the  terms of the
related  Mortgage Note used to determine  the Mortgage Rate for such  Adjustable
Rate Mortgage Loan.

     "HomeStar": HomeStar Mortgage Services, LLC or its successor in interest.

     "HomeStar  MLPA":  Shall mean the Mortgage Loan Purchase  Agreement,  dated
November 20, 2001 among the Seller,  the Depositor,  HomeStar and SouthStar,  as
such agreement may be amended or supplement from time to time.

     "Independent":  When used with respect to any  specified  Person,  any such
Person who (a) is in fact independent of the Depositor, the Master Servicer, the
Seller,  the Originator and their respective  Affiliates,  (b) does not have any
direct financial  interest in or any material indirect financial interest in the
Depositor,  the Master  Servicer,  the Seller,  the  Originator or any Affiliate
thereof, and (c) is not connected with the Depositor,  the Master Servicer,  the
Seller,  the  Originator  or any  Affiliate  thereof  as an  officer,  employee,
promoter,  underwriter,  trustee, partner, director or Person performing similar
functions;  provided, however, that a Person shall not fail to be Independent of
the Depositor,  the Master Servicer, the Seller, the Originator or any Affiliate
thereof merely because such Person is the beneficial  owner of 1% or less of any
class of securities  issued by the Depositor,  the Master Servicer,  the Seller,
the Originator or any Affiliate thereof, as the case may be.

                                      -15-
<PAGE>

     "Index":  With  respect  to each  Adjustable  Rate  Mortgage  Loan and each
related  Adjustment Date,  either (i) the average of the interbank offered rates
for six-month United States dollar deposits in the London market as published in
The Wall Street  Journal  and as most  recently  available  either (a) as of the
first Business Day 45 days prior to such  Adjustment Date or (b) as of the first
Business  Day of the month  preceding  the  month of such  Adjustment  Date,  as
specified  in the  related  Mortgage  Note or (ii) the weekly  average  yield on
United States Treasury  Securities  adjusted to a constant maturity of one year,
as  published  in the Federal  Reserve  Statistical  Release  H.15(519)  as most
recently announced as of a date 45 days prior to such Adjustment Date.

     "Insurance Proceeds":  Proceeds of any title policy, hazard policy or other
insurance  policy  covering a Mortgage Loan, to the extent such proceeds are not
to be applied to the restoration of the related  Mortgaged  Property or released
to the Mortgagor in accordance with the applicable Servicing Agreement.

     "Interest  Accrual Period":  With respect to any Distribution  Date and the
Class A Certificates and the Mezzanine  Certificates,  the period  commencing on
the Distribution Date of the month immediately preceding the month in which such
Distribution  Date  occurs  (or,  in the case of the  first  Distribution  Date,
commencing  on  the  Closing  Date)  and  ending  on  the  day  preceding   such
Distribution  Date.  With  respect to any  Distribution  Date and the Class A-IO
Certificates,  the one-month period ending on the last day of the calendar month
immediately preceding the month in which such Distribution Date occurs.

     "Interest Carry Forward Amount":  With respect to any Distribution Date and
the  Class A  Certificates,  the  Class  A-IO  Certificates  and  the  Mezzanine
Certificates,  the sum of (i) the  amount,  if any,  by which  (a) the  Interest
Distribution  Amount  for  such  Class  of  Certificates  as of the  immediately
preceding  Distribution Date exceeded (b) the actual amount  distributed on such
Class of  Certificates  in respect of  interest  on such  immediately  preceding
Distribution  Date and (ii) the amount of any Interest  Carry Forward Amount for
such Class of Certificates remaining unpaid from the previous Distribution Date,
plus accrued  interest on such sum calculated at the related  Pass-Through  Rate
for the most recently ended Interest Accrual Period.

     "Interest  Determination  Date":  With respect to the Class A Certificates,
the Mezzanine  Certificates,  REMIC II Regular Interest II-LTA, REMIC II Regular
Interest II-LTM1 REMIC II Regular Interest II-LTM2 and REMIC II Regular Interest
II-LTM3,  and any Interest Accrual Period  therefor,  the second London Business
Day preceding the commencement of such Interest Accrual Period.

     "Interest  Distribution  Amount": With respect to any Distribution Date and
any  Class  A  Certificates,   any  Mezzanine   Certificates,   any  Class  A-IO
Certificates and any Class CE Certificates,  the aggregate  Accrued  Certificate
Interest on the Certificates of such Class for such Distribution Date.

     "Interest  Remittance Amount":  With respect to any Distribution Date, that
portion of the Available  Distribution  Amount for such  Distribution  Date that
represents interest received or advanced on the Mortgage Loans.

                                      -16-
<PAGE>

     "Late  Collections":  With respect to any Mortgage Loan and any Due Period,
all amounts received subsequent to the Determination Date immediately  following
such Due Period,  whether as late  payments of Monthly  Payments or as Insurance
Proceeds,  Liquidation  Proceeds or otherwise,  which represent late payments or
collections of principal and/or interest due (without regard to any acceleration
of payments  under the related  Mortgage and Mortgage  Note) but  delinquent for
such Due Period and not previously recovered.

     "Liquidation  Event":  With  respect  to  any  Mortgage  Loan,  any  of the
following events:  (i) such Mortgage Loan is paid in full; (ii) a Final Recovery
Determination  is made as to such  Mortgage  Loan or (iii) such Mortgage Loan is
removed from REMIC I by reason of its being purchased, sold or replaced pursuant
to or as  contemplated  by Section 2.03 or Section 9.01. With respect to any REO
Property,  either of the following events: (i) a Final Recovery Determination is
made as to such REO  Property or (ii) such REO  Property is removed from REMIC I
by reason of its being purchased pursuant to Section 9.01.

     "Liquidation  Proceeds":  The amount  (other  than  Insurance  Proceeds  or
amounts  received  in  respect of the  rental of any REO  Property  prior to REO
Disposition)  received by the Master  Servicer in connection with (i) the taking
of all or a part of a  Mortgaged  Property  by  exercise of the power of eminent
domain or  condemnation,  (ii) the  liquidation  of a  defaulted  Mortgage  Loan
through  a  trustee's  sale,  foreclosure  sale  or  otherwise,   or  (iii)  the
repurchase,  substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by Section 2.03 or Section 9.01.

     "Loan-to-Value  Ratio":  As of any  date of  determination,  the  fraction,
expressed as a percentage,  the  numerator of which is the principal  balance of
the related Mortgage Loan at such date and the denominator of which is the Value
of the related Mortgaged Property.

     "London  Business  Day":  Any day on which  banks in the City of London are
open and conducting transactions in United States dollars.

     "Loss Mitigation Advisor": The Murrayhill Company, a Colorado corporation.

     "Loss  Mitigation  Advisory  Agreement":  The agreement  between the Master
Servicer the Loss  Mitigation  Advisor,  and each Servicer,  respectively,  each
dated November 20, 2001.

     "Loss Mitigation Fee": As to each Mortgage Loan and any Distribution  Date,
an amount  equal to one twelfth of the product of the Loss  Mitigation  Fee Rate
multiplied by the Scheduled  Principal  Balance of the Mortgage  Loans as of the
Due Date in the preceding calendar month.

     "Loss Mitigation Fee Rate": 0.015% per annum.

     "Loss  Severity  Percentage":  With respect to any  Distribution  Date, the
percentage  equivalent  of a fraction,  the  numerator of which is the amount of
Realized  Losses incurred on a Mortgage Loan and the denominator of which is the
principal  balance of such Mortgage Loan immediately prior to the liquidation of
such Mortgage Loan.

                                      -17-
<PAGE>

     "Master  Servicer":  As of the Closing  Date,  Wells Fargo Bank  Minnesota,
National Association and thereafter,  its respective  successors in interest who
meet the qualifications of this Agreement and the Servicing Agreements.

     "Master Servicer Collection  Account":  The account or accounts created and
maintained,  or caused to be created  and  maintained,  by the  Master  Servicer
pursuant to Section 3.23, which shall be denominated "First Union National Bank,
as Trustee f/b/o holders of ACE Securities Corp. Home Equity Loan Trust,  Series
2001-HE1 - Master Servicer Collection  Account".  The Collection Account must be
an Eligible Account.

     "Master Servicer Event of Default":  One or more of the events described in
Section 7.01 hereof.

     "Master Servicer Fee Rate" 0.0125% per annum.

     "Master  Servicing  Fee":  With respect to each  Mortgage  Loan and for any
calendar  month,  an amount  equal to one  twelfth of the  product of the Master
Servicer Fee Rate multiplied by the Scheduled  Principal Balance of the Mortgage
Loans as of the Due Date in the preceding calendar month.

     "Marker  Rate":   With  respect  to  the  Class  CE  Certificates  and  any
Distribution  Date, a per annum rate equal to two (2) times the weighted average
of the  REMIC II  Remittance  Rate for each of the  REMIC II  Regular  Interests
(other than REMIC II Regular Interest II-LTAA,  REMIC II Regular Interest II-LTP
and REMIC II  Regular  Interest  II-LTIO),  with the rate on each such  REMIC II
Regular Interest (other than REMIC II Regular Interest II-LTZZ) subject to a cap
equal to the lesser of (i) the related  One-Month  LIBOR  Pass-Through  Rate and
(ii) the Net WAC Pass-Through  Rate for the purpose of this calculation for such
Distribution Date and with the rate on REMIC II Regular Interest II-LTZZ subject
to a cap of zero for the purpose of this  calculation;  provided  however,  each
such cap shall be  multiplied by a fraction the numerator of which is the actual
number of days in the related  Interest  Accrual  Period and the  denominator of
which is 30.

     "Maximum II-LTZZ Uncertificated  Interest Deferral Amount": With respect to
any  Distribution  Date,  the  excess of (i)  accrued  interest  at the REMIC II
Remittance  Rate  applicable  to  REMIC  II  Regular  Interest  I-LTZZ  for such
Distribution Date on a balance equal to the  Uncertificated  Balance of REMIC II
Regular Interest  II-LTZZ minus the REMIC II  Overcollateralization  Amount,  in
each case for such Distribution Date, over (ii) Uncertificated Interest on REMIC
II Regular Interest I-LTA,  REMIC II Regular Interest II-LTM1,  REMIC II Regular
Interest  II-LTM2 and REMIC II Regular  Interest  II-LTM3 for such  Distribution
Date,  with the rate on each such  REMIC II  Regular  Interest  subject to a cap
equal to the lesser of (i) the related  One-Month  LIBOR  Pass-Through  Rate and
(ii) the Net WAC Pass-Through  Rate for the purpose of this calculation for such
Distribution  Date;  provided  however,  each such cap shall be  multiplied by a
fraction  the  numerator  of which is the actual  number of days in the  related
Interest Accrual Period and the denominator of which is 30.

                                      -18-
<PAGE>

     "Maximum  Mortgage  Rate":  With respect to each  Adjustable  Rate Mortgage
Loan,  the  percentage  set forth in the  related  Mortgage  Note as the maximum
Mortgage Rate thereunder.

     "Meritech Servicing Agreement": Shall mean the Interim Servicing Agreement,
dated as of October 31, 2001, between the Seller and Meritech Mortgage Services,
Inc. (as modified pursuant to the related Assignment Agreement).

     "Mezzanine Certificate":  Any Class M-1 Certificate,  Class M-2 Certificate
or Class M-3 Certificate.

     "MGIC":  Mortgage  Guaranty  Insurance  Corporation,   a  monoline  private
insurance  company  organized  and  created  under  the  laws  of the  State  of
Wisconsin, or its successor in interest.

     "MGIC  Fee":  With  respect  to  each  MGIC  PMI  Mortgage  Loan  and  each
Distribution Date, an amount equal to one twelfth of the product of the MGIC Fee
Rate multiplied by the aggregate  Scheduled  Principal  Balance of such MGIC PMI
Mortgage Loan as of the Due Date in the preceding calendar month.

     "MGIC  Fee  Rate":  Shall  be the per  annum  percentage  set  forth on the
Mortgage Loan Schedule.

     "MGIC PMI Mortgage  Loans":  The list of Mortgage Loans insured by MGIC and
identified on Schedule 3 attached hereto.

     "MGIC  PMI  Policy":   The  Master  Primary   Mortgage   Insurance   Policy
(No.32-110-4-  1483)  with  respect  to the  MGIC  PMI  Mortgage  Loans  and all
endorsements thereto dated the Closing Date, issued by MGIC.

     "Minimum  Mortgage  Rate":  With respect to each  Adjustable  Rate Mortgage
Loan,  the  percentage  set forth in the  related  Mortgage  Note as the minimum
Mortgage Rate thereunder.

     "Monthly Payment": With respect to any Mortgage Loan, the scheduled monthly
payment of principal  and interest on such Mortgage Loan which is payable by the
related Mortgagor from time to time under the related Mortgage Note, determined:
(a) after  giving  effect to (i) any  Deficient  Valuation  and/or Debt  Service
Reduction  with  respect to such  Mortgage  Loan and (ii) any  reduction  in the
amount of interest collectible from the related Mortgagor pursuant to the Relief
Act;  (b) without  giving  effect to any  extension  granted or agreed to by the
related  Servicer  under  the  applicable  Servicing  Agreement;  and (c) on the
assumption that all other amounts, if any, due under such Mortgage Loan are paid
when due.

     "Moody's:" Moody's Investors Service, Inc. or any successor interest.

     "Mortgage":  The  mortgage,  deed of trust or other  instrument  creating a
first lien on, or first  priority  security  interest  in, a Mortgaged  Property
securing a Mortgage Note.

                                      -19-
<PAGE>

     "Mortgage  File":  The Mortgage Loan  Documents  pertaining to a particular
Mortgage Loan.

     "Mortgage Loan": Each mortgage loan transferred and assigned to the Trustee
delivered to the applicable Custodian pursuant to Section 2.01 of this Agreement
and pursuant to the applicable Custodial Agreement, as held from time to time as
a part of the Trust Fund,  the Mortgage  Loans so held being  identified  in the
Mortgage Loan Schedule.

     "Mortgage  Loan  Documents":  The documents  evidencing or relating to each
Mortgage  Loan  delivered  to  the  Custodian  under  the  applicable  Custodial
Agreement on behalf of the Trustee.

     "Mortgage Loan Purchase  Agreement":  Shall mean either the NC Capital MLPA
or the HomeStar MLPA as the case may be.

     "Mortgage  Loan  Schedule":  As of any  date,  the list of  Mortgage  Loans
included in REMIC I on such date,  attached  hereto as Schedule 1. The  Mortgage
Loan  Schedule  shall set forth the following  information  with respect to each
Mortgage Loan:

          (i) the Mortgage Loan identifying number;

          (ii) the Mortgagor's name;

          (iii) the street address of the Mortgaged Property including the state
     and zip code;

          (iv)  a  code   indicating   whether   the   Mortgaged   Property   is
     owner-occupied;

          (v) the  type  of  Residential  Dwelling  constituting  the  Mortgaged
     Property;

          (vi) the original months to maturity;

          (vii) the stated  remaining  months to maturity  from the Cut-off Date
     based on the original amortization schedule;

          (viii) the Loan-to-Value Ratio at origination;

          (ix) the Mortgage  Rate in effect  immediately  following  the Cut-off
     Date;

          (x) (A) the date on which the  first  Monthly  Payment  was due on the
     Mortgage  Loan and,  (B) if such date is not  consistent  with the Due Date
     currently in effect, such Due Date;

          (xi) the stated maturity date;

                                      -20-
<PAGE>

          (xii) the amount of the Monthly Payment at origination;

          (xiii) the  amount of the  Monthly  Payment  due on the first Due Date
     after the Cut-off Date;

          (xiv)  the  last  Due Date on which a  Monthly  Payment  was  actually
     applied to the unpaid Stated Principal Balance;

          (xv) the original principal amount of the Mortgage Loan;

          (xvi) the Scheduled  Principal  Balance of the Mortgage Loan as of the
     close of business on the Cut-off Date;

          (xvii)  with  respect  to each  Adjustable  Rate  Mortgage  Loan,  the
     Adjustment Dates;

          (xviii) with respect to each  Adjustable Rate Mortgage Loan, the Gross
     Margin;

          (xix) a code  indicating  the  purpose  of the  Mortgage  Loan  (i.e.,
     purchase financing, Rate/Term Refinancing, Cash-Out Refinancing);

          (xx) with respect to each  Adjustable  Rate Mortgage Loan, the Maximum
     Mortgage Rate;

          (xxi) with respect to each  Adjustable Rate Mortgage Loan, the Minimum
     Mortgage Rate;

          (xxii) the Mortgage Rate at origination;

          (xxiii)  with  respect to each  Adjustable  Rate  Mortgage  Loan,  the
     Periodic  Rate Cap and the maximum  first  Adjustment  Date  Mortgage  Rate
     adjustment;

          (xxiv)  a  code  indicating  the  documentation  program  (i.e.,  Full
     Documentation, Limited Documentation, Stated Income Documentation);

          (xxv) the Index;

          (xxvi) with respect to each  Adjustable  Rate Mortgage Loan, the first
     Adjustment Date immediately following the Cut-off Date;

          (xxvii) the risk grade;

          (xxviii) the Value of the Mortgaged Property;

                                      -21-
<PAGE>

          (xxix) the sale price of the Mortgaged Property, if applicable;

          (xxx) the actual unpaid  principal  balance of the Mortgage Loan as of
     the Cut-off Date;

          (xxxi) if the related Mortgage Loan has a Prepayment Charge and if so,
     the type and term of the related Prepayment Charge;

          (xxxii) the rounding code (i.e., nearest 0.125%, next highest 0.125%);

          (xxxiii) whether such Mortgage Loan is a MGIC PMI Mortgage Loan; and

          (xxxiv) the MGIC Fee.

     The Mortgage Loan Schedule shall set forth the following  information  with
respect to the Mortgage  Loans in the aggregate as of the Cut-off Date:  (1) the
number of Mortgage  Loans;  (2) the current  principal  balance of the  Mortgage
Loans;  (3) the weighted average Mortgage Rate of the Mortgage Loans and (4) the
weighted  average  maturity of the Mortgage  Loans.  The Mortgage  Loan Schedule
shall be  amended  from time to time by the  Depositor  in  accordance  with the
provisions of this Agreement.  With respect to any Qualified Substitute Mortgage
Loan, the Cut-off Date shall refer to the related Cut-off Date for such Mortgage
Loan, determined in accordance with the definition of Cut-off Date herein.

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

     "Mortgage  Rate":  With respect to each Mortgage  Loan,  the annual rate at
which  interest  accrues on such  Mortgage  Loan from time to time in accordance
with the  provisions of the related  Mortgage  Note,  which rate with respect to
each Adjustable Rate Mortgage Loan (A) as of any date of determination until the
first  Adjustment Date following the Cut-off Date shall be the rate set forth in
the Mortgage Loan Schedule as the Mortgage Rate in effect immediately  following
the Cut-off Date and (B) as of any date of determination thereafter shall be the
rate as adjusted on the most recent Adjustment Date equal to the sum, rounded to
the nearest 0.125% as provided in the Mortgage  Note, of the related  Index,  as
most recently  available as of a date prior to the Adjustment  Date as set forth
in the related  Mortgage Note, plus the related Gross Margin;  provided that the
Mortgage Rate on such Adjustable Rate Mortgage Loan on any Adjustment Date shall
never be more  than the  lesser  of (i) the sum of the  Mortgage  Rate in effect
immediately  prior to the Adjustment Date plus the related Periodic Rate Cap, if
any, and (ii) the related  Maximum  Mortgage  Rate, and shall never be less than
the  greater  of (i)  the  Mortgage  Rate in  effect  immediately  prior  to the
Adjustment Date less the Periodic Rate Cap, if any, and (ii) the related Minimum
Mortgage Rate.  With respect to each Mortgage Loan that becomes an REO Property,
as of any date of  determination,  the annual rate determined in accordance with
the immediately  preceding  sentence as of the date such Mortgage Loan became an
REO Property.

                                      -22-
<PAGE>

     "Mortgaged  Property":  The underlying  property  securing a Mortgage Loan,
including any REO Property, consisting of an Estate in Real Property improved by
a Residential Dwelling.

     "Mortgagor": The obligor on a Mortgage Note.

     "NC Capital": NC Capital Corporation, or its successor in interest.

     "NC Capital MLPA":  Shall mean the Mortgage Loan Purchase  Agreement  dated
November 20, 2001 among the Seller, the Depositor and the NC Capital.

     "Net Monthly Excess Cashflow":  With respect to any Distribution  Date, the
sum of (i) any Overcollateralization Reduction Amount for such Distribution Date
and  (ii)  the  excess  of  (x)  the  Available  Distribution  Amount  for  such
Distribution  Date  over  (y)  the  sum for  such  Distribution  Date of (A) the
aggregate  Senior  Interest  Distribution  Amounts payable to the holders of the
Class  A  Certificates  and  the  Class  A-IO  Certificates,  (B)  the  Interest
Distribution  Amounts payable to the holders of the Mezzanine  Certificates  and
(C) the Principal Remittance Amount.

     "Net Mortgage Rate":  With respect to any Mortgage Loan (or the related REO
Property) as of any date of determination, a per annum rate of interest equal to
the  then   applicable   Mortgage   Rate  for  such   Mortgage  Loan  minus  the
Administration Fee Rate.

     "Net WAC Pass-Through  Rate": For any Distribution Date is a rate per annum
(adjusted for the actual number of days elapsed in the Interest  Accrual Period)
equal to the weighted average of the Expense Adjusted Mortgage Rates on the then
outstanding Mortgage Loans, weighted based on their Scheduled Principal Balances
as of the  first  day of the  calendar  month  preceding  the month in which the
Distribution  Date  occurs  minus  the  Class  A-IO  Pass-Through  Rate for such
Distribution  Date  multiplied  by a  fraction,  the  numerator  of which is the
Notional Amount with respect to the Class A-IO Certificates immediately prior to
such  Distribution  Date and the  denominator  of which is the aggregate  Stated
Principal  Balance  of the  Mortgage  Loans  as of the  first  day of the  month
preceding the month of such Distribution  Date. For federal income tax purposes,
however, the equivalent of the foregoing, expressed as a per annum rate (but not
less than zero) is equal to the  weighted  average of (v) the REMIC I Remittance
Rate with respect to REMIC I Regular Interest I-LTA and REMIC I Regular Interest
I-LTP for such  Distribution  Date, (w) the REMIC I Remittance Rate with respect
to REMIC I Regular Interest I-LTB for such Distribution Date, (x) the excess, if
any, of (1) the REMIC I Remittance Rate with respect to REMIC I Regular Interest
I-LTC for such  Distribution  Date over (2) (A) in the case of each Distribution
Date  from and  including  the  first  Distribution  Date to and  including  the
Distribution  Date in  August  2004,  6.00% per annum and (B) in the case of any
Distribution  Date thereafter,  0.00% per annum; (y) the excess,  if any, of (1)
the REMIC I Remittance  Rate with respect to REMIC I Regular  Interest I-LTD for
such  Distribution  Date over (2) (A) in the case of each Distribution Date from
and including the first Distribution Date to and including the Distribution Date
in November 2003, 6.00% per annum and (B) in the case of any  Distribution  Date
thereafter,  0.00% per annum,  and (z) the  excess,  if any,  of (1) the REMIC I
Remittance  Rate  with  respect  to  REMIC I  Regular  Interest  I-LTE  for such
Distribution  Date over (2) (A) in the case of each  Distribution  Date from and
including the first  Distribution Date to and including the Distribution Date in
November  2002,  6.00% per annum  and (B) in the case of any  Distribution  Date
thereafter, 0.00% per annum; weighted, in

                                      -23-
<PAGE>

the case of clause (v), on the basis of the aggregate Uncertificated Balances of
REMIC I Regular  Interest I-LTA and REMIC I Regular  Interest I-LTP, in the case
of clause  (w),  on the basis of the  Uncertificated  Balance of REMIC I Regular
Interest  I-LTB in the case of clause  (x),  on the basis of the  Uncertificated
Balances of REMIC I Regular  Interest  I-LTC,  in the case of clause (y), on the
basis of the Uncertificated Balance of REMIC I Regular Interest I-LTD and in the
case of clause  (z),  on the  basis of the  Uncertificated  Balances  of REMIC I
Regular Interest I-LTE.

     "Nonrecoverable  P&I Advance":  Any P&I Advance previously made or proposed
to be made in respect of a Mortgage Loan or REO Property that, in the good faith
business  judgment of the Master  Servicer,  the Trustee  (as  successor  Master
Servicer) or the applicable  Servicer will not or, in the case of a proposed P&I
Advance,  would  not be  ultimately  recoverable  from  related  late  payments,
Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property
as provided herein.

     "Nonrecoverable  Servicing Advance":  Any Servicing Advance previously made
or proposed to be made in respect of a Mortgage  Loan or REO Property  that,  in
the good faith business judgment of the applicable Servicer, will not or, in the
case of a proposed Servicing Advance,  would not be ultimately  recoverable from
related  late  payments,  Insurance  Proceeds  or  Liquidation  Proceeds on such
Mortgage Loan or REO Property as provided herein.

     "Non-United States Person": Any Person other than a United States Person.

     "Notional  Amount":  With  respect  to the  Class CE  Certificates  and any
Distribution Date, the Uncertificated  Balance of the REMIC II Regular Interests
for such  Distribution  Date.  With  respect to the Class A-IO  Certificates  an
amount equal to the lesser of (A)(i)  $180,915,000  for each  Distribution  Date
from and including the first Distribution Date to and including the Distribution
Date in November 2002, (ii)  $123,025,000  for each  Distribution  Date from and
including  the  Distribution   Date  in  December  2002  to  and  including  the
Distribution Date in November 2003, (iii) $72,365,000 for each Distribution Date
from and including the  Distribution  Date in December 2003 to and including the
Distribution  Date in August 2004, and (iv) $0 for each  Distribution Date after
the August 2004 Distribution Date and (B) the aggregate Stated Principal Balance
of the Mortgage Loans with Expense Adjusted Mortgage Rates in excess of 6.00% as
of the Cut-off Date per annum prior to giving effect to the  scheduled  payments
of  principal  due during the  related  Due  Period,  to the extent  received or
advanced,  and  unscheduled  collections or principal  received during the prior
calendar  month.  For  federal  income  tax  purposes,  however,  the Class A-IO
Certificate will not have a notional amount but instead will be entitled to 100%
of the interest payable on REMIC II Regular Interest II-LTIO.

     "Offered Certificates" shall mean the Class A Certificates,  the Class A-IO
Certificates and the Mezzanine Certificates, collectively.

     "Officers' Certificate": A certificate signed by the Chairman of the Board,
the Vice  Chairman of the Board,  the  President  or a vice  president  (however
denominated),  and by the  Treasurer,  the  Secretary,  or one of the  assistant
treasurers or assistant  secretaries of the applicable Servicer,  the applicable
Originator, the Seller or the Depositor, as applicable.

                                      -24-
<PAGE>

     "One-Month LIBOR": With respect to the Class A Certificates,  the Mezzanine
Certificates,  REMIC II  Regular  Interest  II-LTA,  REMIC II  Regular  Interest
II-LTM1, REMIC II Regular Interest II-LTM2 and REMIC II Regular Interest II-LTM3
and any Interest  Accrual  Period  therefor,  the rate  determined by the Master
Servicer on the related Interest  Determination Date on the basis of the offered
rate for one-month U.S. dollar  deposits,  as such rate appears on Telerate Page
3750 as of  11:00  a.m.  (London  time)  on such  Interest  Determination  Date;
provided that if such rate does not appear on Telerate  Page 3750,  the rate for
such date will be  determined on the basis of the offered rates of the Reference
Banks for one-month U.S. dollar deposits, as of 11:00 a.m. (London time) on such
Interest Determination Date. In such event, the Master Servicer will request the
principal London office of each of the Reference Banks to provide a quotation of
its rate. If on such Interest  Determination  Date, two or more Reference  Banks
provide  such  offered  quotations,  One-Month  LIBOR for the  related  Interest
Accrual Period shall be the arithmetic mean of such offered quotations  (rounded
upwards if necessary to the nearest whole multiple of 1/16). If on such Interest
Determination  Date,  fewer  than  two  Reference  Banks  provide  such  offered
quotations, One-Month LIBOR for the related Interest Accrual Period shall be the
higher of (i) LIBOR as determined on the previous  Interest  Determination  Date
and (ii) the Reserve Interest Rate. Notwithstanding the foregoing, if, under the
priorities  described above,  LIBOR for an Interest  Determination Date would be
based  on LIBOR  for the  previous  Interest  Determination  Date for the  third
consecutive  Interest  Determination  Date, the Master  Servicer shall select an
alternative  comparable  index (over which the Master  Servicer has no control),
used for determining  one-month  Eurodollar lending rates that is calculated and
published  (or  otherwise  made   available)  by  an  independent   party.   The
establishment  of  One-Month  LIBOR  by  the  Master  Servicer  and  the  Master
Servicer's subsequent  calculation of the One-Month LIBOR Pass-Through Rates for
the relevant  Interest Accrual Period,  shall, in the absence of manifest error,
be final and binding.

     "One-Month  LIBOR   Pass-Through   Rate":  With  respect  to  the  Class  A
Certificates  and, for purposes of the  definition  of "Marker  Rate",  REMIC II
Regular  Interest  II-LTA,  a per annum rate equal to  One-Month  LIBOR plus the
related Certificate Margin.

     With  respect  to the Class  M-1  Certificates  and,  for  purposes  of the
definition of "Marker Rate", REMIC II Regular Interest II-LTM1, a per annum rate
equal to One-Month LIBOR plus the related Certificate Margin.

     With  respect  to the Class  M-2  Certificates  and,  for  purposes  of the
definition of "Marker Rate", REMIC II Regular Interest II-LTM2, a per annum rate
equal to One-Month LIBOR plus the related Certificate Margin.

     With  respect  to the Class  M-3  Certificates  and,  for  purposes  of the
definition of "Marker Rate", REMIC II Regular Interest II-LTM3, a per annum rate
equal to One-Month LIBOR plus the related Certificate Margin.

     "Opinion  of  Counsel":  A written  opinion of  counsel,  who may,  without
limitation,  be  salaried  counsel for the  Depositor,  a Servicer or the Master
Servicer, acceptable to the Trustee, except that any

                                      -25-
<PAGE>

opinion of counsel  relating to (a) the  qualification  of any of any REMIC as a
REMIC  or (b)  compliance  with  the  REMIC  Provisions  must be an  opinion  of
Independent counsel.

     "Originator":  Shall mean either NC Capital,  HomeStar,  SouthStar or Wells
Fargo Home Mortgage, Inc.

     "Overcollateralization  Amount": With respect to any Distribution Date, the
excess,  if any, of (a) the aggregate Stated Principal  Balances of the Mortgage
Loans and REO Properties  immediately  following such Distribution Date over (b)
the  sum of  the  aggregate  Certificate  Principal  Balances  of  the  Class  A
Certificates, the Mezzanine Certificates and the Class P Certificates as of such
Distribution  Date  (after  taking into  account  the  payment of the  Principal
Remittance Amount on such Distribution Date).

     "Overcollateralization  Increase  Amount":  With  respect  to the  Class  A
Certificates and the Mezzanine  Certificates  and any  Distribution  Date is any
amount of Net Monthly Excess Cashflow actually applied as an accelerated payment
of principal to the extent the Required Overcollateralization Amount exceeds the
Overcollateralization Amount.

     "Overcollateralization  Reduction Amount": With respect to any Distribution
Date, is the lesser of (i) the amount by which the Overcollateralization  Amount
exceeds  the  Required  Overcollateralization  Amount  and  (ii)  the  Principal
Remittance Amount.

     "Ownership  Interest":  As to any  Certificate,  any  ownership or security
interest in such Certificate,  including any interest in such Certificate as the
Holder thereof and any other interest therein, whether direct or indirect, legal
or beneficial, as owner or as pledgee.

     "Pass-Through  Rate":  With  respect  to the Class A  Certificates  and the
Mezzanine  Certificates and any Distribution Date, a rate per annum equal to the
lesser  of  (i)  the  related   One-Month  LIBOR   Pass-Through  Rate  for  such
Distribution  Date and (ii) the Net WAC Pass-Through  Rate for such Distribution
Date.

     With respect to the Class CE Certificates and any Distribution Date, a rate
per annum equal to the  percentage  equivalent  of a fraction,  the numerator of
which is the sum of the amounts calculated pursuant to clauses (i) through (vii)
below, and the denominator of which is the aggregate  Uncertificated Balances of
the REMIC II Regular  Interests.  For purposes of calculating  the  Pass-Through
Rate for the Class CE  Certificates,  the  numerator  is equal to the sum of the
following components:

          (i) the REMIC II Remittance Rate for REMIC II Regular Interest II-LTAA
     minus the Marker  Rate,  applied to an amount  equal to the  Uncertificated
     Balance of REMIC II Regular Interest II-LTAA;

          (ii) the REMIC II Remittance Rate for REMIC II Regular Interest II-LTA
     minus the Marker  Rate,  applied to an amount  equal to the  Uncertificated
     Balance of REMIC II Regular Interest II-LTA;

                                      -26-
<PAGE>

          (iii)  the REMIC II  Remittance  Rate for  REMIC II  Regular  Interest
     II-LTM1  minus  the  Marker  Rate,  applied  to  an  amount  equal  to  the
     Uncertificated Balance of REMIC II Regular Interest II-LTM1;

          (iv)  the  REMIC II  Remittance  Rate for  REMIC II  Regular  Interest
     II-LTM2  minus  the  Marker  Rate,  applied  to  an  amount  equal  to  the
     Uncertificated Balance of REMIC II Regular Interest II-LTM2;

          (v) the REMIC II Remittance Rate for REMIC II Regular Interest II-LTM3
     minus the Marker  Rate,  applied to an amount  equal to the  Uncertificated
     Balance of REMIC II Regular Interest II-LTM3;

          (vi)  the  REMIC II  Remittance  Rate for  REMIC II  Regular  Interest
     II-LTZZ  minus  the  Marker  Rate,  applied  to  an  amount  equal  to  the
     Uncertificated Balance of REMIC II Regular Interest II-LTZZ; and

          (vii) 100% of the interest on REMIC II Regular Interest II-LTP.

     "Percentage  Interest":  With respect to any Class of  Certificates  (other
than the Residual  Certificates),  the  undivided  percentage  ownership in such
Class evidenced by such Certificate, expressed as a percentage, the numerator of
which  is  the  initial  Certificate   Principal  Balance  represented  by  such
Certificate  and the denominator of which is the aggregate  initial  Certificate
Principal  Balance or Notional  of all of the  Certificates  of such Class.  The
Class A Certificates and the Mezzanine Certificates are issuable only in minimum
Percentage  Interests  corresponding  to minimum initial  Certificate  Principal
Balances of $25,000 and  integral  multiples  of $1,000 in excess  thereof.  The
Class  A-IO  Certificates  are  issuable  only in minimum  Percentage  Interests
corresponding  to minimum  initial  Notional  Amounts of  $10,000  and  integral
multiples of $1.00 in excess thereof. The Class P Certificates are issuable only
in Percentage Interests  corresponding to initial Certificate Principal Balances
of $20 and integral  multiples  thereof.  The Class CE Certificates are issuable
only  in  minimum   Percentage   Interests   corresponding  to  minimum  initial
Certificate  Principal  Balances of $10,000 and  integral  multiples of $1.00 in
excess thereof; provided,  however, that a single Certificate of each such Class
of Certificates may be issued having a Percentage Interest  corresponding to the
remainder of the aggregate initial  Certificate  Principal Balance of such Class
or to an otherwise  authorized  denomination for such Class plus such remainder.
With respect to any Residual Certificate,  the undivided percentage ownership in
such  Class  evidenced  by such  Certificate,  as set  forth on the face of such
Certificate.  The Residual  Certificates are issuable in Percentage Interests of
20% and integral multiples of 5% in excess thereof.

     "Periodic Rate Cap": With respect to each Adjustable Rate Mortgage Loan and
any  Adjustment  Date  therefor,  the fixed  percentage set forth in the related
Mortgage  Note,  which is the maximum amount by which the Mortgage Rate for such
Adjustable  Rate Mortgage Loan may increase or decrease  (without  regard to the
Maximum Mortgage Rate or the Minimum Mortgage Rate) on such Adjustment Date from
the Mortgage Rate in effect immediately prior to such Adjustment Date.

     "Permitted  Investments":  Any one or more of the following  obligations or
securities  acquired at a purchase price of not greater than par,  regardless of
whether  issued by the  Depositor,  the Master  Servicer,  the Trustee or any of
their respective Affiliates:

                                      -27-
<PAGE>

          (i) direct  obligations  of, or  obligations  fully  guaranteed  as to
     timely  payment of  principal  and  interest  by, the United  States or any
     agency or instrumentality thereof,  provided such obligations are backed by
     the full faith and credit of the United States;

          (ii)  demand and time  deposits  in,  certificates  of deposit  of, or
     bankers' acceptances issued by, any Depository Institution;

          (iii) repurchase obligations with respect to any security described in
     clause (i) above  entered  into with a  Depository  Institution  (acting as
     principal);

          (iv) securities bearing interest or sold at a discount that are issued
     by any  corporation  incorporated  under the laws of the  United  States of
     America or any state  thereof and that are rated by each Rating Agency that
     rates such securities in its highest long-term  unsecured rating categories
     at the time of such investment or contractual commitment providing for such
     investment;

          (v) commercial  paper  (including both  non-interest-bearing  discount
     obligations  and  interest-bearing  obligations  payable  on demand or on a
     specified date not more than 30 days after the date of acquisition thereof)
     that is rated by each  Rating  Agency  that  rates such  securities  in its
     highest  short-term  unsecured  debt rating  available  at the time of such
     investment;

          (vi) units of money  market  funds that have been rated "AAA" by Fitch
     (if rated by Fitch),  "AAA" by S&P and "Aaa" by Moody's (or, if such Rating
     Agencies are no longer rating the Offered Certificates,  comparable ratings
     by any other nationally  recognized  statistical  rating agency then rating
     the Offered Certificates); and

          (vii) if  previously  confirmed in writing to the  Trustee,  any other
     demand, money market or time deposit, or any other obligation,  security or
     investment,  as may be  acceptable  to the Rating  Agencies  as a permitted
     investment of funds backing  securities  having  ratings  equivalent to its
     highest initial rating of the Class A Certificates;

provided,  however, that no instrument described hereunder shall evidence either
the  right  to  receive  (a)  only  interest  with  respect  to the  obligations
underlying such instrument or (b) both principal and interest  payments  derived
from  obligations  underlying  such  instrument  and the interest and  principal
payments  with  respect to such  instrument  provide a yield to  maturity at par
greater than 120% of the yield to maturity at par of the underlying obligations.

     "Permitted Transferee": Any Transferee of a Residual Certificate other than
a Disqualified Organization or Non-United States Person.

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

                                      -28-
<PAGE>

     "P&I Advance": As to any Mortgage Loan or REO Property, any advance made by
the  Servicer  in respect  of any  Distribution  Date  pursuant  to the  related
Servicing  Agreement or by the Master  Servicer  pursuant to Section 4.03 (which
advances shall not include interest shortfalls due to bankruptcy  proceedings or
application of the Relief Act.)

     "Plan":  Any employee  benefit plan or certain other  retirement  plans and
arrangements,  including  individual  retirement  accounts and annuities,  Keogh
plans and bank  collective  investment  funds and insurance  company  general or
separate  accounts in which such plans,  accounts or arrangements  are invested,
that are subject to ERISA and Section 4975 of the Code.

     "Prepayment  Assumption":  A prepayment  rate for the Mortgage Loans of 28%
CPR. The  Prepayment  Assumption is used solely for  determining  the accrual of
original issue discount on the Certificates  for federal income tax purposes.  A
CPR (or Constant Prepayment Rate) represents an annualized constant assumed rate
of prepayment each month of a pool of mortgage loans relative to its outstanding
principal balance for the life of such pool.

     "Prepayment  Charge":  With  respect  to  any  Principal  Prepayment,   any
prepayment premium,  penalty or charge payable by a Mortgagor in connection with
any Principal Prepayment on a Mortgage Loan pursuant to the terms of the related
Mortgage Note, as set forth in Schedule 2 attached hereto.

     "Prepayment Interest Shortfall": With respect to any Distribution Date, for
each Mortgage Loan that was during the related  Prepayment Period the subject of
a Principal Prepayment that was applied by the applicable Servicer to reduce the
outstanding  principal balance of such Mortgage Loan on a date preceding the Due
Date in the  succeeding  Prepayment  Period,  an amount equal to interest at the
applicable Net Mortgage Rate on the amount of such Principal  Prepayment for the
number of days  commencing  on the date on which the  prepayment  is applied and
ending on the last day of the related Prepayment Period.

     "Prepayment  Period":  With respect to any Distribution  Date, the calendar
month preceding the calendar month in which such Distribution Date occurs.

     "Principal Distribution Amount": With respect to any Distribution Date will
be the lesser of: (A) the excess of the Available  Distribution  Amount over the
sum of (i) the Senior Interest  Distribution Amount for the Class A Certificates
and Class A-IO  Certificates and (ii) the Interest  Distribution  Amount for the
Mezzanine Certificates; and (B) the sum of: (i) the Principal Remittance Amount;
plus (ii)the  Overcollateralization  Increase Amount for such Distribution Date;
minus (iii) the  Overcollateralization  Reduction  Amount for such  Distribution
Date.

     "Principal Prepayment": Any payment of principal made by the Mortgagor on a
Mortgage  Loan which is received in advance of its  scheduled Due Date and which
is not  accompanied  by an amount of  interest  representing  the full amount of
scheduled  interest due on any Due Date in any month or months subsequent to the
month of prepayment.

                                      -29-
<PAGE>

     "Principal Remittance Amount": With respect to any Distribution Date is the
sum of (i) the  principal  portion  of all  scheduled  Monthly  Payments  on the
Mortgage  Loans  actually  received  or  advanced  on or  prior  to the  related
Determination  Date;  (ii) the  principal  portion of all  proceeds  received in
respect of the repurchase of a Mortgage Loan, or, in the case of a substitution,
amounts  representing  a principal  adjustment,  during the  related  Prepayment
Period as required by Section 2.03 hereof;  (iii) the  principal  portion of all
other  unscheduled  collections,   including  insurance  proceeds,   liquidation
proceeds and all full and partial  principal  prepayments,  received  during the
related  Prepayment  Period to the extent  applied as recoveries of principal on
the Mortgage  Loans,  net in each case of  reimbursements  to the  Trustee,  the
Master  Servicer and the applicable  Servicer and (iv) the principal  portion of
any  Realized  Losses  incurred or deemed to have been  incurred on any Mortgage
Loans in the calendar month preceding the Distribution Date.

     "Protected Account":  An account established and maintained for the benefit
of the  Certificateholders by each Servicer with respect to the related Mortgage
Loans and with  respect to REO  Property  pursuant to the  applicable  Servicing
Agreement.

     "Purchase  Price":  With respect to any Mortgage Loan or REO Property to be
purchased pursuant to or as contemplated by Section 2.03 or Section 9.01, and as
confirmed by an officers'  certificate  from the Master Servicer to the Trustee,
an amount equal to the sum of (i) 100% of the Stated  Principal  Balance thereof
as of the date of purchase  (or such other  price as provided in Section  9.01),
(ii)  in the  case of (x) a  Mortgage  Loan,  accrued  interest  on such  Stated
Principal  Balance at the  applicable  Net Mortgage  Rate in effect from time to
time from the Due Date as to which interest was last covered by a payment by the
Mortgagor or a P&I Advance by the  applicable  Servicer or the Master  Servicer,
which  payment or P&I Advance had as of the date of  purchase  been  distributed
pursuant to Section  4.01,  through the end of the  calendar  month in which the
purchase  is to be  effected  and (y) an REO  Property,  the sum of (1)  accrued
interest on such Stated Principal Balance at the applicable Net Mortgage Rate in
effect from time to time from the Due Date as to which interest was last covered
by a payment by the Mortgagor or a P&I Advance by the applicable Servicer or the
Master Servicer through the end of the calendar month immediately  preceding the
calendar  month in which such REO  Property was  acquired,  plus (2) REO Imputed
Interest for such REO  Property  for each  calendar  month  commencing  with the
calendar  month in which such REO  Property  was  acquired  and ending  with the
calendar month in which such purchase is to be effected, net of the total of all
net rental income,  Insurance  Proceeds,  Liquidation  Proceeds and P&I Advances
that as of the date of purchase had been  distributed as or to cover REO Imputed
Interest  in  accordance  with the  applicable  Servicing  Agreement,  (iii) any
unreimbursed  Servicing Advances and P&I Advances (including  Nonrecoverable P&I
Advances and Nonrecoverable Servicing Advances) and any unpaid Servicing Fees or
Master  Servicing  Fees allocable to such Mortgage Loan or REO Property and (iv)
in the case of a Mortgage  Loan  required  to be  purchased  pursuant to Section
2.03,  expenses  reasonably incurred or to be incurred by the Master Servicer or
the  Trustee  in respect of the  breach or defect  giving  rise to the  purchase
obligation.

     "Qualified  Substitute  Mortgage  Loan": A mortgage loan  substituted for a
Deleted Mortgage Loan pursuant to the terms of this Agreement which must, on the
date of such  substitution,  (i) have an outstanding  principal  balance,  after
application  of all  scheduled  payments of principal and interest due during or
prior

                                      -30-
<PAGE>

to the month of substitution,  not in excess of the Scheduled  Principal Balance
of the Deleted  Mortgage  Loan as of the Due Date in the  calendar  month during
which the substitution  occurs, (ii) have a Mortgage Rate not less than (and not
more than one  percentage  point in excess of) the Mortgage  Rate of the Deleted
Mortgage  Loan,  (iii) have a Maximum  Mortgage  Rate not less than the  Maximum
Mortgage Rate on the Deleted  Mortgage Loan,  (iv) have a Minimum  Mortgage Rate
not less than the Minimum Mortgage Rate of the Deleted Mortgage Loan, (v) have a
Gross Margin equal to the Gross Margin of the Deleted Mortgage Loan, (vi) have a
next  Adjustment  Date not more than two months  later than the next  Adjustment
Date on the Deleted  Mortgage Loan,  (vii) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Deleted Mortgage
Loan,  (viii)  have the same  Due Date as the Due Date on the  Deleted  Mortgage
Loan, (ix) have a Loan-to-Value Ratio as of the date of substitution equal to or
lower than the Loan-to-Value Ratio of the Deleted Mortgage Loan as of such date,
(x) have a risk  grading  at least  equal to the risk  grading  assigned  on the
Deleted  Mortgage Loan,  (xi) is a "qualified  mortgage" as defined in the REMIC
Provisions  and (xii) conform to each  representation  and warranty set forth in
Section 6 of the applicable Mortgage Loan Purchase Agreement or Section 4 of the
applicable  Assignment Agreement applicable to the Deleted Mortgage Loan. In the
event that one or more mortgage  loans are  substituted  for one or more Deleted
Mortgage Loans,  the amounts  described in clause (i) hereof shall be determined
on the basis of aggregate  principal  balances,  the Mortgage Rates described in
clause (ii) hereof shall be determined on the basis of weighted average Mortgage
Rates,  the terms  described in clause (vii) hereof shall be  determined  on the
basis of weighted average remaining term to maturity,  the Loan-to-Value  Ratios
described  in clause (ix) hereof  shall be  satisfied  as to each such  mortgage
loan, the risk gradings  described in clause (x) hereof shall be satisfied as to
each such mortgage  loan and,  except to the extent  otherwise  provided in this
sentence,  the representations  and warranties  described in clause (xii) hereof
must  be  satisfied  as to each  Qualified  Substitute  Mortgage  Loan or in the
aggregate, as the case may be.

     "Rate/Term Refinancing":  A Refinanced Mortgage Loan, the proceeds of which
are not more than a nominal amount in excess of the existing first mortgage loan
and any subordinate  mortgage loan on the related Mortgaged Property and related
closing costs,  and were used  exclusively  (except for such nominal  amount) to
satisfy the then existing first mortgage loan and any subordinate  mortgage loan
of the Mortgagor on the related  Mortgaged  Property and to pay related  closing
costs.

     "Rating  Agency  or  Rating  Agencies":  Fitch,  Moody's  and S&P or  their
successors.  If such  agencies or their  successors  are no longer in existence,
"Rating  Agencies"  shall  be  such  nationally  recognized  statistical  rating
agencies,  or other comparable Persons,  designated by the Depositor,  notice of
which designation shall be given to the Trustee and the Master Servicer.

     "Realized  Loss":  With respect to each  Mortgage  Loan as to which a Final
Recovery  Determination  has been made,  an amount (not less than zero) equal to
(i) the unpaid principal balance of such Mortgage Loan as of the commencement of
the calendar month in which the Final Recovery Determination was made, plus (ii)
accrued  interest  from the Due Date as to which  interest  was last paid by the
Mortgagor  through the end of the  calendar  month in which such Final  Recovery
Determination  was made,  calculated in the case of each  calendar  month during
such period (A) at an annual rate equal to the annual rate at which interest was
then accruing on such  Mortgage Loan and (B) on a principal  amount equal to the
Stated  Principal  Balance of such  Mortgage Loan as of the close of business on
the  Distribution  Date during such calendar

                                      -31-
<PAGE>

month, minus (v) the proceeds, if any, received in respect of such Mortgage Loan
during the calendar month in which such Final Recovery  Determination  was made,
net of amounts that are payable  therefrom to the Servicer  with respect to such
Mortgage Loan pursuant to Section 3.26(a).

     With respect to any REO Property as to which a Final Recovery Determination
has been made, an amount (not less than zero) equal to (i) the unpaid  principal
balance of the related  Mortgage Loan as of the date of  acquisition of such REO
Property on behalf of REMIC I, plus (ii) accrued  interest  from the Due Date as
to which  interest  was last paid by the  Mortgagor  in respect  of the  related
Mortgage Loan through the end of the calendar  month  immediately  preceding the
calendar  month in which such REO Property was acquired,  calculated in the case
of each  calendar  month  during  such period (A) at an annual rate equal to the
annual rate at which interest was then accruing on the related Mortgage Loan and
(B) on a principal amount equal to the Stated  Principal  Balance of the related
Mortgage Loan as of the close of business on the  Distribution  Date during such
calendar month,  plus (iii) REO Imputed  Interest for such REO Property for each
calendar month commencing with the calendar month in which such REO Property was
acquired  and  ending  with the  calendar  month in which  such  Final  Recovery
Determination  was  made,  minus  (iv) the  aggregate  of all  unreimbursed  P&I
Advances and Servicing Advances.

     With  respect to each  Mortgage  Loan  which has  become  the  subject of a
Deficient  Valuation,  the  difference  between  the  principal  balance  of the
Mortgage Loan outstanding  immediately prior to such Deficient Valuation and the
principal balance of the Mortgage Loan as reduced by the Deficient Valuation.

     With respect to each  Mortgage  Loan which has become the subject of a Debt
Service  Reduction,  the  portion,  if any, of the  reduction  in each  affected
Monthly  Payment  attributable  to a reduction in the Mortgage Rate imposed by a
court of competent jurisdiction. Each such Realized Loss shall be deemed to have
been incurred on the Due Date for each affected Monthly Payment.

     "Record  Date":  With  respect  to each  Distribution  Date and the Class A
Certificates  and the  Mezzanine  Certificates,  the  Business  Day  immediately
preceding such Distribution Date for so long as such Certificates are Book-Entry
Certificates.  With  respect to each  Distribution  Date and any other  Class of
Certificates,  including any Definitive  Certificates,  the last Business Day of
the month  immediately  preceding  the  month in which  such  Distribution  Date
occurs.

     "Reference  Banks":  Bankers Trust  Company,  Barclay's Bank PLC, The Tokyo
Mitsubishi  Bank and  National  Westminster  Bank PLC and  their  successors  in
interest; provided, however, that if any of the foregoing banks are not suitable
to serve as a  Reference  Bank,  then any leading  banks  selected by the Master
Servicer  which are  engaged  in  transactions  in  Eurodollar  deposits  in the
International  Eurocurrency  market (i) with an established place of business in
London, (ii) not controlling,  under the control of or under common control with
the Depositor or any Affiliate  thereof and (iii) which have been  designated as
such by the Master Servicer.

     "Refinanced  Mortgage Loan": A Mortgage Loan the proceeds of which were not
used to purchase the related Mortgaged Property.

                                      -32-
<PAGE>

     "Regular  Certificate":  Any Class A Certificate,  Class A-IO  Certificate,
Mezzanine Certificate, Class CE Certificate or Class P Certificate.

     "Regular  Interest":  A "regular interest" in a REMIC within the meaning of
Section 860G(a)(1) of the Code.

     "Relief  Act":  The  Soldiers'  and Sailors'  Civil Relief Act of 1940,  as
amended.

     "Relief Act Interest Shortfall":  With respect to any Distribution Date and
any Mortgage Loan,  any reduction in the amount of interest  collectible on such
Mortgage  Loan for the most  recently  ended  calendar  month as a result of the
application of the Relief Act.

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

     "REMIC I": The segregated pool of assets subject hereto,  constituting  the
primary trust created hereby and to be administered  hereunder,  with respect to
which a REMIC election is to be made, consisting of: (i) such Mortgage Loans and
Prepayment Charges as from time to time are subject to this Agreement,  together
with the Mortgage  Files  relating  thereto,  and together with all  collections
thereon  and  proceeds  thereof;  (ii)  any  REO  Property,  together  with  all
collections  thereon  and  proceeds  thereof;  (iii) the  Trustee's  rights with
respect to the  Mortgage  Loans  under all  insurance  policies  required  to be
maintained  pursuant  to this  Agreement  and any  proceeds  thereof;  (iv)  the
Depositor's  rights  under  the  Mortgage  Loan  Purchase   Agreements  and  the
Assignment Agreements (including any security interest created thereby); (v) the
Master Servicer Collection Account and the Distribution Account, and such assets
that  are  deposited  therein  from  time to time and any  investments  thereof,
together with any and all income,  proceeds and payments  with respect  thereto.
Notwithstanding the foregoing,  however,  REMIC I specifically  excludes (i) all
payments and other  collections  of  principal  and interest due on the Mortgage
Loans on or before  the  Cut-off  Date and all  Prepayment  Charges  payable  in
connection with Principal  Prepayments made before the Cut-off Date and (ii) the
Reserve  Fund and any  amounts  on  deposit  therein  from  time to time and any
proceeds thereof.

     "REMIC  I  Regular  Interest":  Any of the  six  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
"regular  interest"  in REMIC I. Each  REMIC I  Regular  Interest  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary  Statement hereto.  The designations for
the  respective  REMIC I  Regular  Interests  are set  forth in the  Preliminary
Statement hereto.

     "REMIC I Regular  Interest  I-LTA":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular  Interest  in REMIC I.  REMIC I  Regular  Interest  I-LTA  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

                                      -33-
<PAGE>

     "REMIC I Regular  Interest  I-LTB":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular  Interest  in REMIC I.  REMIC I  Regular  Interest  I-LTB  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC I Regular  Interest  I-LTC":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular  Interest  in REMIC I.  REMIC I  Regular  Interest  I-LTC  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC I Regular  Interest  I-LTD":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular  Interest  in REMIC I.  REMIC I  Regular  Interest  I-LTD  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC I Regular  Interest  I-LTE":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular  Interest  in REMIC I.  REMIC I  Regular  Interest  I-LTE  shall  accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to  distributions  of  principal,  subject  to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC I Regular  Interest  I-LTP":  One of the  separate  non-certificated
beneficial  ownership  interests in REMIC I issued hereunder and designated as a
Regular Interest in REMIC I. REMIC I Regular Interest I-LTP shall be entitled to
the  Prepayment  Charges  collected  by the  applicable  Servicer,  shall accrue
interest at the related REMIC I Remittance Rate in effect from time to time, and
shall be  entitled  to a  distribution  of  principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC I Remittance  Rate":  With respect to each REMIC I Regular  Interest
(other than REMIC I Regular  Interest  I-LTB) and any  Distribution  Date, a per
annum rate equal to the weighted average of the Expense Adjusted  Mortgage Rates
of those Mortgage Loans with an Expense Adjusted Mortgage Rate as of the Cut-off
Date of 6.00% or greater. With respect to REMIC I Regular Interest I-LTB and any
Distribution Date, a per annum rate equal to the weighted average of the Expense
Adjusted  Mortgage  Rates of  those  Mortgage  Loans  with an  Expense  Adjusted
Mortgage Rate as of the Cut-off Date of less than 6.00%.

     "REMIC II": The segregated pool of assets  consisting of all of the REMIC I
Regular  Interests  conveyed in trust to the  Trustee,  for the benefit of REMIC
III,  as  holder  of the  REMIC  III  Regular

                                      -34-
<PAGE>

Interests, and the Class R-III Certificateholders  pursuant to Section 2.07, and
all amounts deposited  therein,  with respect to which a separate REMIC election
is to be made.

     "REMIC  II  Interest  Loss   Allocation   Amount":   With  respect  to  any
Distribution  Date,  an amount  equal to (a) the  product  of (i) the  aggregate
Stated  Principal  Balance  of  the  Mortgage  Loans  and  REO  Properties  then
outstanding and (ii) the REMIC II Remittance Rate for REMIC II Regular  Interest
II-LTAA minus the Marker Rate, divided by (b) 12.

     "REMIC  II  Overcollateralization  Amount":  With  respect  to any  date of
determination,  (i) 1% of the aggregate  Uncertificated Balances of the REMIC II
Regular  Interests  minus (ii) the aggregate of the  Uncertificated  Balances of
REMIC II Regular Interest II-LTA,  REMIC II Regular Interest  II-LTM1,  REMIC II
Regular  Interest  II-LTM2,  REMIC II Regular Interest II-LTM3 and REMIC Regular
Interest II-LTP, in each case as of such date of determination.

     "REMIC  II  Principal  Loss  Allocation   Amount":   With  respect  to  any
Distribution  Date,  an amount  equal to (a) the  product  of (i) the  aggregate
Stated  Principal  Balance  of  the  Mortgage  Loans  and  REO  Properties  then
outstanding and (ii) 1 minus a fraction, the numerator of which is two times the
aggregate of the  Uncertificated  Balances of REMIC II Regular  Interest II-LTA,
REMIC II Regular Interest  II-LTM1,  REMIC II Regular Interest II-LTM2 and REMIC
II Regular Interest II-LTM3 and the denominator of which is the aggregate of the
Uncertificated  Balances of REMIC II Regular Interest  II-LTA,  REMIC II Regular
Interest II-LTM1,  REMIC II Regular Interest II-LTM2,  REMIC II Regular Interest
II-LTM3 and REMIC II Regular Interest II-LTZZ.

     "REMIC II Regular  Interest":  Any of the eight  separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
"regular  interest"  in REMIC II. Each REMIC II Regular  Interest  shall  accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance or Uncertificated  Notional Amount,  as applicable,  as set forth in the
Preliminary  Statement  hereto.  The  designations  for the respective  REMIC II
Regular Interests are set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest II-LTAA":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTAA  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest  II-LTA":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II . REMIC II Regular  Interest  II-LTA  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

                                      -35-
<PAGE>

     "REMIC II Regular Interest II-LTM1":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTM1  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest II-LTM2":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTM2  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest II-LTM3":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTM3  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest II-LTZZ":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTZZ  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Regular Interest II-LTIO":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II. REMIC II Regular  Interest  II-LTIO  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall not be entitled to distributions of principal.

     "REMIC II Regular Interest  II-LTP":  One of the separate  non-certificated
beneficial  ownership interests in REMIC II issued hereunder and designated as a
Regular  Interest in REMIC II.  REMIC II Regular  Interest  II-LTP  shall accrue
interest at the related  REMIC II  Remittance  Rate in effect from time to time,
and shall be entitled to  distributions  of principal,  subject to the terms and
conditions  hereof,  in an aggregate amount equal to its initial  Uncertificated
Balance as set forth in the Preliminary Statement hereto.

     "REMIC II Remittance  Rate": With respect to the REMIC II Regular Interests
(other than REMIC II Regular  Interest  II-LTIO),  a per annum rate equal to the
Net WAC Pass-Through  Rate. With respect to REMIC II Regular Interest II-LTIO, a
per  annum  rate  equal  to  6.00%  for  each   Distribution  Date  through  the
Distribution Date in August 2004, and 0.00% per annum thereafter.

     "REMIC  II  Required  Overcollateralization  Amount":  1% of  the  Required
Overcollateralization Amount.

                                      -36-
<PAGE>

     "REMIC III": The segregated  pool of assets  consisting of all of the REMIC
II Regular  Interests  conveyed in trust to the Trustee,  for the benefit of the
REMIC III Certificateholders pursuant to Section 2.09, and all amounts deposited
therein, with respect to which a separate REMIC election is to be made.

     "REMIC  III   Certificate":   Any  Regular   Certificate   or  Class  R-III
Certificate.

     "REMIC III Certificateholder": The Holder of any REMIC III Certificate.

     "REMIC  Provisions":  Provisions of the federal  income tax law relating to
real estate mortgage investment  conduits,  which appear at Section 860A through
860G of the Code,  and related  provisions,  and  proposed,  temporary and final
regulations  and  published  rulings,  notices  and  announcements   promulgated
thereunder, as the foregoing may be in effect from time to time.

     "Remittance  Report":  A report by the Master Servicer  pursuant to Section
4.02.

     "Rents from Real Property":  With respect to any REO Property, gross income
of the character  described in Section  856(d) of the Code as being  included in
the term "rents from real property."

     "REO  Disposition":  The sale or other  disposition  of an REO  Property on
behalf of REMIC I.

     "REO Imputed  Interest":  As to any REO  Property,  for any calendar  month
during  which  such REO  Property  was at any time part of REMIC I, one  month's
interest at the applicable Net Mortgage Rate on the Stated Principal  Balance of
such REO  Property  (or, in the case of the first such  calendar  month,  of the
related  Mortgage  Loan,  if  appropriate)  as of the close of  business  on the
Distribution Date in such calendar month.

     "REO  Principal  Amortization":  With respect to any REO Property,  for any
calendar month, the excess, if any, of (a) the aggregate of all amounts received
in respect of such REO Property during such calendar month,  whether in the form
of rental income, sale proceeds (including,  without limitation, that portion of
the Termination  Price paid in connection with a purchase of all of the Mortgage
Loans and REO Properties  pursuant to Section 9.01 that is allocable to such REO
Property)  or  otherwise,  net of any  portion of such  amounts  (i)  payable in
respect of the proper operation, management and maintenance of such REO Property
or (ii) payable or  reimbursable  to the Servicer for unpaid  Servicing  Fees in
respect of the related Mortgage Loan and unreimbursed Servicing Advances and P&I
Advances in respect of such REO Property or the related  Mortgage Loan, over (b)
the REO  Imputed  Interest  in respect of such REO  Property  for such  calendar
month.

     "REO Property":  A Mortgaged  Property  acquired by a Servicer on behalf of
REMIC I through foreclosure or deed-in-lieu of foreclosure,  as described in the
applicable Servicing Agreement.

     "Required  Overcollateralization  Amount": With respect to any Distribution
Date (i)  prior  to the  Stepdown  Date,  $3,618,294.65,  (ii) on or  after  the
Stepdown  Date  provided a Trigger  Event is not in effect,  the  greater of (x)
1.00% of the aggregate Stated Principal  Balance of the Mortgage Loans as of the

                                      -37-
<PAGE>

last day of the related Due Period and (y) $3,618,294.65,  and (iii) on or after
the   Stepdown   Date  and  a  Trigger   Event  is  in  effect,   the   Required
Overcollateralization Amount for the immediately preceding Distribution Date.

     "Reserve  Fund": A fund created  pursuant to Section 3.27 of this Agreement
which shall be an asset of the Trust Fund but which shall not be an asset of any
Trust REMIC.

     "Reserve Interest Rate": With respect to any Interest  Determination  Date,
the rate per annum  that the  Master  Servicer  determines  to be either (i) the
arithmetic  mean (rounded  upwards if necessary to the nearest whole multiple of
1/16%) of the  one-month  U.S.  dollar  lending  rates which New York City banks
selected  by  the  Master   Servicer  are  quoting  on  the  relevant   Interest
Determination  Date to the  principal  London  offices of  leading  banks in the
London  interbank  market  or (ii) in the event  that the  Master  Servicer  can
determine no such arithmetic mean, the lowest one-month U.S. dollar lending rate
which New York City banks  selected by the Master  Servicer  are quoting on such
Interest Determination Date to leading European banks.

     "Residential Dwelling": Any one of the following: (i) an attached, detached
or   semi-detached   one-family   dwelling,   (ii)  an  attached,   detached  or
semi-detached two- to four-family dwelling,  (iii) a one-family dwelling unit in
a Fannie Mae eligible  condominium  project,  or (iv) an  attached,  detached or
semi-detached  one-family dwelling in a planned unit development,  none of which
is a co-operative,  mobile or manufactured  home (as defined in 42 United States
Code, Section 5402(6)).

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

     "Residual  Interest":  The sole class of  "residual  interests"  in a REMIC
within the meaning of Section 860G(a)(2) of the Code.

     "Responsible Officer":  When used with respect to the Trustee, the Chairman
or Vice  Chairman of the Board of Directors  or  Trustees,  the Chairman or Vice
Chairman of the  Executive  or Standing  Committee  of the Board of Directors or
Trustees,  the President,  the Chairman of the Committee on Trust  Matters,  any
vice  president,  any assistant vice  president,  the  Secretary,  any assistant
secretary,  the Treasurer,  any assistant treasurer,  the Cashier, any assistant
cashier,  any trust officer or assistant  trust officer,  the Controller and any
assistant controller or any other officer of the Trustee customarily  performing
functions similar to those performed by any of the above designated officers and
in  each  case  having  direct  responsibility  for the  administration  of this
Agreement  and,  with  respect to a  particular  matter,  to whom such matter is
referred  because  of such  officer's  knowledge  of and  familiarity  with  the
particular subject.

     "S&P": Standard and Poor's, a division of the McGraw-Hill Companies, Inc.

     "Scheduled Principal Balance": With respect to any Mortgage Loan: (a) as of
the Cut-off Date, the outstanding  principal balance of such Mortgage Loan as of
such date, net of the principal portion of all unpaid Monthly Payments,  if any,
due on or before  such date;  (b) as of any Due Date  subsequent  to the

                                      -38-
<PAGE>

Cut-off Date up to and including  the Due Date in the calendar  month in which a
Liquidation  Event  occurs with respect to such  Mortgage  Loan,  the  Scheduled
Principal Balance of such Mortgage Loan as of the Cut-off Date, minus the sum of
(i) the principal portion of each Monthly Payment due on or before such Due Date
but subsequent to the Cut-off Date, whether or not received,  (ii) all Principal
Prepayments  received before such Due Date but after the Cut-off Date, (iii) the
principal  portion of all Liquidation  Proceeds and Insurance  Proceeds received
before such Due Date but after the Cut-off Date, net of any portion thereof that
represents  principal due (without regard to any  acceleration of payments under
the related Mortgage and Mortgage Note) on a Due Date occurring on or before the
date on which such  proceeds  were  received and (iv) any Realized Loss incurred
with respect thereto as a result of a Deficient  Valuation occurring before such
Due Date,  but only to the extent such Realized  Loss  represents a reduction in
the portion of principal of such  Mortgage  Loan not yet due (without  regard to
any acceleration of payments under the related Mortgage and Mortgage Note) as of
the date of such Deficient  Valuation;  and (c) as of any Due Date subsequent to
the occurrence of a Liquidation  Event with respect to such Mortgage Loan, zero.
With respect to any REO Property:  (a) as of any Due Date subsequent to the date
of its  acquisition on behalf of the Trust Fund up to and including the Due Date
in the calendar  month in which a Liquidation  Event occurs with respect to such
REO Property,  an amount (not less than zero) equal to the  Scheduled  Principal
Balance of the related Mortgage Loan as of the Due Date in the calendar month in
which  such REO  Property  was  acquired,  minus  the  aggregate  amount  of REO
Principal  Amortization,  if any,  in  respect  of  such  REO  Property  for all
previously ended calendar  months;  and (b) as of any Due Date subsequent to the
occurrence of a Liquidation Event with respect to such REO Property, zero.

     "Seller": Deutsche Bank AG New York Branch or its successor in interest, in
its capacity as seller under the Mortgage  Loan Purchase  Agreements  and in its
capacity as assignor under the Assignment Agreements.

     "Senior  Interest  Distribution  Amount":  With respect to any Distribution
Date,  an amount  equal to the sum of (i) the Interest  Distribution  Amount for
such  Distribution  Date  for  the  Class A  Certificates  and  the  Class  A-IO
Certificates  and (ii) the  Interest  Carry  Forward  Amount,  if any,  for such
Distribution Date for the Class A Certificates and the Class A-IO Certificates.

     "Servicer":  Either Meritech  Mortgage  Services,  Inc. or Wells Fargo Home
Mortgage,  Inc., as applicable,  or any successor appointed under the applicable
Servicing Agreement.

     "Servicer  Remittance Date": The second Business Day immediately  preceding
the Distribution Account Deposit Date.

     "Servicing  Advances":  The reasonable  "out-of-pocket"  costs and expenses
incurred by the applicable Servicer in connection with a default, delinquency or
other  unanticipated  event by the Servicer in the  performance of its servicing
obligations,  including,  but not limited to, the cost of (i) the  preservation,
restoration  and  protection of a Mortgaged  Property,  (ii) any  enforcement or
judicial  proceedings,  including  foreclosures,  in  respect  of  a  particular
Mortgage Loan and (iii) the management  (including reasonable fees in connection
therewith)  and  liquidation  of any REO  Property.  The  Servicer  shall not be
required  to make any  Servicing  Advance in  respect of a Mortgage  Loan or REO
Property that, in the good faith business

                                      -39-
<PAGE>

judgment of the  Servicer,  would not be  ultimately  recoverable  from  related
Insurance Proceeds or Liquidation Proceeds on such Mortgage Loan or REO Property
as provided herein.

     "Servicing  Agreement:" Shall mean either the Meritech Servicing  Agreement
or the Wells Fargo Servicing Agreement.

     "Servicing  Fee":  With respect to each  Mortgage Loan and for any calendar
month,  an amount equal to one twelfth of the product of the  Servicing Fee Rate
multiplied by the Scheduled  Principal  Balance of the Mortgage  Loans as of the
Due Date in the preceding  calendar  month.  The Servicing Fee is payable solely
from collections of interest on the Mortgage Loans.

     "Servicing Fee Rate": 0.50% per annum.

     "Servicing  Officer":  Any  officer of the  applicable  Servicer  or Master
Servicer  involved in, or responsible for, the  administration  and servicing or
master servicing of Mortgage Loans,  whose name and specimen signature appear on
a list of Servicing  Officers  furnished by the Servicer and the Master Servicer
to the Trustee and the Depositor on the Closing Date, as such list may from time
to time be amended.

     "Single Certificate": With respect to any Class of Certificates (other than
the Residual Certificates),  a hypothetical Certificate of such Class evidencing
a Percentage  Interest for such Class  corresponding  to an initial  Certificate
Principal  Balance  of $1,000.  With  respect to the  Residual  Certificates,  a
hypothetical  Certificate of such Class evidencing a 100% Percentage Interest in
such Class.

     "SouthStar": SouthStar Funding, LLC or its successor in interest.

     "Startup Day": With respect to each Trust REMIC, the day designated as such
pursuant to Section 10.01(b) hereof.

     "Stated  Principal  Balance":  With respect to any Mortgage Loan: (a) as of
any date of determination up to but not including the Distribution Date on which
the proceeds,  if any, of a Liquidation Event with respect to such Mortgage Loan
would be distributed,  the Scheduled  Principal Balance of such Mortgage Loan as
of the Cut-off Date, as shown in the Mortgage  Loan  Schedule,  minus the sum of
(i) the principal  portion of each Monthly  Payment due on a Due Date subsequent
to the Cut-off  Date,  to the extent  received from the Mortgagor or advanced by
the Servicer and distributed  pursuant to Section 4.01 on or before such date of
determination,  (ii) all Principal  Prepayments received after the Cut-off Date,
to the extent  distributed  pursuant  to Section  4.01 on or before such date of
determination,  (iii) all Liquidation Proceeds and Insurance Proceeds applied by
the Servicer as  recoveries of principal in  accordance  with the  provisions of
Section  3.16, to the extent  distributed  pursuant to Section 4.01 on or before
such date of  determination,  and (iv) any Realized  Loss  incurred with respect
thereto  as a  result  of a  Deficient  Valuation  made  during  or prior to the
Prepayment  Period for the most  recent  Distribution  Date  coinciding  with or
preceding such date of  determination;  and (b) as of any date of  determination
coinciding with or subsequent to the Distribution Date on which the proceeds, if
any,  of a  Liquidation  Event  with  respect  to such  Mortgage  Loan  would be
distributed,  zero.  With  respect  to any REO  Property:  (a) as of any date of

                                      -40-
<PAGE>

determination  up to but  not  including  the  Distribution  Date on  which  the
proceeds, if any, of a Liquidation Event with respect to such REO Property would
be  distributed,  an amount (not less than zero)  equal to the Stated  Principal
Balance of the related  Mortgage  Loan as of the date on which such REO Property
was acquired on behalf of REMIC I, minus the sum of (i) if such REO Property was
acquired  before the  Distribution  Date in any calendar  month,  the  principal
portion of the  Monthly  Payment  due on the Due Date in the  calendar  month of
acquisition,  to the extent advanced by the Servicer and distributed pursuant to
Section  4.01 on or before such date of  determination,  and (ii) the  aggregate
amount of REO  Principal  Amortization  in respect of such REO  Property for all
previously ended calendar months, to the extent distributed  pursuant to Section
4.01  on or  before  such  date  of  determination;  and  (b) as of any  date of
determination  coinciding with or subsequent to the  Distribution  Date on which
the proceeds,  if any, of a Liquidation  Event with respect to such REO Property
would be distributed, zero.

     "Stayed Funds": If the Master Servicer is the subject of a proceeding under
the  federal  Bankruptcy  Code and the  making of a  Remittance  (as  defined in
Section  7.02(b)) is prohibited by Section 362 of the federal  Bankruptcy  Code,
funds that are in the  custody of the  Servicer,  a trustee in  bankruptcy  or a
federal  bankruptcy  court and should have been the  subject of such  Remittance
absent such prohibition.

     "Stepdown  Date": The earlier to occur of (i) the later to occur of (a) the
Distribution Date occurring in December 2004 and (b) the first Distribution Date
on which the Credit  Enhancement  Percentage  (calculated  for this purpose only
after taking into account  distributions  of principal on the Mortgage Loans but
prior  to  any  distribution  of  the  Principal   Distribution  Amount  to  the
Certificates  then entitled to distributions  of principal on such  Distribution
Date) is equal to or greater than 12.00% and (ii) the first Distribution Date on
which the aggregate  Certificate  Principal  Balance of the Class A Certificates
has been reduced to zero.

     "Substitution Shortfall Amount": As defined in Section 2.03(d).

     "Tax Returns":  The federal income tax return on Internal  Revenue  Service
Form 1066,  U.S.  Real Estate  Mortgage  Investment  Conduit  Income Tax Return,
including  Schedule Q thereto,  Quarterly Notice to Residual Interest Holders of
REMIC Taxable Income or Net Loss Allocation, or any successor forms, to be filed
on behalf of the Trust REMICs under the REMIC Provisions,  together with any and
all other information reports or returns that may be required to be furnished to
the  Certificateholders  or filed with the Internal Revenue Service or any other
governmental taxing authority under any applicable provisions of federal,  state
or local tax laws.

     "Telerate  Page  3750":  The display  designated  as page "3750" on the Dow
Jones  Telerate  Capital  Markets Report (or such other page as may replace page
3750 on that report for the purpose of displaying London interbank offered rates
of major banks).

     "Termination Price": As defined in Section 9.01.

     "Terminator": As defined in Section 9.01.

                                      -41-
<PAGE>

     "Transfer":  Any direct or indirect transfer, sale, pledge,  hypothecation,
or other form of assignment of any Ownership Interest in a Certificate.

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

     "Transferor":  Any Person who is  disposing  by Transfer  of any  Ownership
Interest in a Certificate.

     "Trigger   Event":   A  Trigger  Event  has  occurred  with  respect  to  a
Distribution Date if the Delinquency Percentage exceeds the lesser of (i) 50% of
the Credit Enhancement Percentage or (ii) 6.00%.

     "Trust": ACE Securities Corp., Home Equity Loan Trust, Series 2001-HE1, the
trust created hereunder.

     "Trust REMIC": REMIC I, REMIC II or REMIC III.

     "Trustee":  First Union National Bank, a national banking  association,  or
its  successor  in  interest,  or any  successor  trustee  appointed  as  herein
provided.

     "Trust Fund":  Collectively,  all of the assets of REMIC I, REMIC II, REMIC
III and the Reserve  Fund,  and any amounts on deposit  therein and any proceeds
thereof.

     "Uncertificated  Balance":  The amount of the Uncertificated  REMIC Regular
Interests  outstanding as of any date of determination.  As of the Closing Date,
the Uncertificated  Balance of each Uncertificated  REMIC Regular Interest shall
equal the amount set forth in the  Preliminary  Statement  hereto as its initial
uncertificated balance. On each Distribution Date, the Uncertificated Balance of
the Uncertificated  REMIC Regular Interest shall be reduced by all distributions
of  principal  made  on  such  Uncertificated  REMIC  Regular  Interest  on such
Distribution  Date pursuant to Section 4.01 and, if and to the extent  necessary
and appropriate,  shall be further reduced on such Distribution Date by Realized
Losses as provided in Section  4.04 and the  Uncertificated  Balance of REMIC II
Regular Interest II-LTZZ shall be increased by interest deferrals as provided in
Section  4.01(a)(1)(A)(i).  The  Uncertificated  Balance of each  Uncertificated
REMIC Regular Interest shall never be less than zero.

     "Uncertificated  Interest":  With respect to any REMIC II Regular  Interest
for any Distribution  Date, one month's interest at the REMIC II Remittance Rate
applicable to such REMIC II Regular Interest for such Distribution Date, accrued
on the Uncertificated Balance or Uncertificated  Notional Amount, as applicable,
thereof immediately prior to such Distribution Date.  Uncertificated Interest in
respect of the REMIC II Regular Interests shall accrue on the basis of a 360-day
year consisting of twelve 30-day months. Uncertificated Interest with respect to
each Distribution Date, as to any Uncertificated  REMIC Regular Interest,  shall
be  reduced  by an  amount  equal  to the  sum of (a) the  aggregate  Prepayment
Interest Shortfall, if any, for such Distribution Date to the extent not covered
by payments  pursuant to Section 3.24 and (b) the aggregate amount of any Relief
Act Interest Shortfall,  if any allocated, in each case, to such REMIC I Regular
Interest or REMIC II Regular  Interest  pursuant to Section  1.02.  In addition,
Uncertificated  Interest  with  respect  to each  Distribution  Date,  as to any
Uncertificated  REMIC Regular

                                      -42-
<PAGE>

Interest,  shall be  reduced  by  Realized  Losses,  if any,  allocated  to such
Uncertificated REMIC Regular Interest pursuant to Section 1.02 and Section 4.04.

     "Uncertificated Notional Amount:" With respect to REMIC II Regular Interest
II-LTIO, an amount equal to: (i) with respect to each Distribution Date from and
including the first  Distribution Date to and including the Distribution Date in
November 2002, the aggregate Uncertificated Balances of REMIC I Regular Interest
I-LTC,  REMIC I Regular Interest I-LTD and REMIC I Regular Interest I-LTE;  (ii)
with respect to each  Distribution Date from and including the Distribution Date
beginning in December 2002 to and including  the  Distribution  Date in November
2003, the aggregate  Uncertificated  Balances of REMIC I Regular  Interest I-LTC
and REMIC I Regular Interest I-LTD; and (iii) with respect to each  Distribution
Date from and including the Distribution  Date beginning in December 2003 to and
including the Distribution  Date in August 2004, the  Uncertificated  Balance of
REMIC I Regular Interest I-LTC.

     "Uncertificated  REMIC Regular  Interest":  A REMIC I Regular Interest or a
REMIC II Regular Interest.

     "Uninsured  Cause":  Any cause of damage to a Mortgaged  Property such that
the  complete  restoration  of such  property is not fully  reimbursable  by the
hazard insurance policies required to be maintained pursuant to Section 3.09.

     "United  States  Person":  A citizen or  resident of the United  States,  a
corporation,  partnership  or other entity created or organized in, or under the
laws of, the United States or any political  subdivision thereof (except, in the
case of a partnership, to the extent provided in regulations) provided that, for
purposes solely of the  restrictions on the transfer of any Class R Certificate,
no  partnership  or other  entity  treated as a  partnership  for United  States
federal  income tax purposes  shall be treated as a United  States Person unless
all persons that own an interest in such partnership  either directly or through
any entity  that is not a  corporation  for  United  States  federal  income tax
purposes are required to be United States Persons,  or an estate whose income is
subject to United States federal income tax regardless of its source, or a trust
if a court within the United States is able to exercise primary supervision over
the  administration  of the trust and one or more United States persons have the
authority  to control  all  substantial  decisions  of the trust.  To the extent
prescribed in regulations  by the Secretary of the Treasury,  which have not yet
been  issued,  a trust which was in  existence  on August 20, 1996 (other than a
trust  treated as owned by the grantor under subpart E of part I of subchapter J
of chapter I of the Code),  and which was treated as a United  States  person on
August 20, 1996 may elect to continue  to be treated as a United  States  person
notwithstanding  the previous sentence.  The term "United States" shall have the
meaning set forth in Section 7701 of the Code.

     "Unpaid Basis Risk Shortfall": With respect to the Class A Certificates and
the Mezzanine Certificates and any Distribution Date, an amount equal to (i) the
Basis Risk Shortfall for the previous  Distribution  Date,  plus (ii) the unpaid
Basis Risk Shortfall for the previous  Distribution Date, to the extent not paid
on the previous  Distribution  Date,  plus (iii) interest  accrued on the unpaid
amount for the most recently  ended  Interest  Accrual  Period at the applicable
Pass-Through Rate.

                                      -43-
<PAGE>

     "U.S.  Bank":  U.S. Bank Trust National  Association as custodian under the
U.S. Bank Custodial Agreement, or any successor in interest thereto.

     "U.S. Bank Custodial  Agreement":  Shall mean the Custodial Agreement dated
as of November 1, 2001,  among the  Trustee,  U.S.  Bank and  Meritech  Mortgage
Services, Inc. as the same may be amended or supplemented from time to time.

     "Value":  With  respect to any  Mortgaged  Property,  the lesser of (i) the
lesser of (a) the value  thereof  as  determined  by an  appraisal  made for the
originator of the Mortgage Loan at the time of  origination of the Mortgage Loan
by an appraiser who met the minimum  requirements  of Fannie Mae and Freddie Mac
and (b) the value thereof as determined by a review  appraisal  conducted by the
originator  of  the  Mortgage  Loan  in   accordance   with  such   originator's
underwriting  guidelines,  and  (ii) the  purchase  price  paid for the  related
Mortgaged  Property by the  Mortgagor  with the proceeds of the  Mortgage  Loan;
provided,  however, (A) in the case of a Refinanced Mortgage Loan, such value of
the  Mortgaged  Property  is based  solely  upon  the  lesser  of (1) the  value
determined by an appraisal  made for the originator of the Mortgage Loan of such
Refinanced  Mortgage Loan at the time of origination of such Refinanced Mortgage
Loan by an appraiser who met the minimum  requirements of Fannie Mae and Freddie
Mac and (2) the value thereof as determined by a review  appraisal  conducted by
the  originator  of the  Mortgage  Loan in  accordance  with  such  originator's
underwriting  guidelines,  and (B) in the case of a Mortgage Loan  originated in
connection with a "lease-option  purchase," such value of the Mortgaged Property
is based on the  lower of the  value  determined  by an  appraisal  made for the
originator of such Mortgage Loan at the time of origination or the sale price of
such Mortgaged  Property if the "lease option  purchase price" was set less than
12  months  prior to  origination,  and is based on the value  determined  by an
appraisal  made  for  the  originator  of  such  Mortgage  Loan  at the  time of
origination if the "lease option purchase price" was set 12 months or more prior
to origination.

     "Voting  Rights":   The  portion  of  the  voting  rights  of  all  of  the
Certificates  which is  allocated to any such  Certificate.  With respect to any
date of  determination,  97% of all Voting  Rights will be  allocated  among the
holders of the Class A Certificates, the Mezzanine Certificates and the Class CE
Certificates  in  proportion  to  the  then  outstanding  Certificate  Principal
Balances  of their  respective  Certificates,  1% of all Voting  Rights  will be
allocated to the holders of the Class A-IO  Certificates  in  proportion  to the
then outstanding Notional Amount of their Certificates,  1% of all Voting Rights
will be  allocated to the holders of the Class P  Certificates  and 1/3 of 1% of
all Voting Rights will be allocated  among the holders of each Class of Residual
Certificates.  The Voting Rights allocated to each Class of Certificate shall be
allocated among Holders of each such Class in accordance  with their  respective
Percentage Interests as of the most recent Record Date.

     "Wells Fargo Servicing Agreement":  The Warranties and Servicing Agreement,
dated June 1, 2001  between the Seller and Wells Fargo Home  Mortgage,  Inc. (as
modified  pursuant  to the  related  Assignment  Agreement)  as the  same may be
amended.

                                      -44-
<PAGE>

     SECTION 1.02. Allocation of Certain Interest Shortfalls.

     For purposes of calculating the amount of Accrued Certificate  Interest and
the amount of the Interest Distribution Amount for the Class A Certificates, the
Mezzanine   Certificates,   the  Class  A-IO   Certificates  and  the  Class  CE
Certificates  for  any  Distribution  Date,  (1)  the  aggregate  amount  of any
Prepayment  Interest  Shortfalls  (to the extent not  covered by payments by the
applicable  Servicer  under the  related  Servicing  Agreement  or by the Master
Servicer  pursuant  to  Section  3.20 and any  Relief  Act  Interest  Shortfalls
incurred in respect of the  Mortgage  Loans for any  Distribution  Date shall be
allocated  first, to the Class CE  Certificates  based on, and to the extent of,
one month's interest at the then applicable respective  Pass-Through Rate on the
Notional Amount thereof and, thereafter,  among the Class M-3 Certificates,  the
Class M-2 Certificates, the Class M-1 Certificates and the Class A Certificates,
in that order,  in each case on a pro rata basis based on, and to the extent of,
one month's interest at the then applicable respective  Pass-Through Rate on the
respective  Certificate  Principal  Balance or Notional Amount, as applicable of
each  such  Certificate  and (2) the  aggregate  amount of any  Realized  Losses
allocated to the Mezzanine Certificates and Basis Risk Shortfall amounts paid to
the  Class  A  Certificates  and the  Mezzanine  Certificates  incurred  for any
Distribution  Date shall be allocated to the Class CE Certificates on a pro rata
basis  based  on,  and to the  extent  of,  one  month's  interest  at the  then
applicable  respective  Pass-Through  Rate  on the  respective  Notional  Amount
thereof.

     For purposes of calculating the amount of  Uncertificated  Interest for the
REMIC I Regular Interests for any Distribution Date, the aggregate amount of any
Prepayment  Interest  Shortfalls  (to the extent not  covered by payments by the
applicable  Servicer pursuant to the related  Servicing  Agreement or the Master
Servicer  pursuant  to  Section  3.20) and any Relief  Act  Interest  Shortfalls
incurred (i) in respect of the Mortgage Loans with an Expense Adjusted  Mortgage
Rate as of the Cut- off Date of less than 6.00% for any Distribution  Date shall
be  allocated  to REMIC I  Regular  Interest  I-LTB and (ii) in  respect  of the
Mortgage Loans with an Expense Adjusted  Mortgage Rate as of the Cut-off Date of
6.00% or  greater  for any  Distribution  Date  shall  be  allocated  to  first,
Uncertificated  Interest payable to REMIC I Regular Interest I-LTA,  second,  to
REMIC I Regular  Interest I-LTE,  third,  to REMIC I Regular  Interest I-LTD and
fourth,  to REMIC I Regular Interest I-LTC,  based on, and to the extent of, one
month's  interest at the then applicable  respective  REMIC I Remittance Rate on
the respective Uncertificated Balance of each such REMIC I Regular Interest.

     For purposes of calculating the amount of  Uncertificated  Interest for the
REMIC II Regular  Interests for any  Distribution  Date, the aggregate amount of
any Prepayment Interest Shortfalls (to the extent not covered by payments by the
applicable  Servicer pursuant to the related  Servicing  Agreement or the Master
Servicer  pursuant  to  Section  3.20) and any Relief  Act  Interest  Shortfalls
incurred in respect of the  Mortgage  Loans for any  Distribution  Date shall be
allocated first, to Uncertificated Interest payable to REMIC II Regular Interest
II-LTAA and REMIC II Regular Interest II-LTZZ up to an aggregate amount equal to
the REMIC II Interest Loss  Allocation  Amount,  98% and 2%,  respectively,  and
thereafter  among REMIC II Regular Interest  II-LTAA,  REMIC II Regular Interest
II-LTA,  REMIC II Regular Interest  II-LTM1,  REMIC II Regular Interest II-LTM2,
REMIC II Regular Interest II-LTM3,  REMIC II Regular Interest LT-IO and REMIC II
Regular Interest  II-LTZZ,  pro rata based on, and to the extent of, one month's
interest  at the  then  applicable  respective  REMIC I  Remittance  Rate on the
respective Uncertificated Balance of each such REMIC II Regular Interest.

                                      -45-
<PAGE>

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

     SECTION 2.01. Conveyance of the Mortgage Loans.

     The Depositor,  concurrently  with the execution and delivery hereof,  does
hereby transfer, assign, set over and otherwise convey to the Trustee, on behalf
of the Trust, without recourse, for the benefit of the  Certificateholders,  all
the right, title and interest of the Depositor,  including any security interest
therein  for  the  benefit  of the  Depositor,  in and  to  the  Mortgage  Loans
identified on the Mortgage Loan Schedule,  the rights of the Depositor under the
Mortgage Loan Purchase  Agreements  and the  Assignment  Agreements  (including,
without  limitation  the right to enforce the  obligations  of the other parties
thereto  thereunder) , and all other assets  included or to be included in REMIC
I. Such assignment includes all interest and principal received by the Depositor
or the applicable  Servicer on or with respect to the Mortgage Loans (other than
payments of principal and interest due on such  Mortgage  Loans on or before the
Cut-off Date). The Depositor herewith delivers to the Trustee executed copies of
the Mortgage Loan Purchase  Agreements,  and Assignment  Agreements and the MGIC
PMI Policy.

     In connection with such transfer and assignment,  the Depositor does hereby
deliver to, and deposit with the  applicable  Custodian  pursuant to the related
Custodial  Agreement  the  documents  with  respect  to  each  Mortgage  Loan as
described under Section 2.1 of the First Union Custodial Agreement and Section 2
of the U.S.  Bank  Custodial  Agreement  (the  "Mortgage  Loan  Documents").  In
connection  with such  delivery  and as  further  described  in the First  Union
Custodial  Agreement  and the U.S.  Bank  Custodial  Agreement,  the  applicable
Custodian will be required to review such Mortgage Loan Documents and deliver to
the Trustee  certifications (in the forms attached to the Custodial  Agreements)
with respect to such review with exceptions noted thereon. In addition,  each of
the  Depositor  and Wells  Fargo  Home  Mortgage,  Inc.  under  the First  Union
Custodial  Agreement  and the  Depositor  and U.S.  Bank  under  the  U.S.  Bank
Custodial  Agreement  will have to cure  certain  defects  with  respect  to the
Mortgage  Loan  Documents  for the related  Mortgage  Loans  after the  delivery
thereof by the Depositor to the applicable  Custodian as more  particularly  set
forth therein.

     SECTION 2.02. Acceptance of REMIC I by Trustee.

     The Trustee acknowledges receipt, subject to the provisions of Section 2.01
hereof,  Section 2.1 of the First Union Custodial Agreement and Section 2 of the
U.S. Bank  Custodial  Agreement,  of the Mortgage  Loan  Documents and all other
assets  included in the definition of "REMIC I" under clauses (i),  (iii),  (iv)
and (v) (to the extent of amounts  deposited into the Distribution  Account) and
declares  that it holds (or the  applicable  Custodian on its behalf  holds) and
will hold such documents and the other documents  delivered to it constituting a
Mortgage Loan Document,  and that it holds (or the  applicable  Custodian on its
behalf holds) or will hold all such assets and such other assets included in the
definition  of "REMIC  I" in trust  for the  exclusive  use and  benefit  of all
present and future Certificateholders.

                                      -46-
<PAGE>

     SECTION 2.03. Repurchase or Substitution of Mortgage Loans.

          (a) Upon  discovery or receipt of notice of any  materially  defective
     document in, or that a document is missing  from, a Mortgage File or of the
     breach by the Seller of any representation,  warranty or covenant under the
     Wells Fargo Home  Mortgage,  Inc.  Assignment  Agreement  in respect of any
     Mortgage  Loan subject to such  agreement  that  materially  and  adversely
     affects  the value of such  Mortgage  Loan or the  interest  therein of the
     Certificateholders,  the Trustee shall  promptly  notify the Seller and the
     Master Servicer of such defect, missing document or breach and request that
     the Seller  deliver  such  missing  document  or cure such defect or breach
     within  60 days  from the date the  Seller  was  notified  of such  missing
     document, defect or breach, and if the Seller does not deliver such missing
     document or cure such defect or breach in all material respects during such
     period,  the Trustee shall enforce the  obligations of the Seller under the
     Wells Fargo Home Mortgage,  Inc.  Assignment  Agreement to repurchase  such
     Mortgage  Loan from REMIC I at the Purchase  Price within 90 days after the
     date on which the Seller was notified of such missing  document,  defect or
     breach,  if and to the extent that the Seller is  obligated  to do so under
     the Wells Fargo Home  Mortgage,  Inc.  Assignment  Agreement.  The Purchase
     Price  for  the  repurchased  Mortgage  Loan  shall  be  deposited  in  the
     Collection Account and the Trustee,  upon receipt of written  certification
     from the  Master  Servicer  of such  deposit,  shall  release  or cause the
     applicable Custodian to release to the Seller the related Mortgage File and
     the Trustee shall execute and deliver or cause the applicable  Custodian to
     execute and deliver such  instruments  of transfer or  assignment,  in each
     case without  recourse,  as the Seller shall  furnish to it and as shall be
     necessary to vest in the Seller any Mortgage Loan released pursuant hereto,
     and the Trustee  shall not have any further  responsibility  with regard to
     such  Mortgage  File.  In lieu of  repurchasing  any such  Mortgage Loan as
     provided  above,  if so  provided in the Wells  Fargo Home  Mortgage,  Inc.
     Assignment Agreement, the Seller may cause such Mortgage Loan to be removed
     from REMIC I (in which case it shall  become a Deleted  Mortgage  Loan) and
     substitute  one or more Qualified  Substitute  Mortgage Loans in the manner
     and  subject  to the  limitations  set  forth  in  Section  2.03(d).  It is
     understood  and  agreed  that the  obligation  of the  Seller to cure or to
     repurchase (or to substitute  for) any Mortgage Loan as to which a document
     is missing,  a material  defect in a constituent  document  exists or as to
     which such a breach has occurred and is  continuing  shall  constitute  the
     sole remedy  respecting  such omission,  defect or breach  available to the
     Trustee and the Certificateholders.

          (b) Upon  discovery or receipt of notice of any  materially  defective
     document in, or that a document is missing  from, a Mortgage File or of the
     breach by NC Capital of any representation,  warranty or covenant under the
     NC Capital MLPA in respect of any Mortgage  Loan subject to such  agreement
     that  materially  and adversely  affects the value of such Mortgage Loan or
     the interest therein of the Certificateholders,  the Trustee shall promptly
     notify NC  Capital,  the  Seller and the Master  Servicer  of such  defect,
     missing document or breach and request that NC Capital deliver such missing
     document  or cure such  defect  or  breach  within 60 days from the date NC
     Capital was notified of such missing document,  defect or breach, and if NC
     Capital  does not  deliver  such  missing  document  or cure such defect or
     breach in all  material  respects  during such  period,  the Trustee  shall
     enforce  the  obligations  of NC  Capital  under  the NC  Capital  MLPA  to
     repurchase  such Mortgage Loan from REMIC I at the Purchase Price within 90
     days after the date on which NC Capital  was  notified  (subject to Section
     2.03(f)) of such missing  document,  defect or breach, if and to the extent
     that NC  Capital  is  obligated  to do so under the NC  Capital  MLPA.  The
     Purchase Price for the repurchased  Mortgage Loan shall be deposited in the
     Collection

                                      -47-
<PAGE>

     Account and the  Trustee,  upon receipt of written  certification  from the
     Master  Servicer of such  deposit,  shall  release or cause the  applicable
     Custodian  to release  to NC  Capital  the  related  Mortgage  File and the
     Trustee  shall  execute and deliver or cause the  applicable  Custodian  to
     execute and deliver such  instruments  of transfer or  assignment,  in each
     case without  recourse,  as NC Capital  shall furnish to it and as shall be
     necessary to vest in NC Capital any Mortgage Loan released pursuant hereto,
     and the Trustee  shall not have any further  responsibility  with regard to
     such  Mortgage  File.  In lieu of  repurchasing  any such  Mortgage Loan as
     provided above, if so provided in the NC Capital MLPA, NC Capital may cause
     such  Mortgage  Loan to be  removed  from  REMIC I (in which  case it shall
     become a  Deleted  Mortgage  Loan)  and  substitute  one or more  Qualified
     Substitute  Mortgage Loans in the manner and subject to the limitations set
     forth in Section  2.03(d).  It is understood and agreed that the obligation
     of NC Capital to cure or to repurchase (or to substitute  for) any Mortgage
     Loan as to which a document is missing,  a material defect in a constituent
     document exists or as to which such a breach has occurred and is continuing
     and the obligation to provide indemnification as set forth in Section 12 of
     the NC Capital  MLPA  shall  constitute  the sole  remedy  respecting  such
     omission,   defect   or   breach   available   to  the   Trustee   and  the
     Certificateholders.

          In  addition,  promptly  upon the earlier of  discovery  by the Master
     Servicer  or receipt of notice by the Master  Servicer of the breach of the
     representation or covenant of NC Capital set forth in Section 5(b)(xiii) of
     the NC Capital MLPA which materially and adversely affects the interests of
     the  Holders of the Class P  Certificates  in any  Prepayment  Charge,  the
     Master  Servicer  shall  promptly  notify NC  Capital,  the  Seller and the
     Trustee of such breach.  The Trustee  shall enforce the  obligations  of NC
     Capital  under the NC Capital  MLPA to remedy such breach to the extent and
     in the manner set forth in the NC Capital MLPA.

          (c) Upon  discovery or receipt of notice of any  materially  defective
     document in, or that a document is missing  from, a Mortgage File or of the
     breach by HomeStar or  SouthStar,  as  applicable,  of any  representation,
     warranty or covenant  under the  HomeStar  MLPA in respect of any  Mortgage
     Loan subject to such  Agreement that  materially and adversely  affects the
     value   of  such   Mortgage   Loan   or  the   interest   therein   of  the
     Certificateholders,  the Trustee shall promptly notify HomeStar, SouthStar,
     the Seller and the Master  Servicer  of such  defect,  missing  document or
     breach and request that HomeStar or SouthStar, as applicable,  deliver such
     missing document or cure such defect or breach within 60 days from the date
     HomeStar and SouthStar  were notified of such missing  document,  defect or
     breach,  and if HomeStar and SouthStar do not deliver such missing document
     or cure such defect or breach in all material  respects during such period,
     the Trustee shall enforce the  obligations of HomeStar and SouthStar  under
     the HomeStar  MLPA to  repurchase  such  Mortgage  Loan from REMIC I at the
     Purchase  Price  within  90 days  after  the  date on  which  HomeStar  and
     SouthStar  were  notified  (subject  to Section  2.03(f))  of such  missing
     document,  defect  or  breach,  if and  to  the  extent  that  HomeStar  or
     SouthStar,  as  applicable,  is obligated to do so under HomeStar MLPA. The
     Purchase Price for the repurchased  Mortgage Loan shall be deposited in the
     Collection Account and the Trustee,  upon receipt of written  certification
     from the  Master  Servicer  of such  deposit,  shall  release  or cause the
     applicable  Custodian to release to HomeStar or SouthStar,  as  applicable,
     the  related  Mortgage  File and the Trustee  shall  execute and deliver or
     cause the applicable  Custodian to execute and deliver such  instruments of
     transfer  or  assignment,  in each case  without  recourse,  as HomeStar or
     SouthStar, as applicable, shall furnish to it and as shall be necessary to

                                      -48-
<PAGE>

     vest in HomeStar or SouthStar,  as  applicable,  any Mortgage Loan released
     pursuant hereto, and the Trustee shall not have any further  responsibility
     with regard to such Mortgage File.

          In lieu of  repurchasing  any such Mortgage Loan as provided above, if
     so provided in the HomeStar MLPA, HomeStar or SouthStar, as applicable, may
     cause such Mortgage Loan to be removed from REMIC I (in which case it shall
     become a  Deleted  Mortgage  Loan)  and  substitute  one or more  Qualified
     Substitute  Mortgage Loans in the manner and subject to the limitations set
     forth in Section  2.03(d).  It is understood and agreed that the obligation
     of HomeStar and SouthStar to cure or to repurchase  (or to substitute  for)
     any Mortgage Loan as to which a document is missing, a material defect in a
     constituent  document  exists or as to which such a breach has occurred and
     is continuing and the obligation to provide indemnification as set forth in
     Section 12 of the HomeStar MLPA shall constitute the sole remedy respecting
     such  omission,   defect  or  breach  available  to  the  Trustee  and  the
     Certificateholders.

          In  addition,  promptly  upon the earlier of  discovery  by the Master
     Servicer  or receipt of notice by the Master  Servicer of the breach of the
     representation  or covenant of HomeStar or SouthStar,  as  applicable,  set
     forth in Section  5(b)(xiii)  of the  HomeStar  MLPA which  materially  and
     adversely  affects the interests of the Holders of the Class P Certificates
     in any  Prepayment  Charge,  the  Master  Servicer  shall  promptly  notify
     HomeStar, SouthStar, the Seller and the Trustee of such breach. The Trustee
     shall enforce the  obligations of HomeStar and SouthStar under the HomeStar
     MLPA to remedy such breach to the extent and in the manner set forth in the
     HomeStar MLPA.

          (d) Any  substitution  of  Qualified  Substitute  Mortgage  Loans  for
     Deleted Mortgage Loans made pursuant to Section 2.03(a), (b) or (c) must be
     effected  prior to the date which is two years  after the  Startup  Day for
     REMIC I.

          As to any  Deleted  Mortgage  Loan for which the  Seller,  NC Capital,
     HomeStar or SouthStar,  as applicable,  substitutes a Qualified  Substitute
     Mortgage Loan or Loans, such substitution  shall be effected by the Seller,
     NC Capital, HomeStar or SouthStar, as applicable, delivering to the Trustee
     or the  applicable  Custodian on behalf of the Trustee,  for such Qualified
     Substitute  Mortgage Loan or Loans,  the Mortgage Note,  the Mortgage,  the
     Assignment to the Trustee,  and such other documents and  agreements,  with
     all necessary  endorsements  thereon, as are required by Section 2.1 of the
     First Union  Custodial  Agreement or Section 2 of the U.S.  Bank  Custodial
     Agreement, as applicable,  together with an Officers' Certificate providing
     that each such Qualified  Substitute Mortgage Loan satisfies the definition
     thereof and  specifying  the  Substitution  Shortfall  Amount (as described
     below),  if any,  in  connection  with such  substitution.  The  applicable
     Custodian  on behalf  of the  Trustee  shall  acknowledge  receipt  of such
     Qualified  Substitute  Mortgage Loan or Loans and, within ten Business Days
     thereafter, review such documents and deliver to the Depositor, the Trustee
     and the Master Servicer, with respect to such Qualified Substitute Mortgage
     Loan  or  Loans,  an  initial  certification  pursuant  to  the  applicable
     Custodial Agreement,  with any applicable exceptions noted thereon.  Within
     one year of the date of substitution, the applicable Custodian on behalf of
     the  Trustee  shall  deliver to the  Depositor,  the Trustee and the Master
     Servicer  a  final  certification  pursuant  to  the  applicable  Custodial
     Agreement with respect to such Qualified Substitute Mortgage Loan or Loans,
     with any applicable exceptions noted thereon. Monthly Payments due with

                                      -49-
<PAGE>

     respect to Qualified Substitute Mortgage Loans in the month of substitution
     are not part of REMIC I and will be  retained  by the  Seller,  NC Capital,
     HomeStar  or  SouthStar,  as  applicable.  For the  month of  substitution,
     distributions to Certificateholders will reflect the Monthly Payment due on
     such  Deleted  Mortgage  Loan on or  before  the Due  Date in the  month of
     substitution,  and the  Seller,  NC  Capital,  HomeStar  or  SouthStar,  as
     applicable, shall thereafter be entitled to retain all amounts subsequently
     received in respect of such Deleted Mortgage Loan. The Depositor shall give
     or cause to be given  written  notice to the  Certificateholders  that such
     substitution  has taken place,  shall amend the Mortgage  Loan  Schedule to
     reflect the removal of such  Deleted  Mortgage  Loan from the terms of this
     Agreement and the substitution of the Qualified Substitute Mortgage Loan or
     Loans and shall  deliver a copy of such amended  Mortgage  Loan Schedule to
     the Trustee.  Upon such substitution,  such Qualified  Substitute  Mortgage
     Loan or Loans shall  constitute part of the Trust Fund and shall be subject
     in all  respects  to the terms of this  Agreement  and the Wells Fargo Home
     Mortgage,  Inc. Assignment  Agreement,  the NC Capital MLPA or the HomeStar
     MLPA,  as  applicable,   including  all  applicable   representations   and
     warranties thereof included in the applicable agreement.

          For any month in which the Seller, NC Capital,  HomeStar or SouthStar,
     as applicable,  substitutes one or more Qualified Substitute Mortgage Loans
     for one or more Deleted  Mortgage Loans, the Master Servicer will determine
     the amount  (the  "Substitution  Shortfall  Amount"),  if any, by which the
     aggregate  Purchase  Price of all such Deleted  Mortgage  Loans exceeds the
     aggregate  of, as to each such  Qualified  Substitute  Mortgage  Loan,  the
     Scheduled  Principal  Balance  thereof  as of  the  date  of  substitution,
     together with one month's interest on such Scheduled  Principal  Balance at
     the  applicable Net Mortgage Rate,  plus all  outstanding  P&I Advances and
     Servicing   Advances    (including    Nonrecoverable   P&I   Advances   and
     Nonrecoverable  Servicing  Advances)  related thereto.  On the date of such
     substitution, the Seller, NC Capital, HomeStar or SouthStar, as applicable,
     will deliver or cause to be delivered to the Master Servicer for deposit in
     the  Collection  Account  an  amount  equal to the  Substitution  Shortfall
     Amount,  if any, and the Trustee or the  applicable  Custodian on behalf of
     the Trustee, upon receipt of the related Qualified Substitute Mortgage Loan
     or Loans and  certification  by the Master Servicer of such deposit,  shall
     release to the Seller,  NC Capital,  HomeStar or SouthStar,  as applicable,
     the  related  Mortgage  File or Files and the Trustee or the  Custodian  on
     behalf of the  Trustee  shall  execute  and  deliver  such  instruments  of
     transfer or assignment,  in each case without  recourse,  as the Seller, NC
     Capital,  HomeStar or SouthStar, as applicable,  shall deliver to it and as
     shall be  necessary  to vest  therein any Deleted  Mortgage  Loan  released
     pursuant hereto.

          In  addition,  the Seller,  NC  Capital,  HomeStar  or  SouthStar,  as
     applicable,  shall  obtain at its own expense and deliver to the Trustee an
     Opinion of Counsel to the effect that such  substitution will not cause (a)
     any  federal  tax to be  imposed  on any  Trust  REMIC,  including  without
     limitation,  any  federal tax imposed on  "prohibited  transactions"  under
     Section 860F(a)(1) of the Code or on "contributions after the startup date"
     under  Section  860G(d)(1)  of the Code,  or (b) any Trust REMIC to fail to
     qualify as a REMIC at any time that any Certificate is outstanding.

          (e) Upon discovery by the Depositor, the Seller, NC Capital, HomeStar,
     SouthStar,  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 within two
     Business

                                      -50-
<PAGE>

     Days give  written  notice  thereof  to the other  parties.  In  connection
     therewith,  the Seller, NC Capital,  HomeStar or SouthStar,  as applicable,
     shall  repurchase  or,  subject  to the  limitations  set forth in  Section
     2.03(d), substitute one or more Qualified Substitute Mortgage Loans for the
     affected  Mortgage  Loan  within 90 days of the  earlier  of  discovery  or
     receipt of such notice with respect to such affected  Mortgage  Loan.  Such
     repurchase  or  substitution  shall be made by (i) the Seller,  NC Capital,
     HomeStar or  SouthStar,  as  applicable,  if the affected  Mortgage  Loan's
     status  as a  non-qualified  mortgage  is or  results  from a breach of any
     representation,  warranty  or  covenant  made by the  Seller,  NC  Capital,
     HomeStar or SouthStar, as applicable,  under the Wells Fargo Home Mortgage,
     Inc.  Assignment  Agreement,  the NC Capital MLPA or the HomeStar  MLPA, as
     applicable,  or (ii) the Depositor,  if the affected Mortgage Loan's status
     as a non-qualified  mortgage is a breach of no  representation or warranty.
     Any such repurchase or substitution shall be made in the same manner as set
     forth in Section  2.03(a),  (b) or (c), as  applicable.  The Trustee  shall
     reconvey to the Seller, NC Capital,  HomeStar or SouthStar,  as applicable,
     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.

          (f) With respect to a breach of the  representations  made pursuant to
     Section  5(a)(viii) or (xiv) of the NC Capital MLPA or the HomeStar MLPA or
     Section 2(i) of the Wells Fargo Home Mortgage,  Inc.  Assignment  Agreement
     that  materially  and adversely  affects the value of such Mortgage Loan or
     the  interest  therein  of the  Certificateholders,  the  Seller  shall  be
     required to take the actions set forth in this Section 2.03.

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

     SECTION 2.04. [Reserved].

     SECTION 2.05. Representations, Warranties and Covenants of the Master
                   Servicer.

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

          (i) The Master Servicer is a national banking association duly formed,
     validly  existing and in good standing  under the laws of the United States
     of America and is duly  authorized  and  qualified  to transact any and all
     business  contemplated  by this  Agreement  to be  conducted  by the Master
     Servicer;

          (ii) The Master  Servicer has the full power and  authority to conduct
     its  business as  presently  conducted  by it and to  execute,  deliver and
     perform, and to enter into and consummate, all transactions contemplated by
     this  Agreement.  The Master  Servicer has duly  authorized  the execution,
     delivery and performance of this Agreement, has duly executed and delivered
     this

                                      -51-
<PAGE>

     Agreement,  and this Agreement,  assuming due authorization,  execution and
     delivery by the Depositor and the Trustee,  constitutes a legal,  valid and
     binding  obligation of the Servicer,  enforceable  against it in accordance
     with its terms  except as the  enforceability  thereof  may be  limited  by
     bankruptcy,  insolvency,  reorganization  or  similar  laws  affecting  the
     enforcement  of creditors'  rights  generally and by general  principles of
     equity;

          (iii) The  execution  and  delivery  of this  Agreement  by the Master
     Servicer,  the  consummation  by the  Master  Servicer  of any other of the
     transactions herein contemplated, and the fulfillment of or compliance with
     the terms  hereof  are in the  ordinary  course of  business  of the Master
     Servicer  and will not (A) result in a breach of any term or  provision  of
     charter and by-laws of the Master Servicer or (B) conflict with,  result in
     a breach,  violation or acceleration  of, or result in a default under, the
     terms of any other  material  agreement or  instrument  to which the Master
     Servicer is a party or by which it may be bound,  or any statute,  order or
     regulation applicable to the Master Servicer of any court, regulatory body,
     administrative  agency or governmental  body having  jurisdiction  over the
     Master Servicer; and the Master Servicer is not a party to, bound by, or in
     breach or violation of any indenture or other  agreement or instrument,  or
     subject to or in  violation  of any  statute,  order or  regulation  of any
     court,  regulatory body,  administrative agency or governmental body having
     jurisdiction  over it, which  materially  and adversely  affects or, to the
     Master Servicer's  knowledge,  would in the future materially and adversely
     affect,  (x) the ability of the Master  Servicer to perform its obligations
     under this Agreement or (y) the business, operations,  financial condition,
     properties or assets of the Master Servicer taken as a whole;

          (iv) [Reserved];

          (v) The Master Servicer does not believe,  nor does it have any reason
     or cause to believe, that it cannot perform each and every covenant made by
     it and contained in this Agreement;

          (vi) [Reserved];

          (vii) No litigation is pending  against the Master Servicer that would
     materially and adversely affect the execution,  delivery or  enforceability
     of this  Agreement or the ability of the Master  Servicer to perform any of
     its other obligations hereunder in accordance with the terms hereof,

          (viii) There are no actions or proceedings  against, or investigations
     known to it of, the Master  Servicer  before any court,  administrative  or
     other  tribunal (A) that might  prohibit its entering into this  Agreement,
     (B) seeking to prevent the consummation of the transactions contemplated by
     this  Agreement  or (C) that might  prohibit or  materially  and  adversely
     affect the performance by the Master Servicer of its obligations  under, or
     validity or enforceability of, this Agreement; and

          (ix) No  consent,  approval,  authorization  or order of any  court or
     governmental  agency or body is required  for the  execution,  delivery and
     performance by the Master Servicer of, or

                                      -52-
<PAGE>

     compliance by the Master Servicer with, this Agreement or the  consummation
     by it of the transactions  contemplated by this Agreement,  except for such
     consents,  approvals,  authorizations  or  orders,  if any,  that have been
     obtained prior to the Closing Date.

     It is  understood  and  agreed  that the  representations,  warranties  and
covenants  set forth in this  Section  2.05  shall  inure to the  benefit of the
Trustee, the Depositor and the Certificateholders.

     SECTION 2.06. Issuance of the REMIC I Regular Interests and the Class R-I
                   Certificates.

     The Trustee acknowledges the assignment to it of the Mortgage Loans and the
delivery to the Custodians on its behalf of the Mortgage Loan Documents, subject
to the provisions of Section 2.01 and Section 2.02 hereof and Sections 2.1 and 2
of the First Union  Custodial  Agreement and the U.S. Bank Custodial  Agreement,
respectively, together with the assignment to it of all other assets included in
REMIC I, the  receipt of which is hereby  acknowledged.  Concurrently  with such
assignment and delivery and in exchange therefor,  the Trustee,  pursuant to the
written  request of the Depositor  executed by an officer of the Depositor,  has
executed, authenticated and delivered to or upon the order of the Depositor, the
Class R-I Certificates in authorized  denominations.  The interests evidenced by
the  Class  R-I  Certificates,  together  with the  REMIC I  Regular  Interests,
constitute the entire  beneficial  ownership  interest in REMIC I. The rights of
the Class R-I  Certificateholders and REMIC II (as holder of the REMIC I Regular
Interests) to receive  distributions  from the proceeds of REMIC I in respect of
the Class R-I Certificates and the REMIC I Regular Interests,  respectively, and
all ownership  interests  evidenced or constituted by the Class R-I Certificates
and the REMIC I Regular Interests, shall be as set forth in this Agreement.

     SECTION 2.07. Conveyance of the REMIC I Regular Interests; Acceptance of
                   REMIC II by the Trustee.

     The Depositor,  concurrently  with the execution and delivery hereof,  does
hereby transfer,  assign, set over and otherwise convey to the Trustee,  without
recourse all the right,  title and interest of the Depositor in and to the REMIC
I Regular  Interests  for the benefit of the Class R-II  Certificateholders  and
REMIC II (as holder of the REMIC I Regular Interests).  The Trustee acknowledges
receipt of the REMIC I Regular  Interests  and  declares  that it holds and will
hold the same in trust for the  exclusive  use and  benefit of all  present  and
future  Class  R-II  Certificateholders  and REMIC II (as  holder of the REMIC I
Regular Interests). The rights of the Class R-II Certificateholders and REMIC II
(as holder of the REMIC I Regular  Interests) to receive  distributions from the
proceeds  of REMIC II in  respect of the Class  R-II  Certificates  and REMIC II
Regular  Interests,  respectively,  and all  ownership  interests  evidenced  or
constituted by the Class R-II  Certificates and the REMIC II Regular  Interests,
shall be as set forth in this Agreement.

     SECTION 2.08. Issuance of Class R-II Certificates.

     The  Trustee  acknowledges  the  assignment  to it of the  REMIC I  Regular
Interests and, concurrently therewith and in exchange therefor,  pursuant to the
written  request of the Depositor  executed by an officer of the Depositor,  the
Trustee has  executed,  authenticated  and delivered to or upon the order of the
Depositor,  the  Class  R-II  Certificates  in  authorized  denominations.   The
interests  evidenced by the Class

                                      -53-
<PAGE>

R-II Certificates,  together with the REMIC II Regular Interests, constitute the
entire beneficial ownership interest in REMIC II.

     SECTION 2.09. Conveyance of the REMIC II Regular Interests; Acceptance of
                   REMIC III by the Trustee.

     The Depositor,  concurrently  with the execution and delivery hereof,  does
hereby transfer,  assign, set over and otherwise convey to the Trustee,  without
recourse all the right,  title and interest of the Depositor in and to the REMIC
II Regular Interests for the benefit of the Class R-III  Certificateholders  and
REMIC  III  (as  holder  of  the  REMIC  II  Regular  Interests).   The  Trustee
acknowledges  receipt of the REMIC II Regular  Interests  and  declares  that it
holds and will hold the same in trust for the  exclusive  use and benefit of all
present and future  Class R-III  Certificateholders  and REMIC III (as holder of
the   REMIC  II   Regular   Interests).   The   rights   of  the   Class   R-III
Certificateholders  and REMIC III (as holder of the REMIC II Regular  Interests)
to receive  distributions from the proceeds of REMIC III in respect of the Class
R-III  Certificates  and  REMIC III  Regular  Interests,  respectively,  and all
ownership interests evidenced or constituted by the Class R-III Certificates and
the REMIC III Regular Interests, shall be as set forth in this Agreement.

     SECTION 2.10. Issuance of Class R-III Certificates.

     The  Trustee  acknowledges  the  assignment  to it of the REMIC II  Regular
Interests and, concurrently therewith and in exchange therefor,  pursuant to the
written  request of the Depositor  executed by an officer of the Depositor,  the
Trustee has  executed,  authenticated  and delivered to or upon the order of the
Depositor,  the  Class  R-III  Certificates  in  authorized  denominations.  The
interests evidenced by the Class R-III Certificates, together with the REMIC III
Regular Interests,  constitute the entire beneficial ownership interest in REMIC
III.

     SECTION 2.11 Establishment of the Trust.

     The Depositor does hereby establish,  pursuant to the further provisions of
this  Agreement  and the laws of the State of New York,  an express  trust to be
known, for convenience, as "ACE Securities Corp., Home Equity Loan Trust, Series
2001-HEl"  and does hereby  appoint  First Union  National  Bank,  as Trustee in
accordance with the provisions of this Agreement.

                                      -54-
<PAGE>

                                   ARTICLE III

                          ADMINISTRATION AND SERVICING
                         OF THE MORTGAGE LOANS; ACCOUNTS

     SECTION 3.01. Master Servicer. The Master Servicer shall supervise, monitor
and oversee the  obligation  of the  Servicers to service and  administer  their
respective  Mortgage  Loans  in  accordance  with the  terms  of the  applicable
Servicing  Agreement  and shall have full power and  authority to do any and all
things which it may deem  necessary or desirable in connection  with such master
servicing and  administration.  In performing  its  obligations  hereunder,  the
Master Servicer shall act in a manner  consistent with Accepted Master Servicing
Practices.  Furthermore, the Master Servicer shall oversee and consult with each
Servicer  as  necessary  from  time-to-time  to carry out the Master  Servicer's
obligations  hereunder,   shall  receive,   review  and  evaluate  all  reports,
information  and other data provided to the Master Servicer by each Servicer and
shall cause each Servicer to perform and observe the covenants,  obligations and
conditions  to be performed or observed by such  Servicer  under the  applicable
Servicing  Agreement.  The Master  Servicer shall  independently  and separately
monitor  each  Servicer's  servicing  activities  with  respect to each  related
Mortgage Loan,  reconcile the results of such monitoring  with such  information
provided in the previous  sentence on a monthly basis and coordinate  corrective
adjustments to the Servicers' and Master Servicer's  records,  and based on such
reconciled  and  corrected  information,  prepare the  statements  specified  in
Section 4.02 and any other information and statements required to be provided by
the Master Servicer  hereunder.  The Master Servicer shall reconcile the results
of its Mortgage Loan monitoring with the actual  remittances of the Servicers to
the Master  Servicer  Collection  Account  pursuant to the applicable  Servicing
Agreements.

     Notwithstanding  anything in this Agreement, any Servicing Agreement or any
Loss Mitigation Advisory Agreement to the contrary,  neither the Master Servicer
nor the  applicable  Servicer  shall have any duty or  obligation to enforce any
Loss  Mitigation  Advisory  Agreement  or to  supervise,  monitor or oversee the
activities of the Loss  Mitigation  Advisor under its Loss  Mitigation  Advisory
Agreement  with  respect  to any  action  taken or not  taken by the  applicable
Servicer  or the  Master  Servicer  pursuant  to a  recommendation  of the  Loss
Mitigation Advisor

     The Trustee shall  furnish the  Servicers and the Master  Servicer with any
powers of attorney  and other  documents  in form as provided to it necessary or
appropriate  to enable the  Servicers  and the Master  Servicer  to service  and
administer the related Mortgage Loans and REO Property.

     The  Trustee  shall  provide  access to the records  and  documentation  in
possession of the Trustee  regarding the related Mortgage Loans and REO Property
and  the  servicing  thereof  to  the  Certificateholders,  the  FDIC,  and  the
supervisory  agents and examiners of the FDIC,  such access being  afforded only
upon  reasonable  prior written  request and during normal business hours at the
office of the Trustee;  provided,  however,  that, unless otherwise  required by
law,  the Trustee  shall not be required to provide  access to such  records and
documentation if the provision  thereof would violate the legal right to privacy
of any Mortgagor.  The Trustee shall allow representatives of the above entities
to photocopy any

                                      -55-
<PAGE>

of the records and documentation and shall provide equipment for that purpose at
a charge that covers the Trustee's actual costs.

     The Trustee  shall  execute and  deliver to the  related  Servicer  and the
Master  Servicer  any court  pleadings,  requests  for  trustee's  sale or other
documents  necessary or desirable to (i) the  foreclosure or trustee's sale with
respect  to a  Mortgaged  Property;  (ii) any  legal  action  brought  to obtain
judgment  against any Mortgagor on the Mortgage Note or any other  Mortgage Loan
Document;  (iii) obtain a deficiency  judgment  against the  Mortgagor;  or (iv)
enforce any other rights or remedies  provided by the Mortgage Note or any other
Mortgage Loan Document or otherwise available at law or equity.

     SECTION  3.02.  REMIC-Related  Covenants.  For as long as each REMIC  shall
exist,  the  Trustee  shall act in  accordance  herewith  to  assure  continuing
treatment  of such  REMIC as a REMIC,  and the  Trustee  shall  comply  with any
directions of the Seller,  the related Servicer or the Master Servicer to assure
such  continuing  treatment.  In  particular,  the Trustee shall not (a) sell or
permit the sale of all or any portion of the Mortgage Loans or of any investment
of deposits in an Account unless such sale is as a result of a repurchase of the
Mortgage  Loans  pursuant to this  Agreement or the Trustee has received a REMIC
Opinion  prepared  at the  expense  of the Trust  Fund;  and (b) other than with
respect to a substitution  pursuant to the Mortgage Loan Purchase  Agreements or
the  Assignment  Agreements or Section 2.03 of this  Agreement,  as  applicable,
accept any  contribution to any REMIC after the Startup Day without receipt of a
Opinion of Counsel stating that such  contribution will not result in an Adverse
REMIC Event as deferred in Section 10.01(f) hereof.

     SECTION 3.03.  Monitoring of Servicers.  (a) The Master  Servicer  shall be
responsible for monitoring the compliance by each Servicer with its duties under
the related Servicing  Agreement.  In the review of each Servicer's  activities,
the Master Servicer may rely upon an officer's  certificate of the Servicer with
regard to such Servicer's  compliance with the terms of its Servicing Agreement.
In the event  that the  Master  Servicer,  in its  judgment,  determines  that a
Servicer  should be terminated in accordance  with its Servicing  Agreement,  or
that a notice should be sent pursuant to such  Servicing  Agreement with respect
to the occurrence of an event that, unless cured,  would constitute  grounds for
such  termination,  the Master  Servicer shall notify the Seller and the Trustee
thereof  and the Master  Servicer  shall  issue  such  notice or take such other
action as it deems appropriate.

          (b) The  Master  Servicer,  for the  benefit  of the  Trustee  and the
     Certificateholders,  shall enforce the  obligations  of each Servicer under
     the related  Servicing  Agreement,  and shall, in the event that a Servicer
     fails to perform its obligations in accordance  with the related  Servicing
     Agreement,  subject to the  preceding  paragraph,  terminate the rights and
     obligations of such Servicer  thereunder and act as servicer of the related
     Mortgage  Loans  or to cause  the  Trustee  to enter in to a new  Servicing
     Agreement  with a  successor  Servicer  selected  by the  Master  Servicer;
     provided,  however, it is understood and acknowledged by the parties hereto
     that there will be a period of  transition  (not to exceed 90 days)  before
     the actual servicing  functions can be fully  transferred to such successor
     Servicer.  Such  enforcement,  including,  without  limitation,  the  legal
     prosecution of claims,  termination of Servicing Agreements and the pursuit
     of other  appropriate  remedies,  shall be in such form and  carried out to
     such an extent and at such time as the Master  Servicer,  in its good faith
     business judgment,  would require were it the owner of the

                                      -56-
<PAGE>

     related  Mortgage  Loans.  The Master  Servicer shall pay the costs of such
     enforcement at its own expense, provided that the Master Servicer shall not
     be required to prosecute  or defend any legal  action  except to the extent
     that the Master Servicer shall have received  reasonable  indemnity for its
     costs and expenses in pursuing such action.

          (c) To the extent that the costs and  expenses of the Master  Servicer
     related  to any  termination  of a  Servicer,  appointment  of a  successor
     Servicer or the transfer and assumption of servicing by the Master Servicer
     with respect to any Servicing Agreement (including, without limitation, (i)
     all legal  costs and  expenses  and all due  diligence  costs and  expenses
     associated with an evaluation of the potential  termination of the Servicer
     as a result of an event of default by such  Servicer and (ii) all costs and
     expenses associated with the complete transfer of servicing,  including all
     servicing  files and all servicing data and the  completion,  correction or
     manipulation  of such  servicing  data as may be required by the  successor
     servicer to correct any errors or  insufficiencies in the servicing data or
     otherwise to enable the successor servicer to service the Mortgage Loans in
     accordance with the related  Servicing  Agreement) are not fully and timely
     reimbursed  by the  terminated  Servicer,  the  Master  Servicer  shall  be
     entitled  to  reimbursement  of such  costs and  expenses  from the  Master
     Servicer Collection Account.

          (d) The Master Servicer shall require each Servicer to comply with the
     remittance  requirements  and other  obligations  set forth in the  related
     Servicing Agreement.

          (e) If the  Master  Servicer  acts as  Servicer,  it will  not  assume
     liability for the representations  and warranties of the Servicer,  if any,
     that it replaces.

     SECTION 3.04.  Fidelity Bond. The Master  Servicer,  at its expense,  shall
maintain in effect a blanket fidelity bond and an errors and omissions insurance
policy,  affording coverage with respect to all directors,  officers,  employees
and other Persons acting on such Master Servicer's  behalf,  and covering errors
and omissions in the performance of the Master Servicer's obligations hereunder.
The errors and omissions insurance policy and the fidelity bond shall be in such
form and amount generally acceptable for entities serving as master servicers or
trustees.

     SECTION 3.05.  Power to Act;  Procedures.  The Master Servicer shall master
service the Mortgage Loans and shall have full power and  authority,  subject to
the REMIC  Provisions and the provisions of Article X hereof,  to do any and all
things that it may deem  necessary or desirable  in  connection  with the master
servicing and administration of the Mortgage Loans, including but not limited to
the  power  and  authority  (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,  (iii) to
collect any Insurance Proceeds and Liquidation Proceeds,  and (iv) to effectuate
foreclosure  or other  conversion  of the  ownership of the  Mortgaged  Property
securing any Mortgage  Loan, in each case, in accordance  with the provisions of
this Agreement and the related  Servicing  Agreement,  as applicable;  provided,
however,   that  the  Master  Servicer  shall  not  (and,  consistent  with  its
responsibilities under Section 3.03, shall not permit any Servicer to) knowingly
or intentionally take any action, or fail to take (or fail to cause to be taken)
any  action  reasonably  within  its  control  and  the  scope  of  duties  more
specifically set forth herein, that, under

                                      -57-
<PAGE>

the REMIC  Provisions,  if taken or not taken,  as the case may be,  would cause
REMIC I,  REMIC II or REMIC III to fail to  qualify  as a REMIC or result in the
imposition of a tax upon the Trust Fund (including but not limited to the tax on
prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax
on contributions to a REMIC set forth in Section 860G(d) of the Code) unless the
Master  Servicer  has  received an Opinion of Counsel (but not at the expense of
the Master Servicer) to the effect that the  contemplated  action will not would
cause  REMIC I, REMIC II or REMIC III to fail to qualify as a REMIC or result in
the imposition of a tax upon REMIC I, REMIC II or REMIC III, as the case may be.
The Trustee  shall  furnish the Master  Servicer,  upon  written  request from a
Servicing Officer, with any powers of attorney empowering the Master Servicer or
any Servicer to execute and deliver instruments of satisfaction or cancellation,
or of partial or full release or discharge,  and to foreclose  upon or otherwise
liquidate  Mortgaged Property,  and to appeal,  prosecute or defend in any court
action relating to the Mortgage Loans or the Mortgaged  Property,  in accordance
with the  applicable  Servicing  Agreement and this  Agreement,  and the Trustee
shall  execute and deliver  such other  documents,  as the Master  Servicer  may
request,  to enable the Master  Servicer to master  service and  administer  the
Mortgage  Loans and carry out its duties  hereunder,  in each case in accordance
with  Accepted  Master  Servicing  Practices  (and  the  Trustee  shall  have no
liability  for misuse of any such powers of  attorney by the Master  Servicer or
any Servicer). If the Master Servicer or the Trustee has been advised that it is
likely that the laws of the state in which action is to be taken  prohibit  such
action  if  taken  in the  name of the  Trustee  or that  the  Trustee  would be
adversely  affected under the "doing business" or tax laws of such state if such
action is taken in its name, the Master  Servicer shall join with the Trustee in
the  appointment  of a  co-trustee  pursuant  to  Section  9.11  hereof.  In the
performance of its duties hereunder, the Master Servicer shall be an independent
contractor and shall not, except in those instances where it is taking action in
the name of the Trustee, be deemed to be the agent of the Trustee.

     SECTION 3.06.  Due-on-Sale Clauses;  Assumption  Agreements.  To the extent
provided in the applicable  Servicing  Agreement,  to the extent  Mortgage Loans
contain  enforceable  due-on- sale clauses,  the Master Servicer shall cause the
Servicers to enforce such clauses in accordance  with the  applicable  Servicing
Agreement.  If applicable law prohibits the enforcement of a due-on-sale  clause
or such clause is  otherwise  not  enforced in  accordance  with the  applicable
Servicing  Agreement,  and, as a  consequence,  a Mortgage Loan is assumed,  the
original  Mortgagor  may be  released  from  liability  in  accordance  with the
applicable Servicing Agreement.

     SECTION 3.07.  Release of Mortgage  Files.  (a) Upon becoming  aware of the
payment  in full of any  Mortgage  Loan,  or the  receipt by any  Servicer  of a
notification  that payment in full has been  escrowed in a manner  customary for
such purposes for payment to  Certificateholders  on the next Distribution Date,
the  Servicer  will,  if  required  under the  applicable  Servicing  Agreement,
promptly  furnish to the  Custodian,  on behalf of the Trustee,  two copies of a
request  for  release  substantially  in the  form  attached  to the  applicable
Custodial  Agreement  attached  to the  signed by a  Servicing  Officer  or in a
mutually  agreeable  electronic format which will, in lieu of a signature on its
face,  originate from a Servicing Officer (which  certification  shall include a
statement  to the effect  that all  amounts  received  in  connection  with such
payment that are required to be deposited in the Protected Account maintained by
the applicable  Servicer pursuant to Section 4.01 or by the applicable  Servicer
pursuant to its Servicing Agreement have been or will be so deposited) and shall
request that the Custodian, on behalf of the Trustee, deliver to the

                                      -58-
<PAGE>

applicable   Servicer  the  related   Mortgage   File.   Upon  receipt  of  such
certification  and  request,  the  Custodian,  on behalf of the  Trustee,  shall
promptly  release the related  Mortgage File to the applicable  Servicer and the
Trustee and Custodian shall have no further  responsibility  with regard to such
Mortgage File.  Upon any such payment in full,  each Servicer is authorized,  to
give, as agent for the Trustee, as the mortgagee under the Mortgage that secured
the Mortgage  Loan,  an instrument of  satisfaction  (or  assignment of mortgage
without  recourse)  regarding  the Mortgaged  Property  subject to the Mortgage,
which  instrument of  satisfaction  or assignment,  as the case may be, shall be
delivered to the Person or Persons  entitled thereto against receipt therefor of
such  payment,  it being  understood  and agreed  that no  expenses  incurred in
connection with such  instrument of satisfaction or assignment,  as the case may
be, shall be chargeable to the Master Servicer Collection Account.

          (b)  From  time to  time  and as  appropriate  for  the  servicing  or
     foreclosure  of any Mortgage  Loan and in  accordance  with the  applicable
     Servicing  Agreement,  the Trustee shall execute such documents as shall be
     prepared and furnished to the Trustee by a Servicer or the Master  Servicer
     (in form reasonably  acceptable to the Trustee) and as are necessary to the
     prosecution  of any such  proceedings.  The  Custodian,  on  behalf  of the
     Trustee,  shall, upon the request of a Servicer or the Master Servicer, and
     delivery to the  Custodian,  on behalf of the  Trustee,  of two copies of a
     request for release signed by a Servicing Officer substantially in the form
     attached to the applicable  Custodial Agreement (or in a mutually agreeable
     electronic format which will, in lieu of a signature on its face, originate
     from a Servicing  Officer),  release the related  Mortgage File held in its
     possession  or  control  to  the  Servicer  or  the  Master  Servicer,   as
     applicable.  Such trust receipt  shall  obligate the Servicer or the Master
     Servicer  to return the  Mortgage  File to the  Custodian  on behalf of the
     Trustee,  when the need therefor by the Servicer or the Master  Servicer no
     longer exists unless the Mortgage Loan shall be liquidated,  in which case,
     upon  receipt  of a  certificate  of a  Servicing  Officer  similar to that
     hereinabove  specified,   the  Mortgage  File  shall  be  released  by  the
     Custodian,  on  behalf  of the  Trustee,  to  the  Servicer  or the  Master
     Servicer.

     SECTION 3.08. Documents, Records and Funds in Possession of Master
                   Servicer To Be Held for Trustee.

          (a) The Master  Servicer  shall  transmit  and each  Servicer  (to the
     extent required by the related  Servicing  Agreement) shall transmit to the
     Trustee  or  Custodian  such  documents  and  instruments  coming  into the
     possession of the Master Servicer or such Servicer from time to time as are
     required  by the  terms  hereof,  or in the  case  of  the  Servicers,  the
     applicable  Servicing  Agreement,   to  be  delivered  to  the  Trustee  or
     Custodian.  Any funds  received by the Master  Servicer or by a Servicer in
     respect of any Mortgage Loan or which otherwise are collected by the Master
     Servicer or by a Servicer as Liquidation  Proceeds or Insurance Proceeds in
     respect of any  Mortgage  Loan shall be held for the benefit of the Trustee
     and the Certificateholders subject to the Master Servicer's right to retain
     or  withdraw  from  the  Master  Servicer  Collection  Account  the  Master
     Servicing Compensation and other amounts provided in this Agreement, and to
     the right of each Servicer to retain its Servicing Fee and other amounts as
     provided in the applicable Servicing Agreement.  The Master Servicer shall,
     and (to the extent provided in the applicable  Servicing  Agreement)  shall
     cause each Servicer to,  provide access to  information  and  documentation
     regarding the Mortgage Loans to the Trustee,  its agents and accountants at
     any time upon reasonable  request and during normal business hours,  and to
     Certificateholders  that  are  savings  and  loan

                                      -59-
<PAGE>

     associations,   banks  or  insurance   companies,   the  Office  of  Thrift
     Supervision,  the FDIC and the  supervisory  agents and  examiners  of such
     Office and  Corporation  or examiners of any other federal or state banking
     or insurance regulatory authority if so required by applicable  regulations
     of the Office of Thrift  Supervision or other  regulatory  authority,  such
     access to be afforded  without charge but only upon  reasonable  request in
     writing  and  during  normal  business  hours at the  offices of the Master
     Servicer designated by it. In fulfilling such a request the Master Servicer
     shall  not  be  responsible   for   determining  the  sufficiency  of  such
     information.

          (b) 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 or Insurance  Proceeds,  shall be held by the Master  Servicer for
     and on behalf of the  Trustee and the  Certificateholders  and shall be and
     remain the sole and exclusive property of the Trustee;  provided,  however,
     that the Master  Servicer  and each  Servicer  shall be  entitled to setoff
     against,  and deduct from, any such funds any amounts that are properly due
     and payable to the Master Servicer or such Servicer under this Agreement or
     the applicable Servicing Agreement.

     SECTION 3.09. Standard Hazard Insurance and Flood Insurance Policies.

          (a) For each  Mortgage  Loan,  the Master  Servicer  shall enforce any
     obligation  of the  Servicers  under the related  Servicing  Agreements  to
     maintain or cause to be  maintained  standard  fire and casualty  insurance
     and,  where  applicable,  flood  insurance,  all  in  accordance  with  the
     provisions of the related Servicing Agreements. It is understood and agreed
     that  such  insurance  shall  be  with  insurers  meeting  the  eligibility
     requirements  set forth in the applicable  Servicing  Agreement and that no
     earthquake or other additional insurance is to be required of any Mortgagor
     or to be  maintained on property  acquired in respect of a defaulted  loan,
     other than pursuant to such applicable laws and regulations as shall at any
     time be in force and as shall require such additional insurance.

          (b) Pursuant to Sections 3.22 and 3.23,  any amounts  collected by the
     Servicers or the Master Servicer,  or by any Servicer,  under any insurance
     policies  (other than amounts to be applied to the restoration or repair of
     the property  subject to the related  Mortgage or released to the Mortgagor
     in accordance with the applicable  Servicing  Agreement) shall be deposited
     into the Master Servicer Collection Account, subject to withdrawal pursuant
     to Sections 3.24 and 3.26. Any cost incurred by the Master  Servicer or any
     Servicer in maintaining any such insurance if the Mortgagor defaults in its
     obligation  to do so shall be added to the amount  owing under the Mortgage
     Loan where the terms of the  Mortgage  Loan so permit;  provided,  however,
     that the  addition  of any such cost  shall not be taken into  account  for
     purposes of calculating the distributions to be made to  Certificateholders
     and shall be recoverable by the Master  Servicer or such Servicer  pursuant
     to Sections 3.24 and 3.26.

     SECTION 3.10.  Presentment of Claims and Collection of Proceeds. The Master
Servicer shall (to the extent  provided in the applicable  Servicing  Agreement)
cause the related  Servicer to, prepare and present on behalf of the Trustee and
the  Certificateholders  all claims under the  Insurance  Policies and take such
actions (including the negotiation, settlement, compromise or enforcement of the
insured's  claim) as shall be necessary to realize recovery under such policies.
Any proceeds disbursed to the Master

                                      -60-
<PAGE>

Servicer (or  disbursed  to a Servicer  and remitted to the Master  Servicer) in
respect of such policies,  bonds or contracts shall be promptly deposited in the
Master  Servicer  Collection  Account  upon  receipt,  except  that any  amounts
realized  that are to be  applied to the repair or  restoration  of the  related
Mortgaged Property as a condition precedent to the presentation of claims on the
related Mortgage Loan to the insurer under any applicable  Insurance Policy need
not be so deposited (or remitted).

     SECTION 3.11. Maintenance of the Primary Mortgage Insurance Policies.

          (a) The Master Servicer shall not take, or permit any Servicer (to the
     extent such action is prohibited under the applicable  Servicing Agreement)
     to take,  any action  that would  result in  noncoverage  under any primary
     mortgage  insurance  policy of any loss which,  but for the actions of such
     Master Servicer or Servicer, would have been covered thereunder. The Master
     Servicer shall use its best  reasonable  efforts to cause each Servicer (to
     the extent required under the related Servicing Agreement) to keep in force
     and effect (to the extent that the Mortgage  Loan requires the Mortgagor to
     maintain such  insurance),  primary mortgage  insurance  applicable to each
     Mortgage Loan in accordance  with the  provisions of this Agreement and the
     related Servicing Agreement, as applicable.  The Master Servicer shall not,
     and shall not permit any Servicer (to the extent required under the related
     Servicing  Agreement)  to,  cancel or refuse to renew any primary  mortgage
     insurance  policy that is in effect at the date of the initial  issuance of
     the Mortgage Note and is required to be kept in force  hereunder  except in
     accordance with the provisions of this Agreement and the related  Servicing
     Agreement, as applicable.

          (b) The Master  Servicer  agrees to cause each Servicer (to the extent
     required under the related  Servicing  Agreement) to present,  on behalf of
     the Trustee  and the  Certificateholders,  claims to the insurer  under any
     primary  mortgage  insurance  policies  and, in this  regard,  to take such
     reasonable  action  as shall be  necessary  to  permit  recovery  under any
     primary mortgage  insurance policies  respecting  defaulted Mortgage Loans.
     Pursuant to Sections  3.22 and 3.23,  any amounts  collected  by the Master
     Servicer or any  Servicer  under any primary  mortgage  insurance  policies
     shall be deposited in the Master Servicer  Collection  Account,  subject to
     withdrawal pursuant to Sections 3.24 and 3.26.

     SECTION 3.12. Trustee to Retain Possession of Certain Insurance Policies
                   and Documents.

     The Trustee (or the  Custodian,  as directed by the Trustee),  shall retain
possession  and custody of the originals  (to the extent  available) of the MGIC
PMI Policy and any other primary mortgage insurance policies,  or certificate of
insurance if applicable,  and any certificates of renewal as to the foregoing as
may be issued from time to time as  contemplated  by this  Agreement.  Until all
amounts  distributable in respect of the  Certificates  have been distributed in
full and the Master Servicer  otherwise has fulfilled its obligations under this
Agreement,  the Trustee (or its  Custodian,  if any, as directed by the Trustee)
shall also retain  possession  and custody of each  Mortgage  File in accordance
with and  subject  to the terms and  conditions  of this  Agreement.  The Master
Servicer shall promptly  deliver or cause to be delivered to the Trustee (or the
Custodian,  as directed by the Trustee),  upon the execution or receipt  thereof
the  originals of the MGIC PMI Policy and any other primary  mortgage  insurance
policies,  any certificates of renewal,  and such other documents or instruments
that  constitute  Mortgage Loan  Documents  that come into the possession of the
Master Servicer from time to time.

                                      -61-
<PAGE>

     SECTION  3.13.  Realization  Upon  Defaulted  Mortgage  Loans.  The  Master
Servicer  shall cause each  Servicer (to the extent  required  under the related
Servicing  Agreement)  to foreclose  upon,  repossess  or  otherwise  comparably
convert the  ownership of  Mortgaged  Properties  securing  such of the Mortgage
Loans as come  into and  continue  in  default  and as to which no  satisfactory
arrangements  can  be  made  for  collection  of  delinquent  payments,  all  in
accordance with the applicable Servicing Agreement.

     SECTION 3.14. Compensation for the Master Servicer.

          (a) In addition to the Master  Servicer's  right to receive its Master
     Servicing Fee, pursuant to Article IV all income and gain realized from any
     investment of funds in the Master Servicer  Collection Account shall be for
     the benefit of the Master Servicer as compensation.  Servicing compensation
     in the form of assumption fees, if any, late payment charges, as collected,
     if any, or otherwise  (but not including any  Prepayment  Charges) shall be
     retained  by the  applicable  Servicer  and shall not be  deposited  in the
     Protected  Account.  The Master  Servicer  will be entitled  to retain,  as
     additional compensation,  any interest remitted by a Servicer in connection
     with a  Principal  Prepayment  in full or  otherwise  in excess of  amounts
     required to be  remitted to the Master  Servicer  Collection  Account.  The
     Master  Servicer  shall be required to pay all  expenses  incurred by it in
     connection  with its  activities  hereunder  and shall not be  entitled  to
     reimbursement therefor except as provided in this Agreement.

          (b) The amount of the aggregate  compensation  payable as set forth in
     Section  3.14(a)  (the  "Master  Servicing  Compensation")  to  the  Master
     Servicer in respect of any Distribution Date shall be reduced in accordance
     with Section 3.20.

     SECTION 3.15. REO Property.

          (a) In the event the Trust Fund acquires ownership of any REO Property
     in respect of any related  Mortgage  Loan,  the deed or certificate of sale
     shall be issued to the Trustee, or to its nominee, on behalf of the related
     Certificateholders.  The Master  Servicer  shall, to the extent provided in
     the applicable Servicing Agreement,  cause the applicable Servicer to sell,
     any REO Property as  expeditiously  as possible and in accordance  with the
     provisions  of this  Agreement  and the  related  Servicing  Agreement,  as
     applicable.  Further,  the Master Servicer shall, to the extent provided in
     the related Servicing Agreement,  cause the applicable Servicer to sell any
     REO Property prior to three years after the end of the calendar year of its
     acquisition by REMIC I unless (i) the Trustee shall have been supplied with
     an Opinion of Counsel to the effect  that the  holding by the Trust Fund of
     such REO 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 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) or (ii)
     the applicable  Servicer shall have applied for, prior to the expiration of
     such  three-year  period,  an  extension of such  three-year  period in the
     manner  contemplated  by Section  856(e)(3) of the Code,  in which case the
     three-year period shall be extended by the applicable extension period. The
     Master Servicer shall cause the applicable Servicer (to the extent provided
     in the  related  Servicing  Agreement)  to protect and  conserve,  such REO
     Property  in the  manner  and  to the  extent  required  by the  applicable
     Servicing  Agreement,  in

                                      -62-
<PAGE>

     accordance  with the REMIC  Provisions and in a manner that does not result
     in a tax on "net  income  from  foreclosure  property"  or  cause  such REO
     Property to fail to qualify as "foreclosure property" within the meaning of
     Section 860G(a)(8) of the Code.

          (b) The Master  Servicer  shall, to the extent required by the related
     Servicing  Agreement,  cause the  applicable  Servicer to deposit all funds
     collected and received in connection with the operation of any REO Property
     in the Protected Account.

          (c) The Master  Servicer and the applicable  Servicer,  upon the final
     disposition of any REO Property, shall be entitled to reimbursement for any
     related  unreimbursed  Monthly Advances and other unreimbursed  advances as
     well as any unpaid  Servicing Fees from  Liquidation  Proceeds  received in
     connection with the final disposition of such REO Property;  provided, that
     any such unreimbursed Monthly Advances as well as any unpaid Servicing Fees
     may be reimbursed or paid, as the case may be, prior to final  disposition,
     out of any net rental  income or other net  amounts  derived  from such REO
     Property.

          (d) To the extent  provided in the related  Servicing  Agreement,  the
     Liquidation Proceeds from the final disposition of the REO Property, net of
     any payment to the Master Servicer and the applicable  Servicer as provided
     above  shall  be  deposited  in the  Protected  Account  on or prior to the
     Determination  Date in the month following  receipt thereof and be remitted
     by wire transfer in immediately  available funds to the Master Servicer for
     deposit into the related  Master  Servicer  Collection  Account on the next
     succeeding Remittance Date.

     SECTION 3.16. Annual Officer's Certificate as to Compliance.

          (a) The Master  Servicer  shall  deliver to the Trustee and the Rating
     Agencies on or before May 31 of each year,  commencing  on May 31, 2002, an
     officer's  certificate,  certifying  that with respect to the period ending
     December 31 of the prior year: (i) such Servicing  Officer has reviewed the
     activities of such Master  Servicer  during the preceding  calendar year or
     portion thereof and its performance under this Agreement,  (ii) to the best
     of such Servicing  Officer's  knowledge,  based on such review, such Master
     Servicer has  performed  and  fulfilled  its duties,  responsibilities  and
     obligations under this Agreement in all material  respects  throughout such
     year,  or,  if there  has been a  default  in the  fulfillment  of any such
     duties, responsibilities or obligations, specifying each such default known
     to such Servicing Officer and the nature and status thereof,  (iii) nothing
     has come to the attention of such Servicing  Officer to lead such Servicing
     Officer  to believe  that any  Servicer  has  failed to perform  any of its
     duties,  responsibilities  and obligations under its Servicing Agreement in
     all  material  respects  throughout  such  year,  or,  if there  has been a
     material  default in the  performance  or  fulfillment  of any such duties,
     responsibilities or obligations, specifying each such default known to such
     Servicing Officer and the nature and status thereof.

          (b)   Copies   of  such   statements   shall   be   provided   to  any
     Certificateholder upon request, by the Master Servicer or by the Trustee at
     the Master Servicer's expense if the Master Servicer failed to provide such
     copies  (unless  (i) the Master  Servicer  shall have failed to provide the
     Trustee  with such  statement  or (ii) the Trustee  shall be unaware of the
     Master Servicer's failure to provide such statement).

                                      -63-
<PAGE>

     SECTION 3.17.  Annual  Independent  Accountant's  Servicing  Report. If the
Master Servicer has, during the course of any fiscal year, directly serviced any
of the Mortgage  Loans,  then the Master  Servicer at its expense  shall cause a
nationally  recognized  firm of  independent  certified  public  accountants  to
furnish a statement  to the  Trustee,  the Rating  Agencies and the Seller on or
before May 31 of each year,  commencing on May 31, 2002 to the effect that, with
respect to the most recently ended fiscal year,  such firm has examined  certain
records and  documents  relating  to the Master  Servicer's  performance  of its
servicing  obligations  under this Agreement and pooling and servicing and trust
agreements in material  respects similar to this Agreement and to each other and
that, on the basis of such  examination  conducted  substantially  in compliance
with the audit  program for  mortgages  serviced  for Freddie Mac or the Uniform
Single  Attestation  Program for Mortgage  Bankers,  such firm is of the opinion
that the Master  Servicer's  activities  have been conducted in compliance  with
this  Agreement,  or that such  examination  has disclosed no material  items of
noncompliance  except  for (i)  such  exceptions  as such  firm  believes  to be
immaterial,  (ii) such other  exceptions as are set forth in such  statement and
(iii) such exceptions that the Uniform Single  Attestation  Program for Mortgage
Bankers or the Audit Program for  Mortgages  Serviced by Freddie Mac requires it
to report.  Copies of such statements shall be provided to any Certificateholder
upon  request by the Master  Servicer,  or by the  Trustee at the expense of the
Master  Servicer if the Master  Servicer  shall fail to provide such copies.  If
such report  discloses  exceptions that are material,  the Master Servicer shall
advise the Trustee whether such exceptions have been or are susceptible of cure,
and will take prompt action to do so.

     SECTION 3.18. Reports Filed with Securities and Exchange Commission. Within
15 days after each  Distribution  Date, the Master Servicer shall, in accordance
with  industry  standards,  file with the  Commission  via the  Electronic  Data
Gathering  and  Retrieval  System  ("EDGAR"),  a Form  8-K  with  a copy  of the
statement to be furnished by the Master Servicer to the  Certificateholders  for
such  Distribution  Date as an exhibit  thereto.  Prior to January 30, 2002, the
Master Servicer shall,  in accordance  with industry  standards,  file a Form 15
Suspension Notice with respect to the Trust Fund, if applicable.  Prior to March
30, 2002, the Master Servicer shall file a Form 10-K, in substance conforming to
industry standards,  with respect to the Trust Fund. The Depositor hereby grants
to the Master Servicer a limited power of attorney to execute and file each such
document on behalf of the Depositor. Such power of attorney shall continue until
either the earlier of (i) receipt by the Master  Servicer  from the Depositor of
written  termination  of such power of attorney and (ii) the  termination of the
Trust Fund.  The Depositor  agrees to promptly  furnish to the Master  Servicer,
from time to time upon request, such further information,  reports and financial
statements  within its control  related to this Agreement and the Mortgage Loans
as the Master  Servicer  reasonably  deems  appropriate  to prepare and file all
necessary  reports  with the  Commission.  The  Master  Servicer  shall  have no
responsibility  to file any items  other than those  specified  in this  Section
3.18;  provided,  however, the Master Servicer will cooperate with the Depositor
in connection with any additional  filings with respect to the Trust Fund as the
Depositor deems necessary under the Securities  Exchange Act of 1934, as amended
(the "Exchange  Act").  Upon request,  copies of all reports filed by the Master
Servicer  under the  Exchange  Act  shall be  sent to the  Depositor.  Fees and
expenses  incurred by the Master  Servicer in connection  with this Section 3.18
shall not be reimbursable from the Trust Fund.

                                      -64-
<PAGE>

     SECTION 3.19. UCC. The Depositor agrees to file continuation statements for
any Uniform  Commercial Code financing  statements which the Seller has informed
the Depositor were filed on the Closing Date in connection  with the Trust.  The
Depositor shall file any financing  statements or amendments thereto required by
any change in the Uniform Commercial Code.

     SECTION 3.20.  Obligation  of the Master  Servicer in respect of Prepayment
Interest  Shortfalls.  The Master  Servicer shall deposit in the Master Servicer
Collection  Account not later than each  Distribution  Account  Deposit  Date an
amount equal to the lesser of (i) the aggregate  amounts  required to be paid by
the Servicers under the Servicing Agreements with respect to Prepayment Interest
Shortfalls  attributable to Principal  Prepayments on the related Mortgage Loans
for the related  Distribution Date, and not so paid by the related Servicers and
(ii) the  Master  Servicing  Compensation  for such  Distribution  Date  without
reimbursement therefor.

     SECTION 3.21. MGIC PMI Policy; Claims Under the MGIC PMI Policy. Any amount
received  from MGIC with  respect  to any such MGIC PMI  Mortgage  Loan shall be
deposited  by the Master  Servicer,  no later than two Business  Days  following
receipt thereof, into the Master Servicer Collection Account.

     SECTION 3.22. Protected Accounts. (a) The Master Servicer shall enforce the
obligation  of each  Servicer to establish  and maintain a Protected  Account in
accordance with the applicable Servicing Agreement, with records to be kept with
respect  thereto on a Mortgage Loan by Mortgage Loan basis,  into which accounts
shall be  deposited  within 48 hours (or as of such other time  specified in the
related  Servicing  Agreement)  of receipt  all  collections  of  principal  and
interest on any Mortgage Loan and with respect to any REO Property received by a
Servicer,  including  Principal  Prepayments,  Insurance  Proceeds,  Liquidation
Proceeds,  and  advances  made from the  Servicer's  own funds  (less  servicing
compensation as permitted by the applicable  Servicing  Agreement in the case of
any Servicer)  and all other  amounts to be deposited in the Protected  Account.
Each Servicer is hereby  authorized to make withdrawals from and deposits to the
related  Protected  Account for  purposes  required or  permitted by the related
Servicing Agreement.  To the extent provided in the related Servicing Agreement,
the Protected Account shall be held in a Designated  Depository  Institution and
segregated on the books of such  institution  in the name of the Trustee for the
benefit of Certificateholders.

          (b) To the extent provided in the related Servicing Agreement, amounts
     on deposit in a Protected Account may be invested in Permitted  Investments
     in the name of the  Trustee  for the  benefit  of  Certificateholders  and,
     except as provided in the  preceding  paragraph,  not  commingled  with any
     other funds,  such  Permitted  Investments  to mature,  or to be subject to
     redemption  or  withdrawal,  no later than the date on which such funds are
     required  to be  withdrawn  for deposit in the Master  Servicer  Collection
     Account,  and shall be held until  required  for such  deposit.  The income
     earned from Permitted  Investments made pursuant to this Section 3.22 shall
     be paid to the related Servicer under the applicable  Servicing  Agreement,
     and  the  risk  of  loss  of  moneys  required  to be  distributed  to  the
     Certificateholders resulting from such investments shall be borne by and be
     the risk of the  related  Servicer.  The  related  Servicer  (to the extent
     provided in the Servicing  Agreement)  shall deposit the amount of any such
     loss in the  Protected  Account  within  two  Business  Days of  receipt of
     notification  of such loss but not later than the second

                                      -65-
<PAGE>

     Business Day prior to the Distribution Date on which the moneys so invested
     are required to be distributed to the Certificateholders.

          (c) To the extent  provided in the  related  Servicing  Agreement  and
     subject to this Article III, on or before each  Servicer  Remittance  Date,
     the related Servicer shall withdraw or shall cause to be withdrawn from the
     Protected  Accounts and shall immediately  deposit or cause to be deposited
     in  the  Master  Servicer  Collection  Account  amounts   representing  the
     following collections and payments (other than with respect to principal of
     or interest on the Mortgage Loans due on or before the Cut-off Date):

               (i)  Monthly  Payments  on the  Mortgage  Loans  received  or any
          related  portion  thereof  advanced by the  Servicers  pursuant to the
          Servicing Agreements which were due on or before the related Due Date,
          net of the amount thereof comprising the Servicing Fees;

               (ii) Principal Prepayments,  Liquidation Proceeds received by the
          Servicers   with  respect  to  such  Mortgage  Loans  in  the  related
          Prepayment Period, Compensating Interest and the amount of any related
          Prepayment Charges; and

               (iii) Any amount to be used as a P&I Advance.

          (d) Withdrawals  may be made from an Account only to make  remittances
     as provided in Section 3.22(c),  3.23 and 3.24 or as otherwise  provided in
     the Servicing  Agreements;  to reimburse the Master  Servicer or a Servicer
     for P&I Advances  which have been recovered by subsequent  collection  from
     the related  Mortgagor;  to remove  amounts  deposited in error;  to remove
     fees,  charges or other such amounts  deposited on a temporary basis; or to
     clear and terminate  the account at the  termination  of this  Agreement in
     accordance  with Section 9.01. As provided in Sections  3.22(c) and 3.23(b)
     or as  otherwise  provided  in the  Servicing  Agreements  certain  amounts
     otherwise  due to the  Servicers  may be  retained  by them and need not be
     deposited in the Master Servicer Collection Account.

     SECTION 3.23. Master Servicer Collection  Account.  (a) The Master Servicer
shall establish and maintain in the name of the Trustee,  for the benefit of the
Certificateholders, the Master Servicer Collection Account as a segregated trust
account or accounts.  The Master  Servicer  will deposit in the Master  Servicer
Collection  Account as identified by the Master  Servicer and as received by the
Master Servicer, the following amounts:

          (i) Any amounts withdrawn from a Protected Account;

          (ii) Any P&I Advance and any amounts in respect of Prepayment Interest
     Shortfalls;

          (iii) Any Insurance Proceeds or Liquidation Proceeds received by or on
     behalf of the Master Servicer;

                                      -66-
<PAGE>

          (iv) The Repurchase Price with respect to any Mortgage Loans purchased
     by the related Originator  pursuant to Section 2.03 and all proceeds of any
     Mortgage Loans or property acquired with respect thereto repurchased by the
     Class CE Certificateholder or its designee pursuant to Section 9.01;

          (v) Any amounts  required to be  deposited  with  respect to losses on
     investments of deposits in an Account; and

          (vi) Any other amounts received by or on behalf of the Master Servicer
     and  required to be  deposited in the Master  Servicer  Collection  Account
     pursuant to this Agreement.

          (c) All amounts  deposited to the Master Servicer  Collection  Account
     shall be held by the Master  Servicer  in the name of the  Trustee in trust
     for the benefit of the  Certificateholders in accordance with the terms and
     provisions of this  Agreement.  The  requirements  for crediting the Master
     Servicer Collection Account or the Distribution Account shall be exclusive,
     it being understood and agreed that, without limiting the generality of the
     foregoing,  payments in the nature of late payment  charges or  assumption,
     tax  service,  statement  account  or payoff,  substitution,  satisfaction,
     release and other like fees and charges, need not be credited by the Master
     Servicer or the related Servicer to the Distribution  Account or the Master
     Servicer Collection  Account,  as applicable.  In the event that the Master
     Servicer shall deposit or cause to be deposited to the Distribution Account
     any amount not required to be credited thereto,  the Trustee,  upon receipt
     of a written request  therefor signed by a Servicing  Officer of the Master
     Servicer,  shall promptly transfer such amount to the Master Servicer,  any
     provision herein to the contrary notwithstanding.

          (d) The amount at any time credited to the Master Servicer  Collection
     Account shall be invested,  in the name of the Trustee, or its nominee, for
     the benefit of the Certificateholders, in Permitted Investments as directed
     by Master Servicer. All Permitted Investments shall mature or be subject to
     redemption  or  withdrawal  on or  before,  and  shall be held  until,  the
     Business Day  immediately  preceding  the  Distribution  Date.  Any and all
     investment  earnings from the Master Servicer  Collection  Account shall be
     paid to the  Master  Servicer.  The risk of loss of moneys  required  to be
     distributed to the Certificateholders resulting from such investments shall
     be borne by and be the risk of the Master  Servicer.  The  Master  Servicer
     shall deposit the amount of any such loss in the Master Servicer Collection
     Account  within two Business Days of receipt of  notification  of such loss
     but not later than the Business Day prior to the Distribution Date on which
     the moneys so invested are required to be remitted to the Trustee.

     SECTION 3.24. Permitted  Withdrawals and Transfers from the Master Servicer
Collection  Account.  (a) The Master  Servicer will,  from time to time, make or
cause  to be made  such  withdrawals  or  transfers  from  the  Master  Servicer
Collection  Account as the Master  Servicer has  designated for such transfer or
withdrawal pursuant to the Servicing  Agreements.  The Master Servicer may clear
and terminate the Master Servicer  Collection  Account  pursuant to Section 9.01
and remove amounts from time to time deposited in error.

                                      -67-
<PAGE>

          (b) On an ongoing basis,  the Master  Servicer shall withdraw from the
     Master Servicer Collection Account any expenses  recoverable by the Trustee
     or the Master Servicer pursuant to Sections 3.03, 6.03, 8.05 and 10.01.

          (c) In addition,  on the Distribution Account Deposit Date, the Master
     Servicer shall deposit in the Distribution Account (or remit to the Trustee
     for deposit therein) any Monthly Advances required to be made by the Master
     Servicer with respect to the Mortgage Loans.

          (d) No later than 3:00 p.m. New York time on each Distribution Account
     Deposit  Date,  the  Master  Servicer  will  transfer  to  the  Trustee  in
     immediately  available funds for deposit in the Distribution Account on the
     Business Day immediately  preceding the Distribution  Date, that portion of
     the  Available  Distribution  Amount  (calculated  without  regard  to  the
     references in clause (2) of the  definition  thereof to amounts that may be
     withdrawn from the Distribution  Account) for the related Distribution Date
     then on deposit in the Master Servicer Collection Account.

     SECTION 3.25.  Distribution  Account.  (a) The Trustee shall  establish and
maintain in the name of the Trustee, for the benefit of the  Certificateholders,
the Distribution Account as a segregated trust account or accounts.

          (b) All amounts deposited to the Distribution Account shall be held by
     the  Trustee  in the name of the  Trustee  in trust for the  benefit of the
     Certificateholders  in  accordance  with the terms and  provisions  of this
     Agreement.

          (c) The  Distribution  Account shall constitute a trust account of the
     Trust Fund  segregated  on the books of the Trustee and held by the Trustee
     in trust in its Corporate Trust Office,  and the  Distribution  Account and
     the funds deposited therein shall not be subject to, and shall be protected
     from, all claims, liens, and encumbrances of any creditors or depositors of
     the Trustee (whether made directly,  or indirectly  through a liquidator or
     receiver  of  the  Trustee).  The  amount  at  any  time  credited  to  the
     Distribution  Account shall be invested in the name of the Trustee, in such
     Permitted  Investments  selected  by the  Trustee  or  deposited  in demand
     deposits  with such  depository  institutions  as selected by the  Trustee,
     provided  that time  deposits of such  depository  institutions  would be a
     Permitted Investment.  All Permitted Investments shall mature or be subject
     to redemption or withdrawal on or before, and shall be held until, the next
     succeeding  Distribution Date if the obligor for such Permitted  Investment
     is the Trustee or, if such  obligor is any other  Person,  the Business Day
     preceding such  Distribution  Date.  All investment  earnings on amounts on
     deposit  in the  Distribution  Account or  benefit  from  funds  uninvested
     therein  from time to time  shall be for the  account of the  Trustee.  The
     Trustee shall be permitted to withdraw or receive  distribution  of any and
     all investment earnings from the Distribution  Account on each Distribution
     Date. If there is any loss on a Permitted Investment or demand deposit, the
     Trustee shall deposit such amount in the Distribution Account. With respect
     to the Distribution  Account and the funds deposited  therein,  the Trustee
     shall  take  such   action  as  may  be   necessary   to  ensure  that  the
     Certificateholders  shall be entitled to the priorities  afforded to such a
     trust account (in addition to a claim against the estate of the Trustee) as
     provided by 12 U.S.C.  ss.  92a(e),  and  applicable  regulations  pursuant
     thereto,  if  applicable,   or  any  applicable  comparable  state  statute
     applicable to state chartered banking corporations.

                                      -68-
<PAGE>

     SECTION 3.26.  Permitted  Withdrawals  and Transfers from the  Distribution
Account.  (a) The  Trustee  will,  from  time to time on  demand  of the  Master
Servicer or the Trustee make or cause to be made such  withdrawals  or transfers
from  the  Distribution  Account  as the  Master  Servicer  or the  Trustee  has
designated for such transfer or withdrawal pursuant to the Servicing  Agreements
for the following purposes,  not in any order of priority,  (limited in the case
of  amounts  due the  Master  Servicer  to those not  withdrawn  from the Master
Servicer Collection Account in accordance with the terms of this Agreement):

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

          (ii) to reimburse the Master  Servicer or any Servicer from  Insurance
     Proceeds or Liquidation Proceeds relating to a particular Mortgage Loan for
     amounts  expended by the Master  Servicer or such Servicer in good faith in
     connection with the restoration of the related Mortgaged Property which was
     damaged by an Uninsured Cause or in connection with the liquidation of such
     Mortgage Loan;

          (iii) to reimburse the Master  Servicer or any Servicer from Insurance
     Proceeds  relating  to a  particular  Mortgage  Loan for  insured  expenses
     incurred  with respect to such  Mortgage  Loan and to reimburse  the Master
     Servicer or such  Servicer  from  Liquidation  Proceeds  from a  particular
     Mortgage  Loan for  Liquidation  Expenses  incurred  with  respect  to such
     Mortgage Loan;  provided that the Master  Servicer shall not be entitled to
     reimbursement  for Liquidation  Expenses with respect to a Mortgage Loan to
     the extent that (i) any amounts  with  respect to such  Mortgage  Loan were
     paid  as  Excess  Liquidation  Proceeds  pursuant  to  clause  (xi) of this
     Subsection (a) to the Master Servicer;  and (ii) such Liquidation  Expenses
     were not included in the computation of such Excess Liquidation Proceeds;

          (iv) to pay the Master Servicer or any Servicer, as appropriate,  from
     Liquidation  Proceeds or Insurance Proceeds received in connection with the
     liquidation  of any Mortgage  Loan,  the amount  which it or such  Servicer
     would have been entitled to receive under subclause (ix) of this Subsection
     3.24(a) as servicing  compensation  on account of each defaulted  scheduled
     payment on such  Mortgage  Loan if paid in a timely  manner by the  related
     Mortgagor;

                                      -69-
<PAGE>

          (v) to pay the Master  Servicer or any  Servicer  from the  Repurchase
     Price for any Mortgage  Loan,  the amount which it or such  Servicer  would
     have been entitled to receive under  subclause (ix) of this  Subsection (a)
     as servicing compensation;

          (vi) to reimburse the Master  Servicer or any Servicer for advances of
     funds,  and the right to  reimbursement  pursuant to this  subclause  being
     limited to amounts received on the related  Mortgage Loan  (including,  for
     this  purpose,  the  Repurchase  Price  therefor,  Insurance  Proceeds  and
     Liquidation  Proceeds)  which represent late recoveries of the payments for
     which such advances were made;

          (vii)  to  reimburse  the  Master  Servicer  or any  Servicer  for any
     Nonrecoverable  P&I Advance or Nonrecoverable  Servicing  Advance,  after a
     Realized Loss has been allocated with respect to the related  Mortgage Loan
     if the P&I Advance or Servicing Advance has not been reimbursed pursuant to
     clauses (i) and (vi);

          (viii)  to pay the MGIC Fee to MGIC,  the Loss  Mitigation  Fee to the
     Loss Mitigation  Advisor and the fee payable to First Union under the First
     Union Custodial Agreement;

          (ix)  to pay  the  Servicing  Fee  to the  Servicers  and  the  Master
     Servicing  Fee to the  Master  Servicer  for  such  Distribution  Date;  to
     reimburse the Master Servicer for expenses,  costs and liabilities incurred
     by and reimbursable to it pursuant to Sections 3.03, 6.03 and 10.01;

          (x)  to  pay  to  the  Master   Servicer,   as  additional   servicing
     compensation, any Excess Liquidation Proceeds to the extent not retained by
     the related Servicer;

          (xi) to  reimburse  or pay any  Servicer  any such  amounts as are due
     thereto under the applicable Servicing Agreement and have not been retained
     by or paid to the Servicer, to the extent provided in the related Servicing
     Agreement,  or to reimburse or pay any Advance Facility Counterparty to the
     extent provided in Section 3.31 hereof;

          (xii) to reimburse  the Trustee for  expenses,  costs and  liabilities
     incurred by or reimbursable to it pursuant to this Agreement;

          (xiii) to reimburse the Custodians for expenses, costs and liabilities
     incurred or reimbursable to them pursuant to the Custodial Agreements;

          (xiv) to remove amounts deposited in error; and

          (xv) to clear and  terminate  the  Distribution  Account  pursuant  to
     Section 9.01.

                                      -70-
<PAGE>

          (b) The Master Servicer shall keep and maintain  separate  accounting,
     on a Mortgage  Loan by Mortgage  Loan basis,  for the purpose of accounting
     for any reimbursement from the Distribution  Account pursuant to subclauses
     (i) through (vi), inclusive, and (viii) or with respect to any such amounts
     which would have been covered by such  subclauses  had the amounts not been
     retained by the Master Servicer without being deposited in the Distribution
     Account under Section 3.23(b).

          (c) On each  Distribution  Date,  the  Trustee  shall  distribute  the
     Available  Distribution  Amount  to  the  Holders  of the  Certificates  in
     accordance with Section 4.01.

     SECTION 3.27 Reserve Fund.

          (a) No later than the Closing Date,  the Trustee  shall  establish and
     maintain a separate,  segregated trust account titled, "Reserve Fund, First
     Union National Bank, in trust for the registered  holders of ACE Securities
     Corp. Home Equity Loan Trust,  Series 2001-HE1,  Asset Backed  Pass-Through
     Certificates." On the Closing Date, the Depositor will deposit, or cause to
     be deposited, into the Reserve Fund $1,000.

          (b) On  each  Distribution  Date as to  which  there  is a Basis  Risk
     Shortfall  amount or an Unpaid Basis Risk  Shortfall  amount payable to the
     Class A Certificates  or the Mezzanine  Certificates,  the Trustee has been
     directed by the Class CE Certificateholders to, and therefore will, deposit
     into the Reserve  Fund the amounts  described  in Section  4.01(a)(4)(xii),
     rather than distributing  such amounts to the Class CE  Certificateholders.
     On each such Distribution Date, the Trustee shall hold all such amounts for
     the benefit of the Holders of the Class A  Certificates  and the  Mezzanine
     Certificates,  and will distribute such amounts to the Holders of the Class
     A Certificates and the Mezzanine Certificates in the amounts and priorities
     set forth in Section 4.01(a).  If no Basis Risk Shortfall amounts or Unpaid
     Basis Risk  Shortfall  amounts  are  payable on a  Distribution  Date,  the
     Trustee  shall  deposit  into the  Reserve  Fund on  behalf of the Class CE
     Certificateholders,  from amounts  otherwise  distributable to the Class CE
     Certificateholders, an amount such that when added to other amounts already
     on deposit in the Reserve Fund, the aggregate  amount on deposit therein is
     equal to $1,000.

          (c)  For  federal  and  state  income  tax  purposes,   the  Class  CE
     Certificateholders  will be deemed to be the owners of the Reserve Fund and
     all amounts deposited into the Reserve Fund (other than the initial deposit
     therein of $1,000) shall be treated as amounts  distributed by REMIC III to
     the Holders of the Class CE Certificates. Upon the termination of the Trust
     Fund, or the payment in full of the Class A Certificates  and the Mezzanine
     Certificates,  all amounts remaining on deposit in the Reserve Fund will be
     released   by  the   Trust   Fund   and   distributed   to  the   Class  CE
     Certificateholders or their designees. The Reserve Fund will be part of the
     Trust Fund but not part of any REMIC and any payments to the Holders of the
     Class A Certificates or the Mezzanine  Certificates of Basis Risk Shortfall
     amounts or Unpaid Basis Risk  Shortfall  amounts will not be payments  with
     respect  to a "regular  interest"  in a REMIC  within  the  meaning of Code
     Section 860(G)(a)(1).

                                      -71-
<PAGE>

          (d)  By   accepting   a  Class   CE   Certificate,   each   Class   CE
     Certificateholder  hereby  agrees to direct the  Trustee,  and the  Trustee
     hereby is directed,  to deposit into the Reserve Fund the amounts described
     above  on each  Distribution  Date as to  which  there  is any  Basis  Risk
     Shortfall  amount  or  Unpaid  Basis  Risk  Shortfall  amount  rather  than
     distributing such amounts to the Class CE Certificateholders.  By accepting
     a Class CE Certificate, each Class CE Certificateholder further agrees that
     such  direction is given for good and valuable  consideration,  the receipt
     and sufficiency of which is acknowledged by such acceptance.

          (e) At the  direction  of the  Holders  of a  majority  in  Percentage
     Interest  in the  Class CE  Certificates,  the  Trustee  shall  direct  any
     depository institution  maintaining the Reserve Fund to invest the funds in
     such account in one or more Permitted  Investments bearing interest or sold
     at a discount,  and maturing,  unless payable on demand,  (i) no later than
     the Business  Day  immediately  preceding  the date on which such funds are
     required to be withdrawn from such account pursuant to this Agreement, if a
     Person  other than the  Trustee  or an  Affiliate  manages or advises  such
     investment,  and (ii) no  later  than the  date on  which  such  funds  are
     required to be withdrawn from such account  pursuant to this Agreement,  if
     the  Trustee or an  Affiliate  manages or advises  such  investment.  If no
     investment direction of the Holders of a majority in Percentage Interest in
     the Class CE  Certificates  with respect to the Reserve Fund is received by
     the  Trustee,  the  Trustee  shall  invest  the  funds in such  account  in
     Permitted  Investments  managed by the Trustee or an  Affiliate of the kind
     described in clause (vi) of the  definition of Permitted  Investments.  All
     income and gain earned upon such  investment  shall be  deposited  into the
     Reserve Fund.

          (f) For federal tax return and information reporting, the right of the
     Class A Certificateholders and the Mezzanine  Certificateholders to receive
     payments  from the  Reserve  Fund in respect  of any Basis  Risk  Shortfall
     amount of Unpaid Basis Risk  Shortfall  amount shall be assigned a value of
     zero.

     SECTION 3.28 Duties of the Loss Mitigation Advisor.

     The Depositor appoints The Murrayhill  Company as Loss Mitigation  Advisor.
For and on behalf of the Depositor, and the Trustee, the Loss Mitigation Advisor
will provide reports and recommendations concerning Mortgage Loans that are past
due, as to which there has been  commencement of foreclosure,  as to which there
has been  forbearance in exercise of remedies which are in default,  as to which
obligor  is the  subject  of  bankruptcy,  receivership,  or an  arrangement  of
creditors,  or as to which have become REO Properties,  and as to the collection
of any Prepayment  Charges with respect to the Mortgage Loans.  Such reports and
recommendations  will be based upon information  provided to the Loss Mitigation
Advisor  pursuant  to the  Loss  Mitigation  Advisory  Agreement  and  the  Loss
Mitigation Advisor shall look solely to the related Servicer for all information
and data (including  loss and  delinquency  information and data) and loan level
information  and data  relating to the servicing of the Mortgage  Loans.  If the
Loss Mitigation  Advisor is no longer able to perform its duties hereunder,  the
Depositor shall terminate the Loss Mitigation  Advisor and cause the appointment
of a  successor  Loss  Mitigation  Advisor.  Upon  any  termination  of the Loss
Mitigation  Advisor or the appointment of a successor Loss  Mitigation  Advisor,
the Depositor  shall give written  notice  thereof to the Master  Servicer,  the
Servicers,  the Trustee and each Rating Agency.  Notwithstanding  the foregoing,
the termination of the Loss

                                      -72-
<PAGE>

Mitigation  Advisor  pursuant to this  Section  3.28 shall not become  effective
until the appointment of a successor Loss Mitigation Advisor.

     SECTION 3.29 Limitation Upon Liability of the Loss Mitigation Advisor.

     Neither the Loss Mitigation  Advisor,  nor any of the directors,  officers,
employees or agents of the Loss Mitigation Advisor, shall be under any liability
to the Trustee, the  Certificateholders or the Depositor for any action taken or
for  refraining  from the taking of any action in good  faith  pursuant  to this
Agreement,  in reliance upon  information  provided by a Servicer under the Loss
Mitigation Advisory Agreement or of errors in judgment;  provided, however, that
this provision shall not protect the Loss Mitigation  Advisor or any such person
against  liability  that  would  otherwise  be  imposed  by  reason  of  willful
malfeasance,  bad faith or gross  negligence  in its  performance  of its duties
under  this  Agreement  or the  Loss  Mitigation  Advisory  Agreement.  The Loss
Mitigation  Advisor  and any  director,  officer,  employee or agent of the Loss
Mitigation  Advisor  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,  and may rely in good faith upon the accuracy of information
furnished by any Servicer pursuant to the Loss Mitigation Advisory Agreements in
the performance of its duties thereunder and hereunder.

     SECTION 3.30 Prepayment Penalty Verification.

     On or prior to each Servicer Remittance Date, each Servicer shall, pursuant
to the respective Servicing Agreement provide in an electronic format acceptable
to the Master Servicer the data necessary for the Master Servicer to perform its
verification  duties set forth in this Section  3.30.  The Master  Servicer or a
third party reasonably  acceptable to the Master Servicer and the Depositor (the
"Verification  Agent") will perform  such  verification  duties and will use its
best  efforts to issue its  findings  in a report  (the  "Verification  Report")
delivered to the Master Servicer and the Depositor within ten (10) Business Days
following  the  related  Distribution  Date;  provided,  however,  that  if  the
Verification  Agent is unable to issue the  Verification  Report within ten (10)
Business Days following the Distribution  Date, the Verification Agent may issue
and deliver to the Master  Servicer and the  Depositor the  Verification  Report
upon the  completion  of its  verification  duties.  The Master  Servicer  shall
forward the Verification  Report to the respective Servicer and shall notify the
Servicer if the Master Servicer has determined that the Servicer did not deliver
the appropriate Prepayment Charges to the Master Servicer in accordance with the
respective  Servicing  Agreement.  Such  written  notification  from the  Master
Servicer shall include the loan number,  prepayment  penalty code and prepayment
penalty amount as calculated by the Master Servicer or the  Verification  Agent,
as applicable,  of each Mortgage Loan for which there is a  discrepancy.  If the
Servicer  agrees  with the  verified  amounts,  the  Servicer  shall  adjust the
immediately  succeeding  Remittance Report and the amount remitted to the Master
Servicer with respect to prepayments accordingly. If the Servicer disagrees with
the  determination of the Master Servicer,  the Servicer shall,  within five (5)
Business  Days of its  receipt  of the  Verification  Report,  notify the Master
Servicer of such  disagreement  and provide the Master  Servicer  with  detailed
information  to support the  Servicer's  position.  The  Servicer and the Master
Servicer  shall  cooperate  to  resolve  any  discrepancy  on or  prior  to  the
immediately  succeeding Servicer Remittance Date, and the Servicer will indicate
the effect of such resolution on the related  Remittance Report and shall adjust
the amount remitted with respect to prepayments on such Servicer Remittance Date
accordingly.

                                      -73-
<PAGE>

     During such time as the  Servicer  and the Master  Servicer  are  resolving
discrepancies with respect to the Prepayment  Charges, no payments in respect of
any  disputed  Prepayment  Charges  will  be  remitted  to the  Master  Servicer
Collection  Account and the Master Servicer shall not be obligated to remit such
payments,  unless  otherwise  required  pursuant  to  Section  7.01  hereof.  In
connection with such duties, the Master Servicer shall be able to rely solely on
the information  provided to it by the Servicer in accordance with this Section.
The Master  Servicer shall not be responsible  for verifying the accuracy of any
of the information provided to it by the Servicer.

     SECTION 3.31 Servicing Advance Facility

          (a) Each Servicer is hereby authorized to enter into any facility with
     any Person (any such  Person,  an "Advance  Facility  Counterparty")  which
     provides  that the  Servicer  may  pledge  or sell its  rights  to  receive
     reimbursement   of   Advances   pursuant   to  this   Agreement   ("Advance
     Reimbursement   Rights")   pursuant   to  credit   facilities,   repurchase
     facilities,  or similar facilities  providing  liquidity for the funding of
     Servicing  Advances or P&I Advances  (collectively  "Advances"),  including
     facilities  providing that such Advance Facility  Counterparty may make all
     or a portion of the Advances (any such  facility,  an "Advance  Facility"),
     although  no  Advance   Facility  shall  reduce  or  otherwise  affect  the
     Servicer's  obligations to fund such Advances.  If so required  pursuant to
     the terms of an Advance  Facility,  to the extent that an Advance  Facility
     Counterparty  makes all or a portion of any Advance,  the Advance  Facility
     Counterparty  and the Servicer  shall  provide the Master  Servicer and the
     Trustee with notice acknowledged by the Servicer that such Advance Facility
     Counterparty   is  entitled  to   reimbursement,   such  Advance   Facility
     Counterpary  shall be  entitled to receive  reimbursement  pursuant to this
     Agreement  for such  amount to the extent  provided.  Such  notice from the
     Advance  Facility  Counterparty and the Servicer must specify the amount of
     the   reimbursement.   The  Trustee  shall  be  entitled  to  rely  without
     independent  investigation on the Advance Facility Counterparty's statement
     with  respect to the amount of any  reimbursement  pursuant to this Section
     3.31 and with respect to the Advance Facility Counterparty's statement with
     respect to the Section of this  Agreement  which  permits the Advance to be
     reimbursed.  An Advance Facility Counterparty whose obligations are limited
     to the making of Advances will not be deemed to be a Subservicer under this
     Agreement.

          (b) If so required pursuant to the terms of an Advance  Facility,  the
     Servicer may direct, and if so directed the Trustee and the Master Servicer
     are hereby  authorized  to and shall pay or cause to be paid to the Advance
     Facility Counterparty (i) reimbursements for Advances; and (ii) all or such
     portion  of  the  Servicing  Fee  as may  be so  specified  in the  Advance
     Facility,  that would otherwise be payable to the Servicer pursuant to this
     Agreement or the Servicing Agreement.

          (c) Upon request of the Servicer,  the Trustee and the Master Servicer
     agrees to execute such acknowledgments,  certificates,  and other documents
     recognizing  the  interests of any Advance  Facility  Counterparty  in such
     Advance  Reimbursement  Rights as the Servicer may cause to be made subject
     to Advance Facilities pursuant to this Section, and such other documents in
     connection with such Advance Facilities as may be reasonably requested from
     time to time by any Advance Facility  Counterparty.  The  implementation of
     the arrangement  described in this Section shall not require the consent of
     Certificateholders, Certificate Owners, the Master Servicer or the Trustee.

                                      -74-
<PAGE>

                                   ARTICLE IV

                         PAYMENTS TO CERTIFICATEHOLDERS

     SECTION 4.01 Distributions.

          (a)(1)(A) On each  Distribution  Date, the following  amounts,  in the
     following order of priority, shall be distributed by REMIC I to REMIC II on
     account of the REMIC I Regular Interests or withdrawn from the Distribution
     Account and  distributed to the holders of the Class R-I  Certificates,  as
     the case may be:

               (i) first,  with  respect to the  Mortgage  Loans with an Expense
          Adjusted  Mortgage Rate as of the Cut-off Date of less than 6.00%,  to
          the Holders of REMIC I Regular  Interest  I-LTB, in an amount equal to
          (A) the  Uncertificated  Interest for such Distribution Date, plus (B)
          any  amounts  in  respect  thereof   remaining  unpaid  from  previous
          Distribution  Dates and with  respect  to the  Mortgage  Loans with an
          Expense  Adjusted  Mortgage  Rate as of the  Cut- off Date of 6.00% or
          greater, first to the Holders of REMIC I Regular Interest I-LTC, REMIC
          I Regular  Interest  I-LTD and REMIC I Regular  Interest  LT-E,  in an
          amount equal to (A) the Uncertificated  Interest for such Distribution
          Date,  plus (B) any amounts in respect thereof  remaining  unpaid from
          previous  Distribution  Dates and  second,  to the  Holders of REMIC I
          Regular  Interest  I-LTA  and  I-LTP,  in an  amount  equal to (A) the
          Uncertificated  Interest  for  such  Distribution  Date,  plus (B) any
          amounts in respect thereof remaining unpaid from previous Distribution
          Dates;

               (ii) to the Holders of the REMIC I Regular Interest I-LTP, on the
          Distribution  Date immediately  following the expiration of the latest
          Prepayment  Charge term as identified on the Mortgage Loan Schedule or
          any  Distribution  Date  thereafter  until  $100 has been  distributed
          pursuant to this clause;

               (iii) on each  Distribution  Date, the remainder of the Available
          Distribution Amount for such Distribution Date after the distributions
          made pursuant to clause (i) and clause (ii) above, with respect to the
          Mortgage  Loans  with  an  Expense  Adjusted  Mortgage  Rate as of the
          Cut-off  Date of less than  6.00%,  to the  Holders of REMIC I Regular
          Interest  I-LTB  until  the  Uncertificated  Balance  of such  REMIC I
          Regular  Interest is reduced to zero and with  respect to the Mortgage
          Loans with an Expense Adjusted Mortgage Rate as of the Cut-off Date of
          6.00% or greater,  in the following  order,  to the Holders of REMIC I
          Regular  Interest  I-LTA,  REMIC I  Regular  Interest  I-LTE,  REMIC I
          Regular  Interest  I-LTD and REMIC I Regular  Interest I-LTC until the
          Uncertificated  Balance  of each  such  REMIC I  Regular  Interest  is
          reduced  to zero  until the  Uncertificated  Balance  of such  REMIC I
          Regular Interest is reduced to zero; and

               (iv) to the  Holders of the Class R-I  Certificates,  any amounts
          remaining  after the  distributions  pursuant  to clauses  (i) through
          (iii) above.

                                      -75-
<PAGE>

          On each Distribution Date, all amounts representing Prepayment Charges
     in respect of the Mortgage  Loans  received  during the related  Prepayment
     Period  will be  distributed  by REMIC I to the  Holders of REMIC I Regular
     Interest  I-LTP.  The  payment of the  foregoing  amounts to the Holders of
     REMIC I Regular Interest I-LTP shall not reduce the Uncertificated  Balance
     thereof.

          (B) On each Distribution Date, the following amounts, in the following
     order of priority, shall be distributed by REMIC II to REMIC III on account
     of the  REMIC II  Regular  Interests  or  withdrawn  from the  Distribution
     Account and distributed to the holders of the Class R-II  Certificates,  as
     the case may be:

               (i) first, to the Holders of REMIC II Regular  Interest  II-LTIO,
          in an  amount  equal  to (A)  the  Uncertificated  Interest  for  such
          Distribution  Date, plus (B) any amounts in respect thereof  remaining
          unpaid from previous  Distribution  Dates and then to Holders of REMIC
          II Regular Interest II-LTAA,  REMIC Regular Interest II-LTA,  REMIC II
          Regular Interest II-LTM1,  REMIC II Regular Interest II-LTM2, REMIC II
          Regular Interest II-LTM3,  REMIC II Regular Interest II-LTZZ and REMIC
          II Regular  Interest  II-LTP,  pro rata, in an amount equal to (A) the
          Uncertificated  Accrued Interest for such Distribution  Date, plus (B)
          any  amounts  in  respect  thereof   remaining  unpaid  from  previous
          Distribution  Dates.  Amounts  payable as  Uncertificated  Interest in
          respect of REMIC II Regular Interest II-LTZZ shall be reduced when the
          REMIC  II  Overcollateralization  Amount  is less  than  the  REMIC II
          Required Overcollateralization Amount, by the lesser of (x) the amount
          of such difference and (y) the Maximum II-LTZZ Uncertificated Interest
          Deferral  Amount and such  amount  will be  payable to the  Holders of
          REMIC II Regular Interest II-LTA,  REMIC II Regular Interest  II-LTM1,
          REMIC II Regular  Interest  II-LTM2 and REMIC II Regular  Interest II-
          LTM3 in the  same  proportion  as the  Overcollateralization  Increase
          Amount is allocated to the Corresponding Certificates;

               (ii) second, to the Holders of REMIC II Regular Interests,  in an
          amount  equal  to  the  remainder  of the  Available  Funds  for  such
          Distribution Date after the distributions  made pursuant to clause (i)
          above, allocated as follows:

                    (a) to the  Holders  of REMIC II Regular  Interest  II-LTAA,
               98.00% of such  remainder,  until the  Uncertificated  Balance of
               such Uncertificated REMIC II Regular Interest is reduced to zero;

                    (b) to the  Holders  of REMIC II  Regular  Interest  II-LTA,
               REMIC II Regular  Interest  II-LTM1,  REMIC II  Regular  Interest
               II-LTM2  and REMIC II  Regular  Interest  II-LTM3,  1.00% of such
               remainder,  in the same  proportion  as  principal  payments  are
               allocated   to  the   Corresponding   Certificates,   until   the
               Uncertificated  Balances of such REMIC II Regular  Interests  are
               reduced to zero;

                    (c) to the  Holders  of REMIC II Regular  Interest  II-LTZZ,
               1.00% of such remainder, until the Uncertificated Balance of such
               REMIC II Regular Interest is reduced to zero;

                    (d) to the Holders of REMIC II Regular Interest  II-LTP,  on
               the Distribution Date immediately following the expiration of the
               latest Prepayment

                                      -76-
<PAGE>

               Charge as identified  on the  Prepayment  Charge  Schedule or any
               Distribution  Date  thereafter  until  $100 has been  distributed
               pursuant to this clause; then

                    (e) any  remaining  amount to the  Holders of the Class R-II
               Certificates; and

               (iii) third,  to REMIC II Regular  Interest  II-LTP,  100% of the
          amount paid in respect of REMIC I Regular Interest I-LTP;

provided,  however,  that 98.00% and 2.00% of any  principal  payments  that are
attributable to an Overcollateralization  Reduction Amount shall be allocated to
Holders  of REMIC II Regular  Interest  II-LTAA  and REMIC II  Regular  Interest
II-LTZZ, respectively.

          (2) On each  Distribution  Date, prior to making the distributions set
     forth below,  the Trustee shall  withdraw the MGIC PMI Insurer Fee from the
     Distribution  Account  and pay such  amount to MGIC,  based on  information
     received from the Master Servicer.  On each Distribution  Date, the Trustee
     shall  withdraw  from  the  Distribution  Account  an  amount  equal to the
     Interest  Remittance  Amount  and  make  the  following  disbursements  and
     transfers  in the order of priority  described  below,  in each case to the
     extent of the Interest  Remittance  Amount remaining for such  Distribution
     Date:

               first,  to the Holders of the Class A Certificates  and the Class
               A-IO  Certificates,   the  Senior  Interest  Distribution  Amount
               allocable to each such class;

               second,  to  the  Holders  of the  Class  M-1  Certificates,  the
               Interest   Distribution   Amount   allocable  to  the  Class  M-1
               Certificates;

               third, to the Holders of the Class M-2 Certificates, the Interest
               Distribution Amount allocable to the Class M-2 Certificates; and

               fourth,  to  the  Holders  of the  Class  M-3  Certificates,  the
               Interest   Distribution   Amount   allocable  to  the  Class  M-3
               Certificates.

          (3) On each  Distribution  Date,  the Trustee shall  withdraw from the
     Distribution  Account an amount equal to the Principal  Distribution Amount
     and  distribute to the  Certificateholders  the following  amounts,  in the
     following order of priority:

               (i) On each  Distribution  Date (a) prior to the Stepdown Date or
          (b) on which a Trigger Event is in effect, the Principal  Distribution
          Amount shall be distributed in the following order of priority;

               first,  to the  Holders  of the Class A  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero;

                                      -77-
<PAGE>

               second, to the Holders of the Class M-1  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero;

               third,  to the Holders of the Class M-2  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero; and

               fourth, to the Holders of the Class M-3  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero.

               (ii) On each  Distribution Date (a) on or after the Stepdown Date
          and (b) on which a  Trigger  Event  is not in  effect,  the  Principal
          Distribution  Amount shall be  distributed  in the following  order of
          priority;

               first,  to the  Class  A  Certificates,  the  lesser  of (x)  the
               Principal  Distribution  Amount  and  (y) the  Class A  Principal
               Distribution Amount,  until the Certificate  Principal Balance of
               the Class A Certificates has been reduced to zero;

               second,  to the Class  M-1  Certificates,  the  lesser of (x) the
               excess of (i) the  Principal  Distribution  Amount  over (ii) the
               amount  distributed  to the  Holders of the Class A  Certificates
               pursuant to clause  first  above and (y) the Class M-1  Principal
               Distribution Amount,  until the Certificate  Principal Balance of
               such Class has been reduced to zero;

               third,  to the  Class  M-2  Certificates,  the  lesser of (x) the
               excess of (i) the Principal Distribution Amount over (ii) the sum
               of  the  amounts  distributed  to the  Holders  of  the  Class  A
               Certificates pursuant to clause first above and to the Holders of
               the Class M-1  Certificates  pursuant to clause  second above and
               (y)  the  Class  M-2  Principal  Distribution  Amount  until  the
               Certificate  Principal  Balance of such Class has been reduced to
               zero; and

               fourth,  to the Class  M-3  Certificates,  the  lesser of (x) the
               excess of (i) the Principal Distribution Amount over (ii) the sum
               of  the  amounts  distributed  to the  Holders  of  the  Class  A
               Certificates  pursuant to clause first  above,  to the Holders of
               the Class M-1 Certificates pursuant to clause second above and to
               the  Holders  of the Class M-2  Certificates  pursuant  to clause
               third above and (y) the Class M-3 Principal  Distribution Amount,
               until the  Certificate  Principal  Balance of such Class has been
               reduced to zero.

          (4) On each Distribution Date, the Net Monthly Excess Cashflow (or, in
     the case of clause (i) below, the Net Monthly Excess Cashflow  exclusive of
     any  Overcollateralization   Reduction  Amount)  shall  be  distributed  as
     follows:

                                      -78-
<PAGE>

               (i) to the Holders of the Class or Classes of  Certificates  then
          entitled  to receive  distributions  in respect  of  principal,  in an
          amount equal to any Extra Principal  Distribution  Amount,  payable to
          such Holders in accordance with the priorities set forth in (a) below;

               (ii) to the Holders of the Class M-1  Certificates,  in an amount
          equal to the Interest Carry Forward Amount  allocable to such Class of
          Certificates;

               (iii) to the Holders of the Class M-1 Certificates,  in an amount
          equal to the Allocated Realized Loss Amount allocable to such Class of
          Certificates;

               (iv) to the Holders of the Class M-2  Certificates,  in an amount
          equal to the Interest Carry Forward Amount  allocable to such Class of
          Certificates;

               (v) to the  Holders of the Class M-2  Certificates,  in an amount
          equal to the Allocated Realized Loss Amount allocable to such Class of
          Certificates;

               (vi) to the Holders of the Class M-3  Certificates,  in an amount
          equal to the Interest Carry Forward Amount  allocable to such Class of
          Certificates;

               (vii) to the Holders of the Class M-3 Certificates,  in an amount
          equal to the Allocated Realized Loss Amount allocable to such Class of
          Certificates;

               (viii) to the Holders of the Class A  Certificates  and the Class
          A-IO  Certificates,  in an  amount  equal  to  the  aggregate  of  any
          Prepayment  Interest Shortfalls (to the extent not covered by payments
          pursuant to Section  3.20) and any Relief Act Interest  Shortfall,  in
          each case that were allocated to such Class for such Distribution Date
          and for any prior  Distribution  Date,  to the extent  not  previously
          reimbursed pursuant to Section 1.02;

               (ix) to the Holders of the Class M-1  Certificates,  in an amount
          equal to the aggregate of any Prepayment  Interest  Shortfalls (to the
          extent  not  covered by  payments  pursuant  to Section  3.20) and any
          Relief Act  Interest  Shortfall,  in each case that were  allocated to
          such Class for such Distribution  Date and for any prior  Distribution
          Date,  to the extent not  previously  reimbursed,  pursuant to Section
          1.02;

               (x) to the  Holders of the Class M-2  Certificates,  in an amount
          equal to the aggregate of any Prepayment  Interest  Shortfalls (to the
          extent  not  covered by  payments  pursuant  to Section  3.20) and any
          Relief Act  Interest  Shortfall,  in each case that were  allocated to
          such Class for such Distribution  Date and for any prior  Distribution
          Date,  to the extent not  previously  reimbursed  pursuant  to Section
          1.02;

                                      -79-
<PAGE>

               (xi) to the Holders of the Class M-3  Certificates,  in an amount
          equal to the aggregate of any Prepayment  Interest  Shortfalls (to the
          extent  not  covered by  payments  pursuant  to Section  3.24) and any
          Relief Act  Interest  Shortfall,  in each case that were  allocated to
          such Class for such Distribution  Date and for any prior  Distribution
          Date,  to the extent not  previously  reimbursed  pursuant  to Section
          1.02;

               (xii) to the Reserve Fund from amounts  otherwise  payable to the
          Class CE Certificates,  and then from the Reserve Fund to the Class A,
          Class M-1, Class M-2 and Class M-3 Certificates,  in that order, in an
          amount equal to the unpaid amount of any Basis Risk Shortfall for each
          such  Class  for such  Distribution  Date and any  Unpaid  Basis  Risk
          Shortfall for each such Class for such Distribution Date;

               (xiii) to the  Reserve  Fund,  the  amount  required  by  Section
          3.27(b);

               (xiv) to the Holders of the Class CE  Certificates,  the Interest
          Distribution Amount and any Overcollateralization Reduction Amount for
          such Distribution Date; and

               (xvi)  to  the  Holders  of the  Class  R-III  Certificates,  any
          remaining  amounts;  provided  that if such  Distribution  Date is the
          Distribution  Date immediately  following the expiration of the latest
          Prepayment  Charge term as identified on the Mortgage Loan Schedule or
          any Distribution Date thereafter, then any such remaining amounts will
          be  distributed  first,  to the  Holders of the Class P  Certificates,
          until the  Certificate  Principal  Balance thereof has been reduced to
          zero; and second, to the Holders of the Class R-III Certificates.

     On each Distribution  Date, after making the distributions of the Available
Distribution  Amount as set forth above,  the Trustee will first,  withdraw from
the Reserve Fund all income from the investment of funds in the Reserve Fund and
distribute such amount to the Holders of the Class CE Certificates,  and second,
withdraw from the Reserve  Fund,  to the extent of amounts  remaining on deposit
therein,  the amount of any Basis Risk  Shortfall or Unpaid Basis Risk Shortfall
for such  Distribution  Date and  distribute  such amount first,  to the Class A
Certificates;  second,  to the Class M-1  Certificates,  third, to the Class M-2
Certificates  and  fourth,  to the Class M-3  Certificates,  in each case to the
extent to the  extent  any Basis  Risk  Shortfall  amount or Unpaid  Basis  Risk
Shortfall amount is allocable to each such Class.

          (b) (i) On each  Distribution  Date (a) prior to the Stepdown  Date or
     (b) on which a Trigger Event is in effect, the Extra Principal Distribution
     Amount shall be distributed in the following order of priority;

               first,  to the  Holders  of the Class A  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero;

                                      -80-
<PAGE>

               second, to the Holders of the Class M-1  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero;

               third,  to the Holders of the Class M-2  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero; and

               fourth, to the Holders of the Class M-3  Certificates,  until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero.

               (ii) On each  Distribution Date (a) on or after the Stepdown Date
          and (b) on which a Trigger Event is not in effect, the Extra Principal
          Distribution  Amount shall be  distributed  in the following  order of
          priority;

               first,  the lesser of (x) the Principal  Distribution  Amount and
               (y)  the  Class  A  Principal   Distribution   Amount,  shall  be
               distributed to the Holders of the Class A Certificates, until the
               Certificate  Principal  Balance of such Class has been reduced to
               zero;

               second,  the  lesser  of (x)  the  excess  of (i)  the  Principal
               Distribution  Amount  over  (ii) the  amount  distributed  to the
               Holders  of the Class A  Certificates  pursuant  to clause  first
               above and (y) the Class M-1 Principal  Distribution Amount, shall
               be  distributed  to the  Holders  of the Class M-1  Certificates,
               until the  Certificate  Principal  Balance of such Class has been
               reduced to zero;

               third,  the  lesser  of  (x)  the  excess  of (i)  the  Principal
               Distribution  Amount over (ii) the sum of the amounts distributed
               to the  Holders of the Class A  Certificates  pursuant  to clause
               first  above and to the  Holders  of the  Class M-1  Certificates
               pursuant to clause  second above and (y) the Class M-2  Principal
               Distribution  Amount,  shall be distributed to the Holders of the
               Class M-2 Certificates,  until the Certificate  Principal Balance
               of such Class has been reduced to zero; and

               fourth,  the  lesser  of (x)  the  excess  of (i)  the  Principal
               Distribution  Amount over (ii) the sum of the amounts distributed
               to the  Holders of the Class A  Certificates  pursuant  to clause
               first  above,  to the  Holders  of  the  Class  M-1  Certificates
               pursuant to clause  second  above and to the Holders of the Class
               M-2 Certificates pursuant to clause third above and (y) the Class
               M-3 Principal  Distribution  Amount,  shall be distributed to the
               Holders  of the Class  M-3  Certificates,  until the  Certificate
               Principal Balance of such Class has been reduced to zero.

          (c) On each Distribution  Date, the Trustee shall withdraw any amounts
     then on deposit  in the  Distribution  Account  that  represent  Prepayment
     Charges shall distribute such amounts to the Class P Certificateholders  as
     described above.

                                      -81-
<PAGE>

          (d) All distributions  made with respect to each Class of Certificates
     on each Distribution Date shall be allocated pro rata among the outstanding
     Certificates in such Class based on their respective  Percentage Interests.
     Payments in respect of each Class of Certificates on each Distribution Date
     will be made to the  Holders  of the  respective  Class  of  record  on the
     related  Record Date  (except as otherwise  provided in Section  4.01(e) or
     Section 9.01 respecting the final distribution on such Class), based on the
     aggregate Percentage Interest represented by their respective Certificates,
     and shall be made by wire transfer of  immediately  available  funds to the
     account of any such  Holder at a bank or other  entity  having  appropriate
     facilities  therefor,  if such Holder shall have so notified the Trustee in
     writing at least five  Business  Days prior to the Record Date  immediately
     prior to such Distribution Date and is the registered owner of Certificates
     having an initial aggregate Certificate Principal Balance that is in excess
     of  the  lesser  of (i)  $5,000,000  or  (ii)  two-thirds  of  the  initial
     Certificate  Principal Balance of such Class of Certificates,  or otherwise
     by check mailed by first class mail to the address of such Holder 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 of the Trustee or such other
     location  specified  in the  notice  to  Certifcateholders  of  such  final
     distribution.

          Each  distribution  with respect to a Book-Entry  Certificate shall be
     paid to the  Depository,  as Holder  thereof,  and the Depository  shall be
     responsible  for crediting the amount of such  distribution to the accounts
     of its Depository  Participants in accordance  with its normal  procedures.
     Each  Depository  Participant  shall be  responsible  for  disbursing  such
     distribution  to the  Certificate  Owners  that it  represents  and to each
     indirect  participating  brokerage  firm (a  "brokerage  firm" or "indirect
     participating  firm") for which it acts as agent. Each brokerage firm shall
     be  responsible  for  disbursing  funds to the  Certificate  Owners that it
     represents.  None of the Trustee,  the Trustee, the Depositor or the Master
     Servicer  shall  have  any  responsibility  therefor  except  as  otherwise
     provided by this Agreement or applicable law.

          (e) The rights of the  Certificateholders  to receive distributions in
     respect of the Certificates, and all interests of the Certificateholders in
     such  distributions,  shall be as set forth in this Agreement.  None of the
     Holders of any Class of  Certificates,  the Trustee or the Master  Servicer
     shall in any way be responsible or liable to the Holders of any other Class
     of Certificates in respect of amounts  properly  previously  distributed on
     the Certificates.

          (f) Except as otherwise provided in Section 9.01, whenever the Trustee
     expects  that  the  final   distribution  with  respect  to  any  Class  of
     Certificates will be made on the next Distribution Date, the Trustee shall,
     no later than three (3) days before the related  Distribution Date, mail to
     each  Holder on such  date of such  Class of  Certificates  a notice to the
     effect that:

               (i) the Trustee expects that the final  distribution with respect
          to such Class of Certificates  will be made on such  Distribution Date
          but only upon  presentation and surrender of such  Certificates at the
          office of the Trustee therein specified, and

               (ii) no interest shall accrue on such Certificates from and after
          the end of the related Interest Accrual Period.

                                      -82-
<PAGE>

          Any funds not  distributed to any Holder or Holders of Certificates of
     such Class on such  Distribution Date because of the failure of such Holder
     or Holders to tender their  Certificates  shall, on such date, be set aside
     and  held in  trust by the  Trustee  and  credited  to the  account  of the
     appropriate  non-tendering  Holder or Holders.  If any  Certificates  as to
     which  notice has been given  pursuant to this  Section  4.01 (e) shall not
     have been  surrendered  for  cancellation  within six months after the time
     specified in such  notice,  the Trustee  shall mail a second  notice to the
     remaining non-tendering  Certificateholders to surrender their Certificates
     for  cancellation in order to receive the final  distribution  with respect
     thereto.  If within one year after the second notice all such  Certificates
     shall  not have been  surrendered  for  cancellation,  the  Trustee  shall,
     directly  or  through  an  agent,  mail a  final  notice  to the  remaining
     non-tendering Certificateholders concerning surrender of their Certificates
     but  shall  continue  to  hold  any  remaining  funds  for the  benefit  of
     non-tendering Certificateholders. The costs and expenses of maintaining the
     funds in trust and of contacting such Certificateholders  shall be paid out
     of the assets  remaining  in such trust fund.  If within one year after the
     final  notice any such  Certificates  shall not have been  surrendered  for
     cancellation,  the Trustee shall pay to the Depositor all such amounts, and
     all rights of non-tendering  Certificateholders in or to such amounts shall
     thereupon   cease.   No  interest   shall  accrue  or  be  payable  to  any
     Certificateholder on any amount held in trust by the Trustee as a result of
     such Certificateholder's  failure to surrender its Certificate(s) for final
     payment thereof in accordance with this Section  4.01(e).  Any such amounts
     held in trust by the Trustee  shall be held in an Eligible  Account and the
     Trustee may direct any depository  institution  maintaining such account to
     invest the funds in one or more Permitted Investments.  All income and gain
     realized from the  investment  of funds  deposited in such accounts held in
     trust by the  Trustee  shall be for the benefit of the  Trustee;  provided,
     however,  that the Trustee  shall deposit in such account the amount of any
     loss of principal incurred in respect of any such Permitted Investment made
     with funds in such accounts immediately upon the realization of such loss.

          (g) Notwithstanding anything to the contrary herein, in no event shall
     the Certificate  Principal  Balance of a Class A Certificate or a Mezzanine
     Certificate be reduced more than once in respect of any  particular  amount
     both (a)  allocated  to such  Certificate  in  respect of  Realized  Losses
     pursuant  to  Section  4.04  and  (b)  distributed  to the  Holder  of such
     Certificate  in  reduction of the  Certificate  Principal  Balance  thereof
     pursuant to this Section 4.01 from Net Monthly Excess  Cashflow and (ii) in
     no event shall the  Uncertificated  Balance of a REMIC Regular  Interest be
     reduced  more  than  once in  respect  of any  particular  amount  both (a)
     allocated  to such REMIC  Regular  Interest in respect of  Realized  Losses
     pursuant to Section 4.04 and (b) distributed on such REMIC Regular Interest
     in reduction of the Uncertificated Balance thereof pursuant to this Section
     4.01.

     SECTION 4.02. Statements to Certificateholders.

     On each  Distribution  Date,  the Trustee shall provide or make  available,
upon request to each Holder of the Regular  Certificates  (upon receipt from the
Master Servicer),  a statement as to the distributions made on such Distribution
Date setting forth:

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

                                      -83-
<PAGE>

          (ii) the amount of the distribution  made on such Distribution Date to
     the Holders of the Certificates of each Class allocable to interest;

          (iii) the aggregate  Servicing Fee received by the Servicer and Master
     Servicing Fee received by the Master Servicer during the related Due Period
     and such other  customary  information  as the Trustee  deems  necessary or
     desirable,  or which a  Certificateholder  reasonably  requests,  to enable
     Certificateholders to prepare their tax returns;

          (iv) the aggregate amount of P&I Advances for such Distribution Date;

          (v) Reserved;

          (vi)  the  number,  aggregate  principal  balance,   weighted  average
     remaining  term to  maturity  and  weighted  average  Mortgage  Rate of the
     Mortgage Loans as of the related Due Date;

          (vii) the number and aggregate  unpaid  principal  balance of Mortgage
     Loans (a)  delinquent  30 to 59 days,  (b)  delinquent  60 to 89 days,  (c)
     delinquent  90 or  more  days,  in each  case,  as of the  last  day of the
     preceding calendar month, (d) as to which foreclosure proceedings have been
     commenced and (e) with respect to which the related Mortgagor has filed for
     protection  under   applicable   bankruptcy  laws,  with  respect  to  whom
     bankruptcy  proceedings  are  pending or with  respect  to whom  bankruptcy
     protection is in force;

          (viii) with respect to any  Mortgage  Loan that became an REO Property
     during the preceding calendar month, the loan number of such Mortgage Loan,
     the unpaid principal  balance and the Scheduled  Principal  Balance of such
     Mortgage Loan;

          (ix) the book value of any REO Property as of the close of business on
     the last  Business Day of the calendar  month  preceding  the  Distribution
     Date;

          (x) the  aggregate  amount of  Principal  Prepayments  made during the
     related  Prepayment  Period  and the  aggregate  amount  of any  Prepayment
     Charges (or payments by the  Servicers in respect of any waived  Prepayment
     Charges) received in respect thereof;

          (xi) the  aggregate  amount of  Realized  Losses  incurred  during the
     related  Prepayment  Period (or, in the case of Bankruptcy Losses allocable
     to interest, during the related Due Period), separately identifying whether
     such Realized Losses constituted Bankruptcy Losses and the aggregate amount
     of Realized Losses incurred since the Closing Date;

          (xii)  the  aggregate  amount of  extraordinary  Trust  Fund  expenses
     withdrawn from the Master Servicer  Collection  Account or the Distribution
     Account for such Distribution Date;

                                      -84-
<PAGE>

          (xiii) the aggregate  Certificate  Principal  Balance of each Class of
     Certificates,  after giving effect to the distributions, and allocations of
     Realized Losses, made on such Distribution Date, separately identifying any
     reduction thereof due to allocations of Realized Losses;

          (xiv)  the  Certificate  Factor  for each such  Class of  Certificates
     applicable to such Distribution Date;

          (xv) the  Interest  Distribution  Amount  in  respect  of the  Class A
     Certificates,  the Class A-IO Certificates,  the Mezzanine Certificates and
     the Class CE Certificates for such Distribution Date and the Interest Carry
     Forward Amount, if any, with respect to the Class A Certificates, the Class
     A-IO Certificates and the Mezzanine Certificates on such Distribution Date,
     and in the case of the Class A  Certificates,  the Class A-IO  Certificates
     and  the  Mezzanine  Certificates,  separately  identifying  any  reduction
     thereof  due  to  allocations  of  Realized  Losses,   Prepayment  Interest
     Shortfalls, Relief Act Interest Shortfalls and Basis Risk Shortfalls;

          (xvi) the aggregate  amount of any Prepayment  Interest  Shortfall for
     such Distribution Date, to the extent not covered by payments by the Master
     Servicer pursuant to Section 3.20;

          (xvii) the  Allocated  Realized Loss Amount with respect to each Class
     of Mezzanine  Certificates  for such  Distribution  Date and the  aggregate
     unpaid  Allocated  Realized  Loss  Amount  with  respect  to each  Class of
     Mezzanine Certificates for all prior Distribution Dates;

          (xviii) the  aggregate  amount of Relief Act Interest  Shortfalls  for
     such Distribution Date;

          (xix)  the  Required   Overcollateralization  Amount  and  the  Credit
     Enhancement Percentage for such Distribution Date;

          (xx)  the  Overcollateralization  Increase  Amount,  if any,  for such
     Distribution Date;

          (xxi) the  Overcollateralization  Reduction  Amount,  if any, for such
     Distribution Date;

          (xxii) the Basis Risk Shortfall, if any, for such Distribution Date;

          (xxiii) the Unpaid Basis Risk Shortfalls,  if any,  outstanding  after
     reimbursements therefor on such Distribution Date;

          (xxiv) the  respective  Pass-Through  Rates  applicable to the Class A
     Certificates,  the Mezzanine Certificates and the Class CE Certificates for
     such  Distribution Date and the Pass-Through Rate applicable to the Class A
     Certificates and the Mezzanine Certificates for the Distribution Date;

          (xxv)  the  balance  of the  Reserve  Fund  prior  to the  deposit  or
     withdrawal of any amounts on such Distribution Date;

                                      -85-
<PAGE>

          (xxvi) the amount of any withdrawal  from the Reserve Fund pursuant to
     Section 4.01(a)(4)(xiii);

          (xxvii)  the  balance  of the  Reserve  Fund  after all  deposits  and
     withdrawals on such Distribution Date;

          (xxviii) the Loss  Severity  Percentage  with respect to each Mortgage
     Loan;

          (xxix) the Aggregate Loss Severity Percentage;

          (xxx) (A) the dollar  amount of  payments  received  related to claims
     under the MGIC PMI Policy  during the  related  Prepayment  Period (and the
     number  of  Mortgage  Loans to which  such  payments  related)  and (B) the
     cumulative amount of payments received related to claims under the MGIC PMI
     Policy  since the Closing  Date (and the number of Mortgage  Loans to which
     such payments related); and

          (xxxi) (A) the dollar  amount of claims made under the MGIC PMI Policy
     that were denied during the  Prepayment  Period (and the number of Mortgage
     Loans to which  such  denials  related)  and (B) the  dollar  amount of the
     cumulative claims made under the MGIC PMI Policy that were denied since the
     Closing  Date  (and the  number of  Mortgage  Loans to which  such  denials
     related).

     The Master  Servicer  will make such  statement  (and,  at its option,  any
additional  files  containing the same  information  in an  alternative  format)
available each month to the  Certificateholders  and the Rating Agencies via the
Master Servicer's internet website. The Master Servicer's internet website shall
initially  be  located at  http:\\www.ctslink.com  and  assistance  in using the
website can be obtained by calling the Master  Servicer's  customer service desk
at  1-301-815-  6600.  Parties  that are  unable to use the  above  distribution
options are entitled to have a paper copy mailed to them via first class mail by
calling the customer service desk and indicating such. The Master Servicer shall
have the right to change the way such  statements  are  distributed  in order to
make such  distribution  more  convenient  and/or more  accessible  to the above
parties and the Master  Servicer shall provide timely and adequate  notification
to all above parties regarding any such changes.

     In the case of  information  furnished  pursuant to subclauses  (i) through
(iii)  above,  the  amounts  shall be  expressed  as a dollar  amount per Single
Certificate of the relevant Class.

     Within a reasonable period of time after the end of each calendar year, the
Trustee  shall  furnish to each Person who at any time during the calendar  year
was a Holder of a Regular Certificate a statement containing the information set
forth in subclauses  (i) through (iii) above,  aggregated for such calendar year
or applicable portion thereof during which such person was a  Certificateholder.
Such  obligation  of the Trustee  shall be deemed to have been  satisfied to the
extent  that  substantially  comparable  information  shall be  provided  by the
Trustee  pursuant  to any  requirements  of the Code as from time to time are in
force.

                                      -86-
<PAGE>

     Within a reasonable period of time after the end of each calendar year, the
Trustee  shall  furnish to each Person who at any time during the calendar  year
was a Holder of a Residual  Certificate a statement setting forth the amount, if
any,  actually  distributed  with  respect  to  the  Residual  Certificates,  as
appropriate,  aggregated  for such calendar year or applicable  portion  thereof
during which such Person was a Certificateholder.

     The Master Servicer shall, upon request, furnish to each Certificateholder,
during the term of this Agreement,  such periodic,  special, or other reports or
information,  whether or not provided for herein,  as shall be  reasonable  with
respect to the  Certificateholder,  or otherwise with respect to the purposes of
this Agreement, all such reports or information to be provided at the expense of
the   Certificateholder   in  accordance   with  such  reasonable  and  explicit
instructions and directions as the Certificateholder may provide.

     On each  Distribution  Date the Trustee shall provide  Bloomberg  Financial
Markets,  L.P.  ("Bloomberg") CUSIP level factors for each class of Certificates
as of such  Distribution  Date, using a format and media mutually  acceptable to
the Trustee and Bloomberg.

     SECTION 4.03. Remittance Reports; P&I Advances.

          (a) On the Business Day following each Determination  Date, the Master
     Servicer  shall  deliver to the Trustee by telecopy (or by such other means
     as the  Master  Servicer  and the  Trustee  may agree  from time to time) a
     Remittance  Report  with  respect to the  related  Distribution  Date.  The
     Trustee  shall not be  responsible  (except with regard to any  information
     regarding  the  Prepayment  Charges  to the  extent  set  forth  below)  to
     recompute,  recalculate  or verify any  information  provided  to it by the
     Master  Servicer.  Notwithstanding  the foregoing,  in connection  with any
     Principal  Prepayment on any Mortgage Loan listed on Schedule 1 hereto, the
     Master  Servicer  shall  verify  that the  related  Prepayment  Charge  was
     delivered  to the  Master  Servicer  for  deposit  in the  Master  Servicer
     Collection Account in the amount set forth on such Schedule 1 in accordance
     with Section 3.30.

          (b) If the  Monthly  Payment  on a  Mortgage  Loan  that  was due on a
     related  Due Date and is  delinquent  other  than as a result  of  interest
     shortfalls  due to bankruptcy  proceedings or application of the Relief Act
     and for which the related Servicer was required to make an advance pursuant
     to the related  Servicing  Agreement  exceeds the amount  deposited  in the
     Master Servicer  Collection  Account which will be used for an advance with
     respect to such  Mortgage  Loan,  the Master  Servicer  will deposit in the
     Master Servicer Collection Account not later than the Distribution  Account
     Deposit Date immediately  preceding the related Distribution Date an amount
     equal to such  deficiency,  net of the Servicing Fee for such Mortgage Loan
     except to the extent the Master Servicer  determines any such advance to be
     nonrecoverable  from  Liquidation  Proceeds,  Insurance  Proceeds or future
     payments on the  Mortgage  Loan for which such P&I  Advance  was made.  Any
     amounts  held for future  distribution  and so used shall be  appropriately
     reflected  in the Master  Servicer's  records  and  replaced  by the Master
     Servicer by deposit in the Master Servicer  Collection Account on or before
     any  future  Distribution  Account  Deposit  Date to the  extent  that  the
     Available Distribution Amount for the related Distribution Date (determined
     without  regard  to P&I  Advances  to be made on the  Distribution  Account
     Deposit Date) shall be less than the total

                                      -87-
<PAGE>

     amount  that would be  distributed  to the  Classes  of  Certificateholders
     pursuant to Section 4.01 on such Distribution Date if such amounts held for
     future distributions had not been so used to make P&I Advances.  Subject to
     the foregoing, the Master Servicer shall continue to make such P&I Advances
     through the date that the  related  Servicer is required to do so under its
     Servicing  Agreement.  If applicable,  on the Distribution  Account Deposit
     Date,  the Master  Servicer  shall present an Officer's  Certificate to the
     Trustee (i) stating that the Master  Servicer  elects not to make a Monthly
     Advance  in a stated  amount  and (ii)  detailing  the  reason it deems the
     advance to be nonrecoverable. The Trustee will provide notice to the Master
     Servicer by telecopy by the close of business on the  Business Day prior to
     the  Distribution  Date in the event that the amount remitted by the Master
     Servicer to the Trustee on such date is less than the P&I Advances required
     to be made by the Master Servicer for the related Distribution Date.

     SECTION 4.04. Allocation of Realized Losses.

          (a)  Prior to each  Determination  Date,  the  Master  Servicer  shall
     determine based solely on information  provided by the related  Servicer as
     to each Mortgage  Loan and REO  Property:  (i) the total amount of Realized
     Losses,   if  any,   incurred  in  connection   with  any  Final   Recovery
     Determinations  made during the related Prepayment Period; (ii) whether and
     the extent to which such Realized Losses constituted Bankruptcy Losses; and
     (iii) the respective portions of such Realized Losses allocable to interest
     and allocable to principal.  Prior to each  Determination  Date, the Master
     Servicer  shall also  determine  as to each  Mortgage  Loan:  (i) the total
     amount  of  Realized  Losses,  if any,  incurred  in  connection  with  any
     Deficient  Valuations made during the related  Prepayment  Period; and (ii)
     the total amount of Realized  Losses,  if any,  incurred in connection with
     Debt  Service  Reductions  in respect of  Monthly  Payments  due during the
     related Due Period.

          (b) All Realized Losses on the Mortgage Loans allocated to any REMIC I
     Regular Interest pursuant to Section 4.04(c) on the Mortgage Loans shall be
     allocated  by the Master  Servicer  on each  Distribution  Date as follows:
     first,  to  Net  Monthly  Excess   Cashflow;   second,   to  the  Class  CE
     Certificates,  until the  Certificate  Principal  Balance  thereof has been
     reduced  to  zero,  third,  to  the  Class  M-3  Certificates,   until  the
     Certificate  Principal Balance thereof has been reduced to zero; fourth, to
     the Class M-2 Certificates, until the Certificate Principal Balance thereof
     has been reduced to zero; and fifth, to the Class M-1  Certificates,  until
     the  Certificate  Principal  Balance  thereof has been reduced to zero. All
     Realized  Losses to be allocated to the Certificate  Principal  Balances of
     all Classes on any Distribution Date shall be so allocated after the actual
     distributions  to be made on such date as provided  above.  All  references
     above to the  Certificate  Principal  Balance of any Class of  Certificates
     shall be to the  Certificate  Principal  Balance of such Class  immediately
     prior to the relevant  Distribution  Date,  before reduction thereof by any
     Realized   Losses,   in  each  case  to  be  allocated  to  such  Class  of
     Certificates, on such Distribution Date.

          Any  allocation of Realized  Losses to a Mezzanine  Certificate on any
     Distribution  Date  shall be made by  reducing  the  Certificate  Principal
     Balance  thereof by the amount so  allocated;  any  allocation  of Realized
     Losses to a Class CE  Certificates  shall be made by  reducing  the  amount
     otherwise payable in respect thereof pursuant to Section 4.01[(a)(4)(xvi)].
     No  allocations  of any Realized  Losses  shall be made to the  Certificate
     Principal Balances of the Class A Certificates or the Class P Certificates.

                                      -88-
<PAGE>

          As used herein, an allocation of a Realized Loss on a "pro rata basis"
     among two or more specified Classes of Certificates  means an allocation on
     a pro rata basis,  among the  various  Classes so  specified,  to each such
     Class of  Certificates on the basis of their then  outstanding  Certificate
     Principal  Balances prior to giving effect to  distributions  to be made on
     such Distribution  Date. All Realized Losses and all other losses allocated
     to  a  Class  of  Certificates  hereunder  will  be  allocated  among  the,
     Certificates  of such  Class  in  proportion  to the  Percentage  Interests
     evidenced thereby.

          (c) All Realized  Losses on the  Mortgage  Loans shall be allocated by
     the  Trustee on each  Distribution  Date as  follows:  with  respect to the
     Mortgage  Loans with an Expense  Adjusted  Mortgage  Rate as of the Cut-off
     Date of less than 6.00%,  to the Holders of REMIC I Regular  Interest I-LTB
     until the Uncertificated Balance has been reduced to zero, and with respect
     to the  Mortgage  Loans with an Expense  Adjusted  Mortgage  Rate as of the
     Cut-off Date of 6.00% or greater,  first, to REMIC I Regular Interest I-LTA
     until the Uncertificated Balance has been reduced to zero, second, to REMIC
     I Regular Interest I-LTE until the Uncertificated  Balance has been reduced
     to zero, third, to REMIC I Regular Interest I-LTD until the  Uncertificated
     Balance has been reduced to zero, and fourth,  to REMIC I Regular  Interest
     I-LTC until the Uncertificated Balance has been reduced to zero.

          (d) All  Realized  Losses on the REMIC I  Regular  Interests  shall be
     allocated by the Trustee on each  Distribution  Date to the following REMIC
     II Regular Interests in the specified  percentages,  as follows:  first, to
     Uncertificated  Interest  payable to the REMIC II Regular  Interest II-LTAA
     and REMIC II Regular  Interest  II-LTZZ up to an aggregate  amount equal to
     the REMIC II Interest Loss  Allocation  Amount,  98% and 2%,  respectively;
     second,  to the  Uncertificated  Balances of the REMIC II Regular  Interest
     II-LTAA and REMIC II Regular  Interest  II-LTZZ up to an  aggregate  amount
     equal  to the  REMIC  II  Principal  Loss  Allocation  Amount,  98% and 2%,
     respectively;  third,  to the  Uncertificated  Balances of REMIC II Regular
     Interest  II-LTAA,  REMIC II Regular  Interest II-LTM3 and REMIC II Regular
     Interest II-LTZZ,  98%, 1% and 1%,  respectively,  until the Uncertificated
     Balance  of REMIC II Regular  Interest  II-LTM3  has been  reduced to zero;
     fourth to the Uncertificated  Balances of REMIC II Regular Interest II-LTA,
     REMIC II Regular Interest  II-LTM2 and REMIC II Regular  Interest  II-LTZZ,
     98%, 1% and 1%, respectively,  until the Uncertificated Balance of REMIC II
     Regular  Interest  II-LTM2  has  been  reduced  to zero;  and  fifth to the
     Uncertificated  Balances  of REMIC II Regular  Interest  II-LTAA,  REMIC II
     Regular Interest II-LTM1 and REMIC II Regular Interest II-LTZZ, 98%, 1% and
     1%,  respectively,  until the  Uncertificated  Balance  of REMIC II Regular
     Interest II-LTM1 has been reduced to zero.

     SECTION 4.05. Compliance with Withholding Requirements.

     Notwithstanding  any other provision of this  Agreement,  the Trustee shall
comply  with  all  federal  withholding   requirements  respecting  payments  to
Certificateholders  of  interest  or original  issue  discount  that the Trustee
reasonably   believes   are   applicable   under  the  Code.   The   consent  of
Certificateholders shall not be required for such withholding.  In the event the
Trustee  does  withhold  any amount from  interest or  original  issue  discount
payments  or  advances  thereof  to any  Certificateholder  pursuant  to federal
withholding requirements, the Trustee shall indicate the amount withheld to such
Certificateholders.

                                      -89-
<PAGE>

                                    ARTICLE V

                                THE CERTIFICATES

     SECTION 5.01. The Certificates.

          (a) The  Certificates  in the  aggregate  will  represent  the  entire
     beneficial  ownership  interest in the Mortgage  Loans and all other assets
     included in REMIC I.

          The Certificates  will be substantially in the forms annexed hereto as
     Exhibits A-1 through A-10. The  Certificates of each Class will be issuable
     in  registered  form  only,  in  denominations  of  authorized   Percentage
     Interests as described in the definition  thereof.  Each  Certificate  will
     share ratably in all rights of the related Class.

          Upon original issue, the Certificates shall be executed, authenticated
     and  delivered by the Trustee to and upon the order of the  Depositor.  The
     Certificates  shall be executed by manual or facsimile  signature on behalf
     of the Trustee by an authorized signatory.  Certificates bearing the manual
     or  facsimile  signatures  of  individuals  who were at any time the proper
     officers of the Trustee shall bind the Trustee,  notwithstanding  that such
     individuals  or any of them have ceased to hold such  offices  prior to the
     authentication  and  delivery  of such  Certificates  or did not hold  such
     offices at the date of such Certificates.  No Certificate shall be entitled
     to any benefit  under this  Agreement or be valid for any  purpose,  unless
     there  appears  on  such   Certificate  a  certificate  of   authentication
     substantially in the form provided herein executed by the Trustee by manual
     signature,  and such  certificate  of  authentication  shall be  conclusive
     evidence,  and the only  evidence,  that  such  Certificate  has been  duly
     authenticated and delivered hereunder.  All Certificates shall be dated the
     date of their authentication.

          (b) The Class A  Certificates,  the Class  A-IO  Certificates  and the
     Mezzanine   Certificates   shall   initially  be  issued  as  one  or  more
     Certificates held by the Book-Entry Custodian or, if appointed to hold such
     Certificates as provided  below,  the Depository and registered in the name
     of  the  Depository  or  its  nominee  and,   except  as  provided   below,
     registration  of such  Certificates  may not be  transferred by the Trustee
     except to another  Depository that agrees to hold such Certificates for the
     respective   Certificate  Owners  with  Ownership  Interests  therein.  The
     Certificate Owners shall hold their respective  Ownership  Interests in and
     to such  Certificates  through the book-entry  facilities of the Depository
     and, except as provided below,  shall not be entitled to definitive,  fully
     registered  Certificates  ("Definitive  Certificates")  in  respect of such
     Ownership   Interests.   All  transfers  by  Certificate  Owners  of  their
     respective Ownership Interests in the Book-Entry Certificates shall be made
     in accordance with the procedures established by the Depository Participant
     or brokerage firm  representing  such  Certificate  Owner.  Each Depository
     Participant  shall only transfer the Ownership  Interests in the Book-Entry
     Certificates of Certificate  Owners it represents or of brokerage firms for
     which  it  acts  as  agent  in  accordance  with  the  Depository's  normal
     procedures.  The Trustee is hereby  initially  appointed as the  Book-Entry
     Custodian and hereby  agrees to act as such in  accordance  herewith and in
     accordance  with the agreement that it has with the Depository  authorizing
     it to act as such.  The  Book-Entry  Custodian may, and, if it is no longer
     qualified to act as such, the Book-Entry  Custodian  shall,  appoint,  by a
     written

                                      -90-
<PAGE>

     instrument  delivered to the  Depositor,  the Master  Servicer  and, if the
     Trustee is not the Book-Entry  Custodian,  the Trustee,  any other transfer
     agent  (including  the  Depository or any successor  Depository)  to act as
     Book-Entry  Custodian under such  conditions as the predecessor  Book-Entry
     Custodian and the  Depository or any successor  Depository  may  prescribe,
     provided that the predecessor Book-Entry Custodian shall not be relieved of
     any of its duties or  responsibilities by reason of any such appointment of
     other  than  the  Depository.  If the  Trustee  resigns  or is  removed  in
     accordance  with the  terms  hereof,  the  successor  Trustee  or, if it so
     elects,  the  Depository  shall  immediately  succeed to its  predecessor's
     duties as  Book-Entry  Custodian.  The  Depositor  shall  have the right to
     inspect,  and to obtain  copies of,  any  Certificates  held as  Book-Entry
     Certificates by the Book-Entry Custodian.

          The  Trustee,  the  Master  Servicer  and  the  Depositor  may for all
     purposes   (including   the  making  of  payments  due  on  the  Book-Entry
     Certificates) deal with the Depository as the authorized  representative of
     the Certificate Owners with respect to the Book-Entry  Certificates for the
     purposes of  exercising  the rights of  Certificateholders  hereunder.  The
     rights of Certificate  Owners with respect to the  Book-Entry  Certificates
     shall be limited to those  established by law and  agreements  between such
     Certificate  Owners and the  Depository  Participants  and brokerage  firms
     representing  such  Certificate  Owners.  Multiple  requests and directions
     from, and votes of, the Depository as Holder of the Book-Entry Certificates
     with respect to any particular  matter shall not be deemed  inconsistent if
     they are made with respect to different Certificate Owners. The Trustee may
     establish a reasonable  record date in  connection  with  solicitations  of
     consents from or voting by Certificateholders  and shall give notice to the
     Depository of such record date.

          If (i)(A) the  Depositor  advises  the  Trustee  in  writing  that the
     Depository  is  no  longer  willing  or  able  to  properly  discharge  its
     responsibilities as Depository, and (B) the Depositor is unable to locate a
     qualified  successor,  (ii) the Depositor at its option advises the Trustee
     in writing that it elects to terminate the  book-entry  system  through the
     Depository  or (iii) after the  occurrence  of a Master  Servicer  Event of
     Default, Certificate Owners representing in the aggregate not less than 51%
     of the  Ownership  Interests  of the  Book-Entry  Certificates  advise  the
     Trustee  through the  Depository,  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  Certificates to Certificate  Owners  requesting
     the same.  Upon surrender to the Trustee of the Book-Entry  Certificates by
     the Book-Entry Custodian or the Depository,  as applicable,  accompanied by
     registration instructions from the Depository for registration of transfer,
     the Trustee  shall cause the  Definitive  Certificates  to be issued.  Such
     Definitive  Certificates will be issued in minimum denominations of $10,000
     except that any beneficial  ownership that was  represented by a Book-Entry
     Certificate  in an  amount  less  than  $10,000  immediately  prior  to the
     issuance  of  a  Definitive  Certificate  shall  be  issued  in  a  minimum
     denomination   equal  to  the  amount   represented   by  such   Book-Entry
     Certificate.  None of the  Depositor,  the Master  Servicer  or the Trustee
     shall be liable for any delay in the delivery of such  instructions and may
     conclusively   rely  on,  and  shall  be  protected  in  relying  on,  such
     instructions.  Upon the issuance of Definitive  Certificates all references
     herein to  obligations  imposed upon or to be  performed by the  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.

                                      -91-
<PAGE>

     SECTION 5.02. Registration of Transfer and Exchange of Certificates.

          (a) The  Trustee  shall  cause  to be kept  at one of the  offices  or
     agencies to be appointed by the Trustee in accordance  with the  provisions
     of Section  8.11, a  Certificate  Register for the  Certificates  in which,
     subject to such  reasonable  regulations as it may  prescribe,  the Trustee
     shall provide for the  registration  of  Certificates  and of transfers and
     exchanges of Certificates as herein provided.

          (b) No transfer of any Class CE  Certificate,  Class P Certificate  or
     Residual Certificate shall be made unless that transfer is made pursuant to
     an effective  registration  statement  under the Securities Act of 1933, as
     amended (the "1933 Act"), and effective registration or qualification under
     applicable state securities laws, or is made in a transaction that does not
     require  such  registration  or  qualification.  In the  event  that such a
     transfer  of a Class  CE  Certificate,  Class  P  Certificate  or  Residual
     Certificate is to be made without registration or qualification (other than
     in  connection  with the initial  transfer of any such  Certificate  by the
     Depositor),  the Trustee shall require  receipt of: (i) if such transfer is
     purportedly  being  made in  reliance  upon Rule  144A  under the 1933 Act,
     written  certifications from the  Certificateholder  desiring to effect the
     transfer  and  from  such   Certificateholder's   prospective   transferee,
     substantially  in the form  attached  hereto as Exhibit  F-1;  (ii) if such
     transfer is  purportedly  being made in reliance upon Rule 501(a) under the
     1933 Act, written  certifications  from the  Certificateholder  desiring to
     effect  the   transfer  and  from  such   Certificateholder's   prospective
     transferee,  substantially  in the form attached  hereto as Exhibit F-2 and
     (iii) in all other  cases,  an Opinion of Counsel  satisfactory  to it that
     such transfer may be made without such registration or qualification (which
     Opinion  of  Counsel  shall not be an  expense  of the Trust Fund or of the
     Depositor,  the Trustee, the Master Servicer in its capacity as such or any
     Servicer),  together  with  copies of the written  certification(s)  of the
     Certificateholder   desiring   to   effect   the   transfer   and/or   such
     Certificateholder's  prospective  transferee  upon  which  such  Opinion of
     Counsel is based,  if any.  Neither  of the  Depositor  nor the  Trustee is
     obligated to register or qualify any such  Certificates  under the 1933 Act
     or any other  securities laws or to take any action not otherwise  required
     under this  Agreement to permit the transfer of such  Certificates  without
     registration or qualification. Any Certificateholder desiring to effect the
     transfer of any such Certificate shall, and does hereby agree to, indemnify
     the Trustee,  the Depositor 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.

          (c) No transfer of a Class CE  Certificate,  Class P Certificate  or a
     Residual  Certificate  or any  interest  therein  shall be made to any Plan
     subject to ERISA or Section 4975 of the Code, any Person  acting,  directly
     or  indirectly,  on behalf of any such Plan or any  Person  acquiring  such
     Certificates  with  "Plan  Assets"  of a Plan  within  the  meaning  of the
     Department of Labor  regulation  promulgated  at 29 C.F.R.  ss.  2510.3-101
     ("Plan Assets")  unless the Depositor,  the Trustee and the Master Servicer
     are  provided  with  an  Opinion  of  Counsel  which   establishes  to  the
     satisfaction of the Depositor, the Trustee and the Master Servicer that the
     purchase of such Certificates is permissible under applicable law, will not
     constitute or result in any prohibited  transaction  under ERISA or Section
     4975 of the Code and will not subject the Depositor,  the Master  Servicer,
     the Trustee or the Trust Fund to any  obligation  or  liability  (including
     obligations  or  liabilities  under  ERISA or Section  4975 of the Code) in
     addition to those  undertaken in this  Agreement,  which Opinion of Counsel
     shall not be an expense of the Depositor,  the Master Servicer, the Trustee
     or the Trust Fund. An Opinion of Counsel will not be required in connection

                                      -92-
<PAGE>

     with the initial  transfer of any such  Certificate  by the Depositor to an
     affiliate of the Depositor  (in which case,  the Depositor or any affiliate
     thereof shall have deemed to have  represented that such affiliate is not a
     Plan or a Person  investing  Plan Assets) and the Trustee shall be entitled
     to conclusively rely upon a representation  (which, upon the request of the
     Trustee,  shall be a  written  representation)  from the  Depositor  of the
     status of such transferee as an affiliate of the Depositor.

          (d) (i) Each Person who has or who acquires any Ownership  Interest in
     a Residual  Certificate shall be deemed by the acceptance or acquisition of
     such  Ownership  Interest  to have  agreed  to be  bound  by the  following
     provisions and to have  irrevocably  authorized the Trustee or its designee
     under clause (iii)(A) below to deliver payments to a Person other than such
     Person  and to  negotiate  the terms of any  mandatory  sale  under  clause
     (iii)(B)  below and to execute all  instruments  of Transfer  and to do all
     other things necessary in connection with any such sale. The rights of each
     Person  acquiring  any  Ownership  Interest in a Residual  Certificate  are
     expressly subject to the following provisions:

               (A) 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.

               (B) In  connection  with any proposed  Transfer of any  Ownership
          Interest in a Residual Certificate, the Trustee shall require delivery
          to it, and shall not register the Transfer of any Residual Certificate
          until  its  receipt  of,  an  affidavit  and  agreement  (a  "Transfer
          Affidavit and  Agreement," in the form attached hereto as Exhibit F-3)
          from the proposed  Transferee,  in form and substance  satisfactory to
          the Trustee,  representing  and warranting,  among other things,  that
          such  Transferee is a Permitted  Transferee,  that it is not acquiring
          its Ownership Interest in the Residual Certificate that is the subject
          of the proposed Transfer as a nominee, trustee or agent for any Person
          that is not a Permitted Transferee, that for so long as it retains its
          Ownership  Interest  in a Residual  Certificate,  it will  endeavor to
          remain a Permitted Transferee, and that it has reviewed the provisions
          of this Section 5.02(d) and agrees to be bound by them.

               (C)  Notwithstanding  the  delivery of a Transfer  Affidavit  and
          Agreement  by a proposed  Transferee  under  clause  (B)  above,  if a
          Responsible Officer of the Trustee who is assigned to this transaction
          has actual  knowledge that the proposed  Transferee is not a Permitted
          Transferee,  no  Transfer  of  an  Ownership  Interest  in a  Residual
          Certificate to such proposed Transferee shall be effected.

               (D) Each Person holding or acquiring any Ownership  Interest in a
          Residual  Certificate shall agree (x) to require a Transfer  Affidavit
          and  Agreement  from any other Person to whom such Person  attempts to
          transfer its Ownership Interest in a Residual  Certificate and (Y) not
          to transfer  its  Ownership  Interest  unless it provides a Transferor
          Affidavit (in the form attached hereto as Exhibit

                                      -93-
<PAGE>

          F-2) to the Trustee stating that, among other things, it has no actual
          knowledge that such other Person is not a Permitted Transferee.

               (E) Each Person  holding or acquiring an Ownership  Interest in a
          Residual  Certificate,  by  purchasing  an Ownership  Interest in such
          Certificate,  agrees to give the Trustee  written  notice that it is a
          "pass-through   interest  holder"  within  the  meaning  of  temporary
          Treasury  regulation  Section  1.67-3T(a)(2)(i)(A)   immediately  upon
          acquiring an Ownership Interest in a Residual  Certificate,  if it is,
          or is holding an  Ownership  Interest  in a  Residual  Certificate  on
          behalf of, a "pass-through interest holder."

               (ii) The Trustee  will  register  the  Transfer  of any  Residual
          Certificate only if it shall have received the Transfer  Affidavit and
          Agreement  and  all  of  such  other  documents  as  shall  have  been
          reasonably   required  by  the   Trustee  as  a   condition   to  such
          registration. In addition, no Transfer of a Residual Certificate shall
          be made unless the Trustee shall have received a representation letter
          from the  Transferee  of such  Certificate  to the  effect  that  such
          Transferee is a Permitted Transferee.

               (iii) (A) If any purported  Transferee shall become a Holder of a
          Residual  Certificate  in violation of the  provisions of this Section
          5.02(d),  then  the  last  preceding  Permitted  Transferee  shall  be
          restored,  to the  extent  permitted  by law,  to all rights as holder
          thereof  retroactive to the date of  registration  of such Transfer of
          such Residual Certificate.  The Trustee shall be under no liability to
          any Person for any registration of Transfer of a Residual  Certificate
          that is in fact not  permitted by this  Section  5.02(d) or for making
          any  payments  due on such  Certificate  to the holder  thereof or for
          taking  any  other  action  with  respect  to such  holder  under  the
          provisions of this Agreement.

                    (B) If any purported  Transferee  shall become a holder of a
               Residual  Certificate  in violation of the  restrictions  in this
               Section   5.02(d)  and  to  the  extent   that  the   retroactive
               restoration  of  the  rights  of  the  holder  of  such  Residual
               Certificate  as  described  in  clause  (iii)(A)  above  shall be
               invalid,  illegal or  unenforceable,  then the Trustee shall have
               the right,  without  notice to the holder or any prior  holder of
               such Residual Certificate, to sell such Residual Certificate to a
               purchaser  selected  by the  Trustee on such terms as the Trustee
               may choose.  Such purported  Trustee shall  promptly  endorse and
               deliver  each  Residual   Certificate  in  accordance   with  the
               instructions  of the Trustee.  Such  purchaser may be the Trustee
               itself or any  Affiliate  of the  Trustee.  The  proceeds of such
               sale,  net of the  commissions  (which  may  include  commissions
               payable to the  Trustee or its  Affiliates),  expenses  and taxes
               due, if any,  will be  remitted by the Trustee to such  purported
               Transferee.  The  terms and  conditions  of any sale  under  this
               clause (iii)(B) shall be determined in the sole discretion of the
               Trustee, and the Trustee shall not be liable to any Person having
               an Ownership  Interest in a Residual  Certificate  as a result of
               its exercise of such discretion.

                                      -94-
<PAGE>

               (iv) The Trustee  shall make  available to the  Internal  Revenue
          Service  and  those  Persons  specified  by the REMIC  Provisions  all
          information  necessary  to compute  any tax imposed (A) as a result of
          the Transfer of an Ownership Interest in a Residual Certificate to any
          Person who is a Disqualified  Organization,  including the information
          described  in  Treasury   regulations   sections   1.860D-1(b)(5)  and
          1.860E-2(a)(5)  with  respect  to  the  "excess  inclusions"  of  such
          Residual  Certificate and (B) as a result of any regulated  investment
          company, real estate investment trust, common trust fund, partnership,
          trust,  estate or  organization  described in Section 1381 of the Code
          that holds an Ownership  Interest in a Residual  Certificate having as
          among  its  record   holders  at  any  time  any  Person  which  is  a
          Disqualified Organization.  Reasonable compensation for providing such
          information may be accepted by the Trustee.

               (v) The  provisions  of this  Section  5.02(d) set forth prior to
          this subsection (v) may be modified, added to or eliminated,  provided
          that there shall have been  delivered to the Trustee at the expense of
          the party seeking to modify,  add to or eliminate  any such  provision
          the following:

                    (A)  written  notification  from each  Rating  Agency to the
               effect that the modification,  addition to or elimination of such
               provisions  will not cause such Rating  Agency to  downgrade  its
               then-current ratings of any Class of Certificates; and

                    (B)  an  Opinion   of   Counsel,   in  form  and   substance
               satisfactory to the Trustee, to the effect that such modification
               of,  addition to or elimination of such provisions will not cause
               any Trust REMIC to cease to qualify as a REMIC and will not cause
               any  Trust  REMIC,  as the  case  may  be,  to be  subject  to an
               entity-level   tax  caused  by  the   Transfer  of  any  Residual
               Certificate  to a Person that is not a Permitted  Transferee or a
               Person other than the  prospective  transferee to be subject to a
               REMIC-tax  caused by the Transfer of a Residual  Certificate to a
               Person that is not a Permitted Transferee.

          (e)  Subject  to  the  preceding   subsections,   upon  surrender  for
     registration  of transfer of any Certificate at any office or agency of the
     Trustee  maintained for such purpose  pursuant to Section 8.11, the Trustee
     shall  execute,  authenticate  and deliver,  in the name of the  designated
     Transferee or Transferees,  one or more new  Certificates of the same Class
     of a like aggregate Percentage Interest.

          (f) At the  option  of the  Holder  thereof,  any  Certificate  may be
     exchanged  for  other  Certificates  of  the  same  Class  with  authorized
     denominations and a like aggregate Percentage  Interest,  upon surrender of
     such  Certificate  to be  exchanged  at any office or agency of the Trustee
     maintained  for  such  purpose  pursuant  to  Section  8.11.  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 transfer or exchange shall (if so required

                                      -95-
<PAGE>

     by the  Trustee)  be duly  endorsed  by,  or be  accompanied  by a  written
     instrument  of  transfer  in the  form  satisfactory  to the  Trustee  duly
     executed by, the Holder thereof or his attorney duly authorized in writing.

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

          (h) All  Certificates  surrendered  for transfer and exchange shall be
     canceled and  destroyed  by the Trustee in  accordance  with its  customary
     procedures.

     SECTION 5.03. Mutilated, Destroyed, Lost or Stolen Certificates.

     If (i) 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 (ii) there is delivered  to Trustee  such  security or
indemnity as may be required by it to save it harmless,  then, in the absence of
actual  knowledge by the Trustee that such  Certificate  has been  acquired by a
bona fide purchaser,  the Trustee,  shall execute,  authenticate and deliver, in
exchange  for or in lieu  of any  such  mutilated,  destroyed,  lost  or  stolen
Certificate,  a new Certificate of the same Class and of like  denomination  and
Percentage  Interest.  Upon  the  issuance  of any new  Certificate  under  this
Section,  the Trustee may require the payment of a sum  sufficient  to cover any
tax or other governmental charge that may be imposed in relation thereto and any
other  expenses  (including  the fees and  expenses  of the  Trustee)  connected
therewith.  Any  replacement  Certificate  issued pursuant to this Section shall
constitute  complete and  indefeasible  evidence of ownership in the  applicable
REMIC  created  hereunder,  as if  originally  issued,  whether or not the lost,
stolen or destroyed Certificate shall be found at any time.

     SECTION 5.04. Persons Deemed Owners.

     The  Depositor,  the Master  Servicer,  the Trustee and any agent of any of
them may treat the Person in whose name any  Certificate  is  registered  as the
owner of such Certificate for the purpose of receiving distributions pursuant to
Section 4.01 and for all other purposes  whatsoever,  and none of the Depositor,
the Master  Servicer,  the Trustee or any agent of any of them shall be affected
by notice to the contrary.

     SECTION 5.05. Certain Available Information.

     On or prior  to the date of the  first  sale of any  Class CE  Certificate,
Class P Certificate or Residual  Certificate to an Independent  third party, the
Depositor  shall  provide to the  Trustee  ten copies of any  private  placement
memorandum or other disclosure document used by the Depositor in connection with
the  offer  and sale of such  Certificate.  In  addition,  if any  such  private
placement memorandum or disclosure document is revised,  amended or supplemented
at any time  following  the  delivery  thereof  to the  Trustee,  the  Depositor
promptly shall inform the Trustee of such event and shall deliver to the Trustee
ten copies of the  private  placement  memorandum  or  disclosure  document,  as
revised,  amended or  supplemented.  The Trustee shall maintain at its Corporate
Trust Office and shall make  available  free of charge  during  normal  business
hours for review by any Holder of a Certificate or any Person  identified to the
Trustee as a

                                      -96-
<PAGE>

prospective  transferee of a  Certificate,  originals or copies of the following
items:  (i) in the  case of a Holder  or  prospective  transferee  of a Class CE
Certificate,  Class P Certificate or Residual  Certificate,  the related private
placement  memorandum  or other  disclosure  document  relating to such Class of
Certificates, in the form most recently provided to the Trustee; and (ii) in all
cases,  (A) this  Agreement and any  amendments  hereof entered into pursuant to
Section  11.01,  (B)  all  monthly  statements   required  to  be  delivered  to
Certificateholders  of the  relevant  Class  pursuant to Section  4.02 since the
Closing  Date,   and  all  other  notices,   reports,   statements  and  written
communications  delivered  to  the  Certificateholders  of  the  relevant  Class
pursuant  to this  Agreement  since the  Closing  Date,  (C) all  certifications
delivered  by a  Responsible  Officer  of the  Trustee  since the  Closing  Date
pursuant  to  Section  10.01(h)  and  (D) any  and  all  officers'  certificates
delivered  to the  Trustee  by the Master  Servicer  or the  Servicer  since the
Closing Date to evidence  such  Person's  determination  that any P&I Advance or
Servicing  Advance  was, or if made,  would be a  Nonrecoverable  P&I Advance or
Nonrecoverable  Servicing  Advance.  Copies  and  mailing  of any and all of the
foregoing  items will be available  from the Trustee upon request at the expense
of the Person requesting the same.

                                      -97-
<PAGE>

                                   ARTICLE VI

                      THE DEPOSITOR AND THE MASTER SERVICER

     SECTION 6.01. Liability of the Depositor and the Master Servicer.

     The  Depositor  and the Master  Servicer each shall be liable in accordance
herewith  only to the  extent of the  obligations  specifically  imposed by this
Agreement  upon them in their  respective  capacities  as  Depositor  and Master
Servicer and  undertaken  hereunder  by the  Depositor  and the Master  Servicer
herein.

     SECTION  6.02.  Merger or  Consolidation  of the  Depositor  or the  Master
Servicer.

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

     The Depositor or the Master Servicer may be merged or consolidated  with or
into any  Person,  or  transfer  all or  substantially  all of its assets to any
Person,  in which case 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, the Rating Agencies' ratings of the Class A
Certificates,  the Class A-IO  Certificates  and the Mezzanine  Certificates  in
effect  immediately prior to such merger or consolidation will not be qualified,
reduced or  withdrawn  as a result  thereof  (as  evidenced  by a letter to such
effect from the Rating Agencies).

     SECTION 6.03. 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 Trust Fund or the  Certificateholders  for any action
taken or for refraining  from the taking of any action in good faith pursuant to
this  Agreement,  or for  errors  in  judgment;  provided,  however,  that  this
provision  shall not  protect  the  Depositor,  the Master  Servicer or any such
person  against any breach of  warranties,  representations  or  covenants  made
herein,  or against  any  specific  liability  imposed  on the  Master  Servicer
pursuant  hereto,  or against any liability  which would otherwise be imposed by
reason of willful misfeasance,  bad faith or gross negligence in the performance
of  duties  or by  reason  of  reckless  disregard  of  obligations  and  duties
hereunder.  The  Depositor,  the  Master  Servicer  and any  director,  officer,
employee or agent of the

                                      -98-
<PAGE>

Depositor  or the Master  Servicer may rely in good faith on any document of any
kind which,  prima  facie,  is 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  and held  harmless  by the Trust Fund  against  any loss,
liability or expense  incurred in connection  with any legal action  relating to
this  Agreement,  the  Certificates  or any  Servicing  Agreement,  or 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  unless such action is related to its  respective  duties under
this  Agreement  and,  in its  opinion,  does not  involve it in any  expense or
liability; provided, however, that each of the Depositor and the Master Servicer
may in its  discretion  undertake any such action which it may deem necessary or
desirable  with  respect  to this  Agreement  and the  rights  and duties of the
parties hereto and the interests of the  Certificateholders  hereunder.  In such
event,  the legal expenses and costs of such action and any liability  resulting
therefrom  (except 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)  shall be expenses,  costs and liabilities of the Trust Fund, and the
Depositor and the Master  Servicer  shall be entitled to be reimbursed  therefor
from the Master  Servicer  Collection  Account as and to the extent  provided in
Article  III, any such right of  reimbursement  being prior to the rights of the
Certificateholders  to  receive  any amount in the  Master  Servicer  Collection
Account.

     SECTION 6.04 Limitation on Resignation of the Master Servicer.

     The Master Servicer shall not resign from the obligations and duties hereby
imposed on it except upon  determination that its duties hereunder are no longer
permissible  under  applicable  law.  Any  such  determination  pursuant  to the
preceding  sentence  permitting the  resignation of the Master Servicer shall be
evidenced by an Opinion of Counsel to such effect obtained at the expense of the
Master  Servicer  and  delivered to the Trustee.  No  resignation  of the Master
Servicer shall become effective until the Trustee or a successor Master Servicer
shall have assumed the Master Servicer's  responsibilities,  duties, liabilities
(other  than  those  liabilities  arising  prior  to  the  appointment  of  such
successor) and obligations under this Agreement.

     SECTION 6.05 Assignment of Master Servicing.

     The Master  Servicer may sell and assign its rights and delegate its duties
and  obligations  in its  entirety  as Master  Servicer  under  this  Agreement;
provided,  however,  that:  (i)  the  purchaser  or  transferee  accepting  such
assignment  and  delegation  (a) shall be a Person  which shall be  qualified to
service mortgage loans for Fannie Mae or Freddie Mac; (b) shall have a net worth
of not less than $15,000,000  (unless  otherwise  approved by each Rating Agency
pursuant to clause (ii)  below);  (c) shall be  reasonably  satisfactory  to the
Trustee (as evidenced in a writing signed by the Trustee); and (d) shall execute
and  deliver  to the  Trustee an  agreement,  in form and  substance  reasonably
satisfactory to the Trustee,  which contains an assumption by such Person of the
due and punctual performance and observance of each covenant and condition to be
performed  or  observed  by it as master  servicer  under  this  Agreement,  any
custodial  agreement from and after the effective date of such  agreement;  (ii)
each Rating  Agency shall be

                                      -99-
<PAGE>

given prior  written  notice of the  identity of the  proposed  successor to the
Master Servicer and each Rating  Agency's  rating of the  Certificates in effect
immediately  prior  to  such  assignment,   sale  and  delegation  will  not  be
downgraded,  qualified  or withdrawn  as a result of such  assignment,  sale and
delegation,  as  evidenced  by a letter to such effect  delivered  to the Master
Servicer and the Trustee;  and (iii) the Master  Servicer  assigning and selling
the master  servicing shall deliver to the Trustee an officer's  certificate and
an Opinion of Independent counsel, each stating that all conditions precedent to
such  action  under  this  Agreement  have  been  completed  and such  action is
permitted by and complies with the terms of this  Agreement.  No such assignment
or delegation shall affect any liability of the Master Servicer arising prior to
the effective date thereof.

     SECTION 6.06 Rights of the Depositor in Respect of the Master Servicer.

     The Master  Servicer  shall  afford the  Depositor  and the  Trustee,  upon
reasonable  notice,   during  normal  business  hours,  access  to  all  records
maintained by the Master Servicer in respect of the Master Servicer's rights and
obligations  hereunder and access to officers of the Master Servicer responsible
for such  obligations.  Upon request,  the Master  Servicer shall furnish to the
Depositor and the Trustee the most recent financial statements of its parent and
such other information relating to the Master Servicer's capacity to perform its
obligations under this Agreement as it possesses. To the extent such information
is not  otherwise  available to the public,  the Depositor and the Trustee shall
not disseminate any information obtained pursuant to the preceding two sentences
without the Master  Servicer's  written consent,  except as required pursuant to
this  Agreement or to the extent that it is  appropriate to do so (i) in working
with legal counsel,  auditors, taxing authorities or other governmental agencies
or (ii) pursuant to any law, rule, regulation, order, judgment, writ, injunction
or decree of any court or governmental  authority having  jurisdiction  over the
Depositor,  the Trustee or the Trust Fund, and in any case, the Depositor or the
Trustee,  as the  case  may be,  shall  use  its  best  efforts  to  assure  the
confidentiality of any such disseminated non-public  information.  The Depositor
may, but is not obligated to,  enforce the  obligations  of the Master  Servicer
under this  Agreement  and may, but is not  obligated  to,  perform,  or cause a
designee to perform,  any defaulted obligation of the Master Servicer under this
Agreement or exercise the rights of the Master  Servicer  under this  Agreement;
provided  that  the  Master  Servicer  shall  not  be  relieved  of  any  of its
obligations  under this Agreement by virtue of such performance by the Depositor
or its designee.  The Depositor shall not have any  responsibility  or liability
for any action or failure to act by the Master  Servicer and is not obligated to
supervise  the  performance  of the  Master  Servicer  under this  Agreement  or
otherwise.

                                     -100-
<PAGE>

                                   ARTICLE VII

                                     DEFAULT

     SECTION 7.01. Master Servicer Events of Default.

          (a) "Master  Servicer Event of Default,"  wherever used herein,  means
     any one of the following events:

               (i) any  failure by the Master  Servicer  to remit to the Trustee
          for distribution to the  Certificateholders  any payment (other than a
          P&I Advance required to be made from its own funds on any Distribution
          Account  Deposit Date  pursuant to Section  4.03)  required to be made
          under the terms of the Certificates and this Agreement which continues
          unremedied  for a period of one Business Day after the date upon which
          written  notice of such  failure,  requiring  the same to be remedied,
          shall have been given to the Master  Servicer by the  Depositor or the
          Trustee (in which case notice  shall be provided by  telecopy),  or to
          the Master Servicer, the Depositor,  the Trustee and by the Holders of
          Certificates entitled to at least 25% of the Voting Rights; or

               (ii) any  failure  on the  part of the  Master  Servicer  duly 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,  or the breach by the Master Servicer of any representation
          and warranty contained in Section 2.05, which continues unremedied for
          a period  of 30 days  after the date on which  written  notice of such
          failure,  requiring the same to be remedied,  shall have been given to
          the Master  Servicer by the  Depositor or the Trustee or to the Master
          Servicer, the Depositor and the Trustee by the Holders of Certificates
          entitled to at least 25% of the Voting Rights; or

               (iii) a  decree  or order of a court  or  agency  or  supervisory
          authority  having  jurisdiction in the premises in an involuntary case
          under any present or future federal or state bankruptcy, insolvency or
          similar  law  or the  appointment  of a  conservator  or  receiver  or
          liquidator in any  insolvency,  readjustment  of debt,  marshalling of
          assets and liabilities or similar proceeding, 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 90 days; or

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

                                     -101-
<PAGE>

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

               (vi) any  failure of the Master  Servicer to make any P&I Advance
          on any Distribution  Account Deposit Date required to be made from its
          own funds pursuant to Section 4.03 which  continues  unremedied  until
          3:00 p.m. New York time on the Business Day immediately  following the
          Distribution Account Deposit Date.

If a Master  Servicer Event of Default  described in clauses (i) through (vi) of
this Section shall occur, then, and in each and every such case, so long as such
Master Servicer Event of Default shall not have been remedied,  the Depositor or
the Trustee  may, and at the written  direction  of the Holders of  Certificates
entitled  to at least 51% of Voting  Rights,  the  Trustee  shall,  by notice in
writing to the Master  Servicer (and to the Depositor if given by the Trustee or
to the  Trustee  if given by the  Depositor),  terminate  all of the  rights and
obligations of the Master Servicer in its capacity as Master Servicer under this
Agreement,  to the extent permitted by law, and in and to the Mortgage Loans and
the proceeds thereof.  If a Master Servicer Event of Default described in clause
(vi) hereof shall occur,  the Trustee shall,  by notice in writing to the Master
Servicer and the Depositor,  terminate all of the rights and  obligations of the
Master  Servicer in its capacity as Master  Servicer under this Agreement and in
and to the Mortgage Loans and the proceeds  thereof.  On or after the receipt by
the Master  Servicer of such  written  notice,  all  authority  and power of the
Master Servicer under this Agreement,  whether with respect to the  Certificates
(other than as a Holder of any  Certificate) or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee  pursuant to and under this  Section,
and,  without  limitation,  the Trustee is hereby  authorized and empowered,  as
attorney-in-fact  or otherwise,  to execute and deliver, on behalf of and at the
expense of the Master Servicer,  any and all documents and other instruments and
to do or accomplish all other acts or things  necessary or appropriate to effect
the purposes of such notice of termination, whether to complete the transfer and
endorsement  or  assignment  of the  Mortgage  Loans and related  documents,  or
otherwise.  The Master  Servicer agrees promptly (and in any event no later than
ten  Business  Days  subsequent  to such notice) to provide the Trustee with all
documents  and  records  requested  by it to  enable  it to  assume  the  Master
Servicer's functions under this Agreement,  and to cooperate with the Trustee in
effecting the termination of the Master Servicer's  responsibilities  and rights
under this Agreement,  including,  without  limitation,  the transfer within one
Business Day to the Trustee for  administration  by it of all cash amounts which
at the time shall be or should have been credited by the Master  Servicer to the
Master Servicer  Collection  Account held by or on behalf of the Master Servicer
or thereafter be received with respect to the Mortgage Loans or any REO Property
(provided,  however,  that the Master  Servicer shall continue to be entitled to
receive all amounts  accrued or owing to it under this  Agreement on or prior to
the date of such  termination,  whether in respect of P&I Advances or otherwise,
and  shall   continue  to  be  entitled  to  the   benefits  of  Section   6.03,
notwithstanding any such termination,  with respect to events occurring prior to
such  termination).  For purposes of this Section 7.01, the Trustee shall not be
deemed  to have  knowledge  of a  Master  Servicer  Event  of  Default  unless a
Responsible  Officer of the Trustee  assigned  to and  working in the  Trustee's
Corporate Trust Office has actual knowledge  thereof or unless written notice of
any event which is in fact such a Master  Servicer  Event of Default is received
by the Trustee and such notice  references the  Certificates,  the Trust Fund or
this Agreement.

                                     -102-
<PAGE>

     SECTION 7.02. Trustee to Act; Appointment of Successor.

          (a) (1) On and after the time the Master Servicer receives a notice of
     termination,  the Trustee  shall be the  successor  in all  respects to the
     Master Servicer in its capacity as Master Servicer under this Agreement and
     the   transactions   set  forth  or  provided  for  herein,   and  all  the
     responsibilities,  duties and  liabilities  relating  thereto  and  arising
     thereafter shall be assumed by the Trustee (except for any  representations
     or  warranties  of  the  Master   Servicer   under  this   Agreement,   the
     responsibilities,  duties and liabilities  contained in Section 2.03(c) and
     the obligation to deposit  amounts in respect of losses pursuant to Section
     3.23(c)) by the terms and provisions hereof including,  without limitation,
     the Master Servicer's  obligations to make P&I Advances pursuant to Section
     4.03;  provided,  however,  that if the  Trustee  is  prohibited  by law or
     regulation from  obligating  itself to make advances  regarding  delinquent
     mortgage  loans,  then  the  Trustee  shall  not be  obligated  to make P&I
     Advances pursuant to Section 4.03; and provided  further,  that any failure
     to perform such duties or responsibilities  caused by the Master Servicer's
     failure  to  provide  information  required  by  Section  7.01 shall not be
     considered  a default by the Trustee as  successor  to the Master  Servicer
     hereunder.  As compensation  therefor, the Trustee shall be entitled to the
     Master  Servicing Fee and all funds relating to the Mortgage Loans to which
     the Master  Servicer  would have been  entitled if it had  continued to act
     hereunder.  Notwithstanding  the above and  subject to  Section  7.02(a)(2)
     below, the Trustee may, if it shall be unwilling to so act, or shall, if it
     is  unable to so act or if it is  prohibited  by law from  making  advances
     regarding  delinquent  mortgage  loans or if the  Holders  of  Certificates
     entitled  to at least  51% of the  Voting  Rights  so  request  in  writing
     promptly appoint or petition a court of competent  jurisdiction to appoint,
     an  established  mortgage  loan  servicing  institution  acceptable to each
     Rating Agency and having a net worth of not less than  $15,000,000,  as the
     successor to the Master  Servicer under this Agreement in the assumption of
     all or any  part of the  responsibilities,  duties  or  liabilities  of the
     Master Servicer under this Agreement.

          (2) No  appointment  of a successor to the Master  Servicer under this
     Agreement  shall be effective  until the assumption by the successor of all
     of  the  Master   Servicer's   responsibilities,   duties  and  liabilities
     hereunder.  In connection with such  appointment  and assumption  described
     herein, the Trustee may make such arrangements for the compensation of such
     successor out of payments on Mortgage Loans as it and such successor  shall
     agree;  provided,  however, that no such compensation shall be in excess of
     that permitted the Master  Servicer as such hereunder.  The Depositor,  the
     Trustee and such  successor  shall take such action,  consistent  with this
     Agreement, as shall be necessary to effectuate any such succession. Pending
     appointment of a successor to the Master Servicer under this Agreement, the
     Trustee shall act in such capacity as hereinabove provided.  The transition
     costs  and  expenses  incurred  by  the  Trustee  in  connection  with  the
     replacement  of the Master  Servicer  shall be reimbursed  out of the Trust
     Fund.

          (b)  If the  Master  Servicer  fails  to  remit  to  the  Trustee  for
     distribution  to the  Certificateholders  any  payment  required to be made
     under the terms of this Agreement (for purposes of this Section 7.02(b),  a
     "Remittance")  because the Master  Servicer is the subject of a  proceeding
     under the  federal  Bankruptcy  Code and the making of such  Remittance  is
     prohibited  by Section  362 of the  federal  Bankruptcy  Code,  the Trustee
     shall,  upon notice of such prohibition,  immediately  become the successor
     Master  Servicer,  regardless  of  whether  a notice of  termination  under
     Section 7.01 has been given,  and advance the amount of such  Remittance by
     depositing  such  amount  in  the  Distribution   Account  on  the

                                     -103-
<PAGE>

     related  Distribution  Date.  The Trustee  shall be  obligated to make such
     advance only if (i) such advance, in the good faith judgment of the Trustee
     can reasonably be expected to be ultimately  recoverable  from Stayed Funds
     and (ii) the Trustee is not  prohibited  by law from making such advance or
     obligating  itself to do so.  Upon  remittance  of the Stayed  Funds to the
     Trustee or the deposit  thereof in the  Distribution  Account by the Master
     Servicer,  a trustee  in  bankruptcy  or a federal  bankruptcy  court,  the
     Trustee  may  recover  the  amount  so  advanced,   without  interest,   by
     withdrawing such amount from the Distribution Account;  however, nothing in
     this  Agreement  shall be deemed to affect the Trustee's  rights to recover
     from the Master  Servicer's  own funds  interest  on the amount of any such
     advance.  If the Trustee at any time makes an advance under this Subsection
     which it later determines in its good faith judgment will not be ultimately
     recoverable  from the Stayed  Funds with  respect to which such advance was
     made,  the Trustee shall be entitled to reimburse  itself for such advance,
     without  interest,  by withdrawing  from the Distribution  Account,  out of
     amounts on deposit therein,  an amount equal to the portion of such advance
     attributable  to the Stayed Funds.  During such time as the Trustee acts as
     the successor Master Servicer, it shall be entitled to the Master Servicing
     Fee and all  funds  relating  to the  Mortgage  Loans to which  the  Master
     Servicer would have been entitled as set forth in Section 7.02(a).

     SECTION 7.03. Notification to Certificateholders.

          (a) Upon any  termination of the Master  Servicer  pursuant to Section
     7.01  above  or any  appointment  of a  successor  to the  Master  Servicer
     pursuant to Section  7.02  above,  the  Trustee  shall give prompt  written
     notice  thereof  to   Certificateholders   at  their  respective  addresses
     appearing in the Certificate Register.

          (b) Not later  than the later of 60 days after the  occurrence  of any
     event,  which  constitutes or which,  with notice or lapse of time or both,
     would  constitute a Master  Servicer  Event of Default or five days after a
     Responsible  Officer of the Trustee becomes aware of the occurrence of such
     an event, the Trustee shall transmit by mail to all Holders of Certificates
     notice of each such  occurrence,  unless  such  default or Master  Servicer
     Event of Default shall have been cured or waived.

     SECTION 7.04. Waiver of Master Servicer Events of Default.

     The Holders representing at least 66% of the Voting Rights evidenced by all
Classes of  Certificates  affected  by any default or Master  Servicer  Event of
Default  hereunder may waive such default or Master  Servicer  Event of Default;
provided,  however,  that a default or Master  Servicer  Event of Default  under
clause (i) or (vii) of Section  7.01 may be waived only by all of the Holders of
the Regular  Certificates.  Upon any such waiver of a default or Master Servicer
Event of Default,  such default or Master  Servicer Event of Default shall cease
to exist and shall be deemed to have been remedied for every purpose  hereunder.
No such  waiver  shall  extend  to any  subsequent  or other  default  or Master
Servicer Event of Default or impair any right  consequent  thereon except to the
extent expressly so waived.

                                     -104-
<PAGE>

                                  ARTICLE VIII

                             CONCERNING THE TRUSTEE

     SECTION 8.01. Duties of Trustee.

     The Trustee,  prior to the occurrence of a Master Servicer Event of Default
and after the curing of all  Master  Servicer  Events of Default  which may have
occurred,  undertakes  to  perform  such  duties  and only  such  duties  as are
specifically  set forth in this  Agreement.  During a Master  Servicer  Event of
Default,  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 its exercise as
a prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.  Any  permissive  right of the Trustee  enumerated in
this Agreement shall not be construed as a duty.

     The Trustee,  upon receipt of all  resolutions,  certificates,  statements,
opinions, reports, documents, orders or other instruments furnished to it, which
are  specifically  required to be  furnished  pursuant to any  provision of this
Agreement,  shall  examine  them  to  determine  whether  they  conform  to  the
requirements of this  Agreement.  If any such instrument is found not to conform
to the requirements of this Agreement in a material  manner,  it shall take such
action as it deems  appropriate  to have the  instrument  corrected,  and if the
instrument is not corrected to its satisfaction,  it will provide notice thereof
to the Certificateholders.

     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 misconduct; provided, however, that:

          (i) Prior to the occurrence of a Master Servicer Event of Default, and
     after the curing of all such Master  Servicer  Events of Default  which may
     have  occurred,  the  duties  and  obligations  of  the  Trustee  shall  be
     determined solely by the express provisions of this Agreement,  the Trustee
     shall  not be  liable  except  for  the  performance  of  such  duties  and
     obligations as are  specifically  set forth in this  Agreement,  no implied
     covenants  or  obligations  shall be read into this  Agreement  against the
     Trustee  and, in the absence of bad faith on the part of the  Trustee,  the
     Trustee may  conclusively  rely, as to the truth of the  statements and the
     correctness of the opinions  expressed  therein,  upon any  certificates or
     opinions  furnished to the Trustee that conform to the requirements of this
     Agreement;

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

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

                                     -105-
<PAGE>

     SECTION 8.02. Certain Matters Affecting the Trustee.

          (a) Except as otherwise provided in Section 8.01:

               (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 reasonably believed
          by it to be genuine and to have been signed or presented by the proper
          party or parties;

               (ii) The Trustee may consult  with counsel of its  selection  and
          any  advice  or  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 advice or Opinion of Counsel;

               (iii) The Trustee  shall not be under any  obligation to exercise
          any of the  trusts or  powers  vested  in it by this  Agreement  or to
          institute,  conduct or defend any litigation  hereunder or in relation
          hereto   at  the   request,   order  or   direction   of  any  of  the
          Certificateholders,  pursuant  to the  provisions  of this  Agreement,
          unless  such  Certificateholders  shall have  offered  to the  Trustee
          reasonable security or indemnity satisfactory to it against the costs,
          expenses  and  liabilities  which may be incurred  therein or thereby;
          nothing  contained herein shall,  however,  relieve the Trustee of the
          obligation,  upon the occurrence of a Master Servicer Event of Default
          (which has not been cured or waived),  to exercise  such of the rights
          and powers vested in it by this Agreement,  and to use the same degree
          of care and skill in their exercise as a prudent person would exercise
          or use under the  circumstances  in the conduct of such  person's  own
          affairs;

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

               (v) Prior to the occurrence of a Master Servicer Event of Default
          hereunder  and  after  the  curing of all  Master  Servicer  Events of
          Default  which may have  occurred,  the Trustee  shall not be bound to
          make  any  investigation  into  the  facts or  matters  stated  in any
          resolution,   certificate,  statement,  instrument,  opinion,  report,
          notice,  request,  consent,  order,  approval,  bond or other paper or
          document,  unless  requested  in  writing  to do so by the  Holders of
          Certificates entitled to at least 25% of the Voting Rights;  provided,
          however,  that if the payment within a reasonable  time to the Trustee
          of the costs,  expenses or liabilities  likely to be incurred by it in
          the making of such investigation is, in the opinion of the Trustee not
          reasonably  assured  to the  Trustee by such  Certificateholders,  the
          Trustee may require  reasonable  indemnity  satisfactory to it against
          such expense, or liability from such Certificateholders as a condition
          to taking any such action;

                                     -106-
<PAGE>

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

               (vii) The  Trustee  shall not be  personally  liable for any loss
          resulting  from the  investment  of funds held in the Master  Servicer
          Collection Account at the direction of the Master Servicer pursuant to
          Section  3.23(c),  for any loss resulting from the investment of funds
          held in the Reserve  Fund at the  direction of the Holder of the Class
          CE  Certificate  or for any loss resulting from the redemption or sale
          of any such investment as therein authorized;

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

               (ix) the  Trustee  shall  not be  deemed  to have  notice  of any
          default  or Master  Servicer  Event of  Default  unless a  Responsible
          Officer of the Trustee has knowledge  thereof or unless written notice
          of any  event  which is in fact  such a  default  is  received  by the
          Trustee at the Corporate Trust Office of the Trustee,  and such notice
          references the Certificates and this Agreement; and

               (x) the rights, privileges,  protections, immunities and benefits
          given to the Trustee,  including,  without limitation, its right to be
          indemnified, are extended to, and shall be enforceable by, each agent,
          custodian and other Person employed to act hereunder.

          (b) All  rights of action  under  this  Agreement  or under any of the
     Certificates, enforceable by the Trustee, may be enforced by it without the
     possession of any of the  Certificates,  or the  production  thereof at the
     trial or other proceeding  relating  thereto,  and any such suit, action or
     proceeding  instituted  by the Trustee shall be brought in its name for the
     benefit of all the Holders of such Certificates,  subject to the provisions
     of this Agreement.

     SECTION 8.03. Trustee not Liable for Certificates or Mortgage Loans.

     The  recitals  contained  herein and in the  Certificates  (other  than the
signature of the Trustee, the authentication of the Trustee on the Certificates,
the   acknowledgments   of  the  Trustee   contained   in  Article  II  and  the
representations and warranties of the Trustee in Section 8.12) shall be taken as
the statements of the Depositor and the Trustee  assumes no  responsibility  for
their  correctness.  Trustee  makes no  representations  or warranties as to the
validity or sufficiency of this Agreement  (other than as specifically set forth
in Section 8.12) or of the Certificates (other than the signature of the Trustee
and  authentication  of the Trustee on the Certificates) or of any Mortgage Loan
or  related  document.  The  Trustee  shall  not be  accountable  for the use or
application  by the Depositor of any of the  Certificates  or of the proceeds of
such  Certificates,  or for  the use or  application  of any  funds  paid to the
Depositor or the Master  Servicer in

                                     -107-
<PAGE>

respect of the  Mortgage  Loans or  deposited  in or  withdrawn  from the Master
Servicer Collection Account by the Master Servicer, other than any funds held by
or on behalf of the Trustee in accordance with Section 3.23 and 3.24.

     SECTION 8.04. Trustee May Own Certificates.

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

     SECTION 8.05. Trustee's Fees and Expenses.

     The Trustee  and any  director,  officer,  employee or agent of the Trustee
shall be  indemnified  by the Trust  Fund and held  harmless  against  any loss,
liability  or  expense  (including  reasonable  attorney's  fees  and  expenses)
incurred  by the  Trustee in  connection  with any claim or legal  action or any
pending or threatened claim or legal action arising out of or in connection with
the  acceptance  or  administration  of its  obligations  and duties  under this
Agreement,  other than any loss,  liability or expense (i) for which the Trustee
is  indemnified  by the  Master  Servicer,  (ii)  that  constitutes  a  specific
liability  of the  Trustee  pursuant  to  Section  10.01(g)  or (iii)  any loss,
liability  or expense  incurred by reason of willful  misfeasance,  bad faith or
negligence  in the  performance  of  duties  hereunder  by  reason  of  reckless
disregard of obligations  and duties  hereunder.  The Master  Servicer agrees to
indemnify the Trustee,  from, and hold the Trustee harmless  against,  any loss,
liability  or  expense  (including  reasonable  attorney's  fees  and  expenses)
incurred by the Trustee by reason of the Master Servicer's willful  misfeasance,
bad faith or gross  negligence  in the  performance  of its  duties  under  this
Agreement  or by reason  of the  Master  Servicer's  reckless  disregard  of its
obligations  and duties under this  Agreement.  Such indemnity shall survive the
termination or discharge of this Agreement and the resignation or removal of the
Trustee.  Any payment hereunder made by the Master Servicer to the Trustee shall
be from the Master  Servicer's  own funds,  without  reimbursement  from REMIC I
therefor.

     SECTION 8.06. Eligibility Requirements for Trustee and Trustee.

     The Trustee shall at all times be a corporation  or an  association  (other
than the  Depositor,  any  Originator,  the Seller,  the Master  Servicer or any
Affiliate of the  foregoing)  organized and doing business under the laws of any
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  (or a member of a bank holding company whose capital and surplus is
at least  $50,000,000)  and subject to  supervision or examination by federal or
state  authority.  If such  corporation  or  association  publishes  reports  of
conditions  at least  annually,  pursuant to law or to the  requirements  of the
aforesaid  supervising  or  examining  authority,  then for the purposes of this
Section the  combined  capital and surplus of such  corporation  or  association
shall be deemed to be its combined  capital and surplus as set forth in its most
recent report of conditions so published.  In case at any time the Trustee shall
cease to be eligible in accordance  with the  provisions  of this  Section,  the
Trustee shall resign  immediately in the manner and with the effect specified in
Section 8.07.

                                     -108-
<PAGE>

     SECTION 8.07. Resignation and Removal of the Trustee.

     The Trustee may at any time resign and be discharged  from the trust hereby
created  by giving  written  notice  thereof  to the  Depositor,  to the  Master
Servicer  and  to  the   Certificateholders.   Upon  receiving  such  notice  of
resignation, the Depositor shall promptly appoint a successor trustee by written
instrument,  in duplicate,  which instrument shall be delivered to the resigning
Trustee  and to the  successor  trustee.  A copy of  such  instrument  shall  be
delivered to the Certificateholders,  the Trustee and the Master Servicer by the
Depositor.  If no  successor  trustee  shall  have  been so  appointed  and have
accepted  appointment  within  30  days  after  the  giving  of such  notice  of
resignation,  the  resigning  Trustee  may,  at the  expense of the Trust  Fund,
petition any court of competent  jurisdiction for the appointment of a successor
trustee or Trustee, as applicable.

     If at any time the Trustee  shall cease to be eligible in  accordance  with
the  provisions of Section 8.06 and shall fail to resign after  written  request
therefor by the Depositor,  or if at any time the Trustee shall become incapable
of acting,  or shall be  adjudged  bankrupt or  insolvent,  or a receiver of the
Trustee or of its property shall be appointed,  or any public officer shall take
charge or control of the  Trustee or of its  property or affairs for the purpose
of  rehabilitation,  conservation or liquidation,  then the Depositor may remove
the Trustee and appoint a successor trustee by written instrument, in duplicate,
which  instrument  shall be  delivered  to the  Trustee  so  removed  and to the
successor  trustee.  A  copy  of  such  instrument  shall  be  delivered  to the
Certificateholders, the Trustee and the Master Servicer by the Depositor.

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

     Any  resignation  or removal of the Trustee and  appointment of a successor
trustee  pursuant  to any of the  provisions  of this  Section  shall not become
effective until  acceptance of appointment by the successor  trustee as provided
in Section 8.08.

     SECTION 8.08. Successor Trustee.

     Any successor  trustee appointed as provided in Section 8.07 shall execute,
acknowledge  and  deliver  to the  Depositor  and  its  predecessor  trustee  an
instrument accepting such appointment  hereunder,  and thereupon the resignation
or removal of the predecessor  trustee shall become effective and such successor
trustee  without any further act, deed or conveyance,  shall become fully vested
with  all  the  rights,  powers,  duties  and  obligations  of  its  predecessor
hereunder,  with the like effect as if originally  named as trustee herein.  The
predecessor  trustee shall  deliver to the  successor  trustee all Mortgage Loan
Documents  and  related  documents  and  statements  to the  extent  held  by it
hereunder,  as well as all moneys,  held by it hereunder,  and the Depositor and
the predecessor  trustee shall execute and deliver such  instruments and

                                     -109-
<PAGE>

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
unless at the time of such acceptance  such successor  trustee shall be eligible
under the  provisions  of Section  8.06 and the  appointment  of such  successor
trustee shall not result in a downgrading  of any Class of  Certificates  by any
Rating Agency, as evidenced by a letter from each Rating Agency.

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

     SECTION 8.09. Merger or Consolidation of Trustee.

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

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

     Notwithstanding  any other provisions  hereof, at any time, for the purpose
of meeting any legal  requirements of any  jurisdiction in which any part of the
REMIC I or property  securing  the same may at the time be located,  the Trustee
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 REMIC I, and to vest in such  Person or Persons,  in such  capacity,
such title to REMIC I, or any part thereof, and, subject to the other provisions
of this Section 8.10, such powers, duties, obligations, rights and trusts as the
Trustee may consider  necessary or desirable.  No co-trustee or separate trustee
hereunder  shall be  required  to meet the terms of  eligibility  as a successor
trustee under Section 8.06 hereunder and no notice to Holders of Certificates of
the appointment of co-trustee(s) or separate  trustee(s) shall be required under
Section 8.08 hereof.

     In the case of any appointment of a co-trustee or separate trustee pursuant
to this Section 8.10 all rights,  powers,  duties and  obligations  conferred or
imposed upon the Trustee  shall be  conferred  or imposed upon and  exercised or
performed by the Trustee and such separate trustee or co-trustee jointly, except
to the extent that under any law of any jurisdiction in which any particular act
or acts are to be performed by the Trustee  (whether as Trustee  hereunder or as
successor to a  defaulting  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 REMIC
I or any  portion  thereof  in any such

                                     -110-
<PAGE>

jurisdiction)  shall be  exercised  and  performed by such  separate  trustee or
co-trustee at the direction of the Trustee.

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

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

     SECTION 8.11. Appointment of Office or Agency.

     The  Trustee  will  appoint  an  office  or  agency in the City of New York
located at 123 East 49th Street, Tower 49, 37th Floor, New York, New York 10017,
where the  Certificates  may be  surrendered  for  registration  of  transfer or
exchange,  and presented for final distribution and where notices and demands to
or upon the Trustee in respect of the  Certificates  and this  Agreement  may be
served.

     SECTION 8.12. Representations and Warranties.

     The Trustee hereby  represents and warrants to the Master  Servicer and the
Depositor as applicable, as of the Closing Date, that:

          (i) it is a  national  banking  association  duly  organized,  validly
     existing  and in good  standing  under  the laws of the  United  States  of
     America.

          (ii) The  execution  and  delivery  of this  Agreement  by it, and the
     performance and compliance with the terms of this Agreement by it, will not
     violate its articles of  association  or bylaws or constitute a default (or
     an event which,  with notice or lapse of time, or both,  would constitute a
     default) under, or result in the breach of, any material agreement or other
     instrument  to which it is a party or which is  applicable  to it or any of
     its assets.

          (iii) It has the full power and authority to enter into and consummate
     all  transactions  contemplated by this Agreement,  has duly authorized the
     execution,  delivery  and  performance  of this  Agreement,  and  has  duly
     executed and delivered this Agreement.

                                     -111-
<PAGE>

          (iv)  This  Agreement,  assuming  due  authorization,   execution  and
     delivery  by the  other  parties  hereto,  constitutes  a valid,  legal and
     binding  obligation of it,  enforceable  against it in accordance  with the
     terms   hereof,   subject  to  (A)   applicable   bankruptcy,   insolvency,
     receivership,  reorganization,  moratorium  and other  laws  affecting  the
     enforcement of creditors' rights generally,  and (B) general  principles of
     equity,   regardless  of  whether  such  enforcement  is  considered  in  a
     proceeding in equity or at law.

          (v) It is not in violation  of, and its execution and delivery of this
     Agreement  and its  performance  and  compliance  with  the  terms  of this
     Agreement  will not constitute a violation of, any law, any order or decree
     of any court or arbiter, or any order, regulation or demand of any federal,
     state or local governmental or regulatory  authority,  which violation,  in
     its good faith and reasonable judgment,  is likely to affect materially and
     adversely  either the ability of it to perform its  obligations  under this
     Agreement or its financial condition.

          (vi) No  litigation  is  pending  or,  to the  best of its  knowledge,
     threatened  against it,  which would  prohibit it from  entering  into this
     Agreement  or,  in  its  good  faith  reasonable  judgment,  is  likely  to
     materially  and  adversely  affect  either the ability of it to perform its
     obligations under this Agreement or its financial condition.

                                     -112-
<PAGE>

                                   ARTICLE IX

                                   TERMINATION

     SECTION 9.01.  Termination  Upon  Repurchase or Liquidation of All Mortgage
Loans.

          (a)  Subject  to  Section  9.02,   the  respective   obligations   and
     responsibilities under this Agreement of the Depositor, the Master Servicer
     and the Trustee (other than the  obligations of the Master  Servicer to the
     Trustee  pursuant  to  Section  8.05  and of the  Master  Servicer  to make
     remittances  to the Trustee and the Trustee to make  payments in respect of
     the REMIC I Regular Interests, REMIC II Regular Interests or the Classes of
     Certificates  as hereinafter set forth) shall terminate upon payment to the
     Certificateholders  and the deposit of all amounts  held by or on behalf of
     the  Trustee  and  required  hereunder  to be so paid or  deposited  on the
     Distribution  Date coinciding with or following the earlier to occur of (i)
     the purchase by the Terminator (as defined below) of all Mortgage Loans and
     each REO Property  remaining in REMIC I and (ii) the final payment or other
     liquidation (or any advance with respect thereto) of the last Mortgage Loan
     or REO Property remaining in REMIC I; provided,  however,  that in no event
     shall the trust created hereby  continue  beyond the expiration of 21 years
     from  the  death of the last  survivor  of the  descendants  of  Joseph  P.
     Kennedy,  the late  ambassador  of the  United  States  to the Court of St.
     James,  living on the date hereof.  The purchase by the  Terminator  of all
     Mortgage  Loans and each REO  Property  remaining  in REMIC I shall be at a
     price (the  "Termination  Price") equal to the greater of (A) the aggregate
     Purchase  Price of all the  Mortgage  Loans  included  in REMIC I, plus the
     appraised  value of each REO  Property,  if any,  included in REMIC I, such
     appraisal  to be  conducted  by an  appraiser  mutually  agreed upon by the
     Terminator  and the  Trustee  in their  reasonable  discretion  and (B) the
     aggregate  fair market value of all of the assets of REMIC I (as determined
     by the Terminator and the Trustee, as of the close of business on the third
     Business  Day  next  preceding  the  date  upon  which  notice  of any such
     termination  is  furnished  to  Certificateholders  pursuant  to the  third
     paragraph of this Section 9.01).

          (b) The Class CE Certificateholder  (so long as it is not an Affiliate
     of the Seller) shall have the right (the party  exercising such right,  the
     "Terminator"),  to purchase all of the Mortgage Loans and each REO Property
     remaining in REMIC I pursuant to clause (i) of the  preceding  paragraph no
     later than the Determination  Date in the month  immediately  preceding the
     Distribution  Date on which the  Certificates  will be  retired;  provided,
     however,  that the  Terminator  may elect to purchase  all of the  Mortgage
     Loans and each REO  Property  remaining  in REMIC I pursuant  to clause (i)
     above only if the aggregate Stated Principal  Balance of the Mortgage Loans
     and each  REO  Property  remaining  in the  Trust  Fund at the time of such
     election  is reduced  to less than 10% of the  aggregate  Stated  Principal
     Balance of the Mortgage  Loans as of the Cut-off Date. By acceptance of the
     Residual  Certificates,  the Holder of the Residual Certificates agrees, in
     connection  with any  termination  hereunder,  to assign and  transfer  any
     amounts  in excess of par,  and to the extent  received  in respect of such
     termination,  to pay any  such  amounts  to the  Holders  of the  Class  CE
     Certificates and Class P Certificates.

          (c)  Notice  of the  liquidation  of the  Certificates  shall be given
     promptly by the Trustee by letter to  Certificateholders  mailed (a) in the
     event such notice is given in connection  with the purchase of the Mortgage
     Loans and each REO  Property by the  Terminator,  not earlier than the 15th
     day and not

                                     -113-
<PAGE>

     later than the 25th day of the month next  preceding the month of the final
     distribution on the  Certificates or (b) otherwise during the month of such
     final  distribution on or before the  Determination  Date in such month, in
     each case  specifying (i) the  Distribution  Date upon which the Trust Fund
     will  terminate  and the final  payment  in  respect of the REMIC I Regular
     Interests, REMIC II Regular Interests or the Certificates will be made upon
     presentation and surrender of the related Certificates at the office of the
     Trustee  therein  designated,  (ii) the amount of any such  final  payment,
     (iii)  that no  interest  shall  accrue in  respect  of the REMIC I Regular
     Interests,  REMIC II Regular  Interests or Certificates  from and after the
     Interest  Accrual Period relating to the final  Distribution  Date therefor
     and (iv) that the Record Date  otherwise  applicable  to such  Distribution
     Date is not  applicable,  payments  being made only upon  presentation  and
     surrender of the  Certificates  at the office of the Trustee.  In the event
     such notice is given in connection with the purchase of all of the Mortgage
     Loans and each REO  Property  remaining in REMIC I by the  Terminator,  the
     Terminator  shall  deliver to the Trustee  for deposit in the  Distribution
     Account not later than the last  Business  Day of the month next  preceding
     the  month of the  final  distribution  on the  Certificates  an  amount in
     immediately  available funds equal to the  above-described  purchase price.
     The Trustee shall remit to the Master Servicer from such funds deposited in
     the Distribution Account (i) any amounts which the Master Servicer would be
     permitted  to  withdraw  and  retain  from the Master  Servicer  Collection
     Account  pursuant  to  Sections  3.24 and 3.26 and (ii) any  other  amounts
     otherwise  payable by the Trustee to the Master  Servicer  from  amounts on
     deposit  in  the  Distribution  Account  pursuant  to  the  terms  of  this
     Agreement, in each case prior to making any final distributions pursuant to
     Section  10.01(d) below.  Upon  certification to the Trustee by a Servicing
     Officer of the making of such final  deposit,  the Trustee  shall  promptly
     release to the  Terminator  the Mortgage  Files for the remaining  Mortgage
     Loans,  and Trustee shall execute all  assignments,  endorsements and other
     instruments necessary to effectuate such transfer.

          (d) Upon presentation of the Certificates by the Certificateholders on
     the  final   Distribution  Date,  the  Trustee  shall  distribute  to  each
     Certificateholder  so presenting  and  surrendering  its  Certificates  the
     amount otherwise distributable on such Distribution Date in accordance with
     Section 4.01 in respect of the  Certificates so presented and  surrendered.
     Any funds not  distributed to any Holder or Holders of  Certificates  being
     retired on such  Distribution Date because of the failure of such Holder or
     Holders to tender their Certificates  shall, on such date, be set aside and
     held in trust and credited to the account of the appropriate  non-tendering
     Holder or Holders.  If any  Certificates  as to which notice has been given
     pursuant  to  this  Section  9.01  shall  not  have  been  surrendered  for
     cancellation within six months after the time specified in such notice, the
     Trustee  shall  mail  a  second  notice  to  the  remaining   non-tendering
     Certificateholders  to surrender  their  Certificates  for  cancellation in
     order to receive the final distribution with respect thereto. If within one
     year after the  second  notice  all such  Certificates  shall not have been
     surrendered  for  cancellation,  the Trustee shall,  directly or through an
     agent,    mail   a   final   notice   to   the   remaining    non-tendering
     Certificateholders  concerning  surrender of their Certificates.  The costs
     and  expenses  of  maintaining  the funds in trust and of  contacting  such
     Certificateholders  shall be paid out of the assets  remaining in the trust
     funds.  If within  one year after the final  notice  any such  Certificates
     shall not have been surrendered for cancellation,  the Trustee shall pay to
     the  Depositor  all  such   amounts,   and  all  rights  of   non-tendering
     Certificateholders in or to such amounts shall thereupon cease. No interest
     shall accrue or be payable to any  Certificateholder  on any amount held in
     trust by the  Trustee  as a result of such  Certificateholder's  failure to
     surrender its  Certificate(s)  for final payment thereof in accordance with
     this Section  9.01.  Any such amounts held in trust by the Trustee shall be
     held in an  Eligible  Account  and the

                                     -114-
<PAGE>

     Trustee may direct any depository  institution  maintaining such account to
     invest the funds in one or more Permitted Investments.  All income and gain
     realized from the  investment  of funds  deposited in such accounts held in
     trust by the  Trustee  shall be for the benefit of the  Trustee;  provided,
     however,  that the Trustee  shall deposit in such account the amount of any
     loss of principal incurred in respect of any such Permitted Investment made
     with funds in such accounts immediately upon the realization of such loss.

          Immediately  following  the  deposit  of funds in trust  hereunder  in
     respect of the Certificates, the Trust Fund shall terminate.

     SECTION 9.02. Additional Termination Requirements.

          (a) In the event that the Terminator  purchases all the Mortgage Loans
     and each REO Property or the final payment on or other  liquidation  of the
     last Mortgage Loan or REO Property remaining in REMIC I pursuant to Section
     9.01,  the Trust Fund shall be terminated in accordance  with the following
     additional requirements:

               (i)  The  Trustee  shall  specify  the  first  day in the  90-day
          liquidation period in a statement attached to each Trust REMIC's final
          Tax Return pursuant to Treasury  regulation Section 1.860F-1 and shall
          satisfy all requirements of a qualified liquidation under Section 860F
          of the Code and any regulations thereunder, as evidenced by an Opinion
          of Counsel obtained by and at the expense of the Terminator;

               (ii) During such  90-day  liquidation  period and, at or prior to
          the time of making  of the  final  payment  on the  Certificates,  the
          Trustee shall sell all of the assets of REMIC I to the  Terminator for
          cash; and

               (iii) At the  time of the  making  of the  final  payment  on the
          Certificates,  the Trustee shall distribute or credit,  or cause to be
          distributed or credited,  to the Holders of the Residual  Certificates
          all cash on hand in the Trust Fund (other  than cash  retained to meet
          claims), and the Trust Fund shall terminate at that time.

          (b) At the expense of the requesting Terminator (or, if the Trust Fund
     is being terminated as a result of the occurrence of the event described in
     clause (ii) of the first  paragraph of Section  9.01, at the expense of the
     Trust  Fund),  the  Terminator  shall  prepare or cause to be prepared  the
     documentation  required  in  connection  with  the  adoption  of a plan  of
     liquidation of each Trust REMIC pursuant to this Section 9.02.

          (c) By their  acceptance of  Certificates,  the Holders thereof hereby
     agree to authorize the Trustee to specify the 90-day liquidation period for
     each Trust REMIC, which  authorization  shall be binding upon all successor
     Certificateholders.

                                     -115-
<PAGE>

                                    ARTICLE X

                                REMIC PROVISIONS

     SECTION 10.01. REMIC Administration.

          (a) The  Trustee  shall elect to treat each Trust REMIC under the Code
     and, if necessary,  under  applicable state law. Each such election will be
     made by the Master Servicer on Form 1066 or other  appropriate  federal tax
     or information  return or any appropriate state return for the taxable year
     ending on the last day of the calendar year in which the  Certificates  are
     issued.  For the purposes of the REMIC  election in respect of REMIC I, the
     REMIC I Regular  Interests shall be designated as the Regular  Interests in
     REMIC I and the Class R-I Certificates  shall be designated as the Residual
     Interests in REMIC I. The REMIC II Regular Interests shall be designated as
     Regular  Interests  in REMIC II and the Class  R-II  Certificates  shall be
     designated as the Residual Interests in REMIC II. The Class A Certificates,
     the  Class  A-IO  Certificates,  the  Mezzanine  Certificates,  the Class P
     Certificates  and the  Class CE  Certificates  shall be  designated  as the
     Regular  Interests in REMIC III and the Class R-III  Certificates  shall be
     designated  as the Residual  Interests in REMIC III. The Trustee  shall not
     permit the  creation of any  "interests"  in each Trust  REMIC  (within the
     meaning  of  Section  860G of the  Code)  other  than the  REMIC I  Regular
     Interests,  the REMIC II Regular Interests and the interests represented by
     the Certificates.

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

          (c) The Master  Servicer  shall be reimbursed for any and all expenses
     relating to any tax audit of the Trust Fund (including, but not limited to,
     any professional fees or any  administrative  or judicial  proceedings with
     respect to each Trust REMIC that  involve the Internal  Revenue  Service or
     state tax authorities),  including the expense of obtaining any tax related
     Opinion of Counsel  except as specified  herein.  The Master  Servicer,  as
     agent for each Trust REMIC's tax matters  person shall (i) act on behalf of
     the Trust Fund in relation to any tax matter or  controversy  involving any
     Trust  REMIC and (ii)  represent  the Trust Fund in any  administrative  or
     judicial proceeding relating to an examination or audit by any governmental
     taxing authority with respect thereto. The holder of the largest Percentage
     Interest of each class of Residual Certificates shall be designated, in the
     manner provided under Treasury regulations section 1.860F-4(d) and Treasury
     regulations  section  301.6231(a)(7)-1,  as the tax  matters  person of the
     related REMIC created hereunder. By their acceptance thereof, the holder of
     the largest Percentage Interest of the Residual  Certificates hereby agrees
     to irrevocably  appoint the Master Servicer or an Affiliate as its agent to
     perform all of the duties of the tax matters person for the Trust Fund.

          (d) The Master  Servicer  shall prepare and file and the Trustee shall
     sign all of the Tax Returns in respect of each REMIC created hereunder. The
     expenses of preparing  and filing such returns shall be borne by the Master
     Servicer without any right of reimbursement therefor.

          (e) The Master  Servicer  shall  perform on behalf of each Trust REMIC
     all reporting and other tax compliance  duties that are the  responsibility
     of such REMIC  under the Code,  the REMIC

                                     -116-
<PAGE>

     Provisions  or other  compliance  guidance  issued by the Internal  Revenue
     Service or any state or local taxing authority.  Among its other duties, as
     required  by the  Code,  the  REMIC  Provisions  or other  such  compliance
     guidance,  the Master  Servicer  shall  provide (i) to any  Transferor of a
     Residual  Certificate  such information as is necessary for the application
     of any tax relating to the transfer of a Residual Certificate to any Person
     who is not a Permitted  Transferee  upon receipt of  additional  reasonable
     compensation, (ii) to the Certificateholders such information or reports as
     are required by the Code or the REMIC Provisions including reports relating
     to interest,  original issue discount and market discount or premium (using
     the  Prepayment  Assumption as required) and (iii) to the Internal  Revenue
     Service the name,  title,  address and  telephone  number of the person who
     will serve as the  representative  of each Trust REMIC. The Depositor shall
     provide or cause to be  provided  to the Master  Servicer,  within ten (10)
     days  after the  Closing  Date,  all  information  or data that the  Master
     Servicer  reasonably  determines  to be relevant for tax purposes as to the
     valuations  and  issue  prices  of  the  Certificates,  including,  without
     limitation, the price, yield, prepayment assumption and projected cash flow
     of the Certificates.

          (f) To the  extent  in  the  control  of  the  Trustee  or the  Master
     Servicer,  each such Person (i) shall take such action and shall cause each
     REMIC created hereunder to take such action as shall be necessary to create
     or maintain the status thereof as a REMIC under the REMIC Provisions,  (ii)
     shall not take any action,  cause the Trust Fund to take any action or fail
     to take (or fail to cause to be taken)  any  action  that,  under the REMIC
     Provisions,  if taken or not taken,  as the case may be, could (A) endanger
     the status of each Trust  REMIC as a REMIC or (B) result in the  imposition
     of a tax upon the  Trust  Fund  (including  but not  limited  to the tax on
     prohibited  transactions  as defined in Section  860F(a)(2) of the Code and
     the tax on  contributions  to a REMIC set forth in  Section  860G(d) of the
     Code) (either such event,  an "Adverse  REMIC Event") unless such action or
     inaction is permitted  under this Agreement or the Trustee have received an
     Opinion  of  Counsel,  addressed  to the them (at the  expense of the party
     seeking to take such  action but in no event at the  expense of the Trustee
     or the Master  Servicer)  to the effect that the  contemplated  action will
     not, with respect to any Trust REMIC, endanger such status or result in the
     imposition of such a tax, nor (iii) shall the Master  Servicer take or fail
     to take any action  (whether or not  authorized  hereunder) as to which the
     Trustee  has  advised  it in  writing  that it has  received  an Opinion of
     Counsel to the effect that an Adverse  REMIC Event could occur with respect
     to such action;  provided that the Master Servicer may conclusively rely on
     such  Opinion of Counsel  and shall  incur no  liability  for its action or
     failure to act in  accordance  with such  Opinion of Counsel.  In addition,
     prior  to  taking  any  action  with  respect  to any  Trust  REMIC  or the
     respective  assets of each,  or causing any Trust REMIC to take any action,
     which is not  contemplated  under the terms of this  Agreement,  the Master
     Servicer  will consult with the Trustee or its designee,  in writing,  with
     respect to whether such action could cause an Adverse  REMIC Event to occur
     with respect to any Trust REMIC, and the Master Servicer shall not take any
     such  action or cause any Trust  REMIC to take any such  action as to which
     the  Trustee has  advised it in writing  that an Adverse  REMIC Event could
     occur.  The Trustee may consult with  counsel to make such written  advice,
     and the cost of same shall be home by the party  seeking to take the action
     not  permitted  by this  Agreement,  but in no event  shall such cost be an
     expense of the Trustee.

          (g) In the event that any tax is imposed on "prohibited  transactions"
     of any REMIC  created  hereunder  as defined in Section  860F(a)(2)  of the
     Code,  on the "net  income  from  foreclosure  property"  of such  REMIC as
     defined in Section  860G(c) of the Code, on any  contributions  to any such

                                     -117-
<PAGE>

     REMIC  after the Startup Day  therefor  pursuant to Section  860G(d) of the
     Code, or any other tax is imposed by the Code or any applicable  provisions
     of state or local tax laws,  such tax shall be charged  (i) to the  Trustee
     pursuant to Section 10.03 hereof, if such tax arises out of or results from
     a breach by the  Trustee of any of its  obligations  under this  Article X,
     (ii) to the Master Servicer  pursuant to Section 10.03 hereof,  if such tax
     arises out of or results from a breach by the Master Servicer of any of its
     obligations  under Article III or this Article X, or (iii) against  amounts
     on  deposit in the  Distribution  Account  and shall be paid by  withdrawal
     therefrom.

          (h) The Trustee and the Master Servicer shall,  for federal income tax
     purposes,  maintain books and records with respect to each Trust REMIC on a
     calendar year and on an accrual basis.

          (i)  Following  the  Startup  Day,  the  Trustee  shall not accept any
     contributions  of assets to any Trust REMIC other than in  connection  with
     any Qualified Substitute Mortgage Loan delivered in accordance with Section
     2.03 unless it shall have received an Opinion of Counsel to the effect that
     the  inclusion  of such assets in the Trust Fund will not cause the related
     REMIC to fail to qualify as a REMIC at any time that any  Certificates  are
     outstanding or subject such REMIC to any tax under the REMIC  Provisions or
     other applicable provisions of federal, state and local law or ordinances.

          (j) Neither the Trustee nor the Master  Servicer shall knowingly enter
     into any  arrangement  by which any Trust REMIC will receive a fee or other
     compensation  for  services  nor permit  either REMIC to receive any income
     from  assets  other  than  "qualified  mortgages"  as  defined  in  Section
     860G(a)(3)  of the Code or  "permitted  investments"  as defined in Section
     860G(a)(5) of the Code.

          (k) The Master  Servicer  shall apply for an  employer  identification
     number  with  the  Internal  Revenue  Service  via a  Form  SS-4  or  other
     comparable  method for each REMIC.  In connection  with the foregoing,  the
     Master Servicer shall provide the name and address of the person who can be
     contacted to obtain  information  required to be reported to the holders of
     Regular Interests in each REMIC as required by IRS Form 8811.

     SECTION 10.02. Prohibited Transactions and Activities.

     None of the  Depositor,  the Master  Servicer  or the  Trustee  shall sell,
dispose of or  substitute  for any of the Mortgage  Loans  (except in connection
with (i) the  foreclosure of a Mortgage Loan,  including but not limited to, the
acquisition  or  sale  of a  Mortgaged  Property  acquired  by  deed  in lieu of
foreclosure,  (ii) the  bankruptcy of REMIC I, (iii) the  termination of REMIC I
pursuant  to Article  IX of this  Agreement,  (iv) a  substitution  pursuant  to
Article II of this  Agreement  or (v) a purchase of Mortgage  Loans  pursuant to
Article II of this Agreement), nor acquire any assets for any Trust REMIC (other
than REO Property acquired in respect of a defaulted Mortgage Loan), nor sell or
dispose of any  investments  in the Master  Servicer  Collection  Account or the
Distribution  Account for gain, nor accept any  contributions to any Trust REMIC
after  the  Closing  Date  (other  than a  Qualified  Substitute  Mortgage  Loan
delivered in accordance with Section 2.03), unless it has received an Opinion of
Counsel,  addressed  to the Trustee and the Trustee (at the expense of the party
seeking  to  cause  such  sale,   disposition,   substitution,   acquisition  or

                                     -118-
<PAGE>

contribution  but in no event at the  expense  of the  Trustee)  that such sale,
disposition,  substitution,  acquisition  or  contribution  will not (a)  affect
adversely  the status of any Trust REMIC as a REMIC or (b) cause any Trust REMIC
to be subject to a tax on "prohibited  transactions" or "contributions" pursuant
to the REMIC Provisions.

     SECTION 10.03. Master Servicer and Trustee Indemnification.

          (a) The Trustee  agrees to be liable for any taxes and costs  incurred
     by the Trust Fund, the Depositor or the Master Servicer including,  without
     limitation,  any  reasonable  attorneys  fees imposed on or incurred by the
     Trust Fund, the Depositor or the Master Servicer as a result of a breach of
     the Trustee's covenants set forth in this Article X.

          (b) The  Master  Servicer  agrees to  indemnify  the Trust  Fund,  the
     Depositor  and the  Trustee  for any  taxes and  costs  including,  without
     limitation,  any reasonable  attorneys'  fees imposed on or incurred by the
     Trust Fund,  the  Depositor or the Trustee,  as a result of a breach of the
     Master Servicer's covenants set forth in Article III or this Article X.

                                     -119-
<PAGE>

                                   ARTICLE XI

                            MISCELLANEOUS PROVISIONS

     SECTION 11.01. 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, (i) to cure any ambiguity or defect, (ii) to correct, modify
or  supplement  any  provisions   herein   (including  to  give  effect  to  the
expectations of Certificateholders),  or (iii) to make any other provisions with
respect to matters or questions  arising under this Agreement which shall not be
inconsistent  with the provisions of this  Agreement,  provided that such action
shall not,  as  evidenced  by an Opinion of Counsel  delivered  to the  Trustee,
adversely affect in any material respect the interests of any Certificateholder.
No  amendment  shall be deemed to adversely  affect in any material  respect the
interests of any  Certificateholder  who shall have  consented  thereto,  and no
Opinion of Counsel shall be required to address the effect of any such amendment
on any such consenting Certificateholder.

     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 Certificates
entitled  to at least 66% of the  Voting  Rights  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  received  on  Mortgage
Loans  which are  required  to be  distributed  on any  Certificate  without the
consent of the Holder of such Certificate, (ii) adversely affect in any material
respect the 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  at  least  66% of the  Voting  Rights
allocated  to  such  Class,  or  (iii)  modify  the  consents  required  by  the
immediately preceding clauses (i) and (ii) without the consent of the Holders of
all Certificates then outstanding.  Notwithstanding  any other provision of this
Agreement,  for purposes of the giving or  withholding  of consents  pursuant to
this Section 11.01,  Certificates registered in the name of the Depositor or the
Master Servicer or any Affiliate thereof shall be entitled to Voting Rights with
respect to matters affecting such Certificates.

     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 to the effect that such amendment will not result
in the imposition of any tax on any Trust REMIC pursuant to the REMIC Provisions
or cause  any  Trust  REMIC to fail to  qualify  as a REMIC at any time that any
Certificates  are outstanding and that such amendment is authorized or permitted
by this Agreement.

     Promptly  after the  execution  of any such  amendment  the  Trustee  shall
furnish a copy of such amendment to each Certificateholder.

     It shall not be necessary for the consent of Certificateholders  under this
Section 11.01 to approve the particular form of any proposed  amendment,  but it
shall be sufficient if such consent  shall  approve the

                                     -120-
<PAGE>

substance  thereof.  The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.

     The cost of any Opinion of Counsel to be delivered pursuant to this Section
11.01  shall be borne by the Person  seeking the  related  amendment,  but in no
event shall such Opinion of Counsel be an expense of the Trustee .

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

     SECTION 11.02. Recordation of Agreement; Counterparts.

     To the extent  permitted by applicable  law,  this  Agreement is subject to
recordation in all appropriate  public offices for real property  records in all
the  counties  or other  comparable  jurisdictions  in  which  any or all of the
properties  subject to the Mortgages are situated,  and in any other appropriate
public  recording  office or elsewhere,  such  recordation to be effected by the
Depositor at the expense of the  Certificateholders,  but only upon direction of
the  Trustee  accompanied  by an Opinion  of  Counsel  to the  effect  that such
recordation   materially   and   beneficially   affects  the  interests  of  the
Certificateholders.

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

     SECTION 11.03. Limitation on Rights of Certificateholders.

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

     No  Certificateholder  shall have any right to vote  (except  as  expressly
provided  for  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 any of the
Certificates,  be construed so as to constitute the Certificateholders from time
to  time  as   partners   or   members   of  an   association;   nor  shall  any
Certificateholder  be under any  liability  to any third person by reason of any
action taken by the parties to this Agreement pursuant to any provision hereof.

     No  Certificateholder  shall have any right by virtue of any  provision  of
this  Agreement to institute any suit,  action or proceeding in equity or at law
upon or under or with respect to this Agreement,  unless such Holder  previously
shall  have  given  to the  Trustee  a  written  notice  of  default  and of the
continuance  thereof, as hereinbefore  provided,  and unless also the Holders of
Certificates  entitled  to at least 25% of the

                                     -121-
<PAGE>

Voting Rights shall have made written request upon the Trustee to institute such
action,  suit or proceeding in its own name as Trustee  hereunder and shall have
offered to the Trustee such  reasonable  indemnity as it may require against the
costs,  expenses  and  liabilities  to be incurred  therein or thereby,  and the
Trustee,  for 15 days after its  receipt of such  notice,  request  and offer of
indemnity, shall have neglected or refused to institute any such action, suit or
proceeding.  It is  understood  and intended,  and expressly  covenanted by each
Certificateholder with every other  Certificateholder.  and the Trustee, that no
one or  more  Holders  of  Certificates  shall  have  any  right  in any  manner
whatsoever  by virtue of any provision of this  Agreement to affect,  disturb or
prejudice  the rights of the  Holders of any other of such  Certificates,  or to
obtain or seek to obtain  priority  over or preference to any other such Holder,
or to enforce  any right  under  this  Agreement,  except in the  manner  herein
provided   and   for   the   equal,   ratable   and   common   benefit   of  all
Certificateholders. For the protection and enforcement of the provisions of this
Section,  each and every  Certificateholder and the Trustee shall be entitled to
such relief as can be given either at law or in equity.

     SECTION 11.04. Governing Law.

     This Agreement  shall be construed in accordance with the laws of the State
of New York and the  obligations,  rights and remedies of the parties  hereunder
shall be determined in accordance with such laws.

     SECTION 11.05. Notices.

     All directions, demands and notices hereunder shall be in writing and shall
be deemed to have been duly given when  received if sent by  facsimile,  receipt
confirmed,  if  personally  delivered at or mailed by first class mail,  postage
prepaid,  or by  express  delivery  service  or  delivered  in any other  manner
specified  herein,  to (a) in the case of the Depositor,  ACE Securities  Corp.,
AMACAR GROUP,  6525 Morrison  Boulevard,  Suite 318,  Charlotte,  North Carolina
2821, Attention:  Doris Hearn (telecopy  number:(704)  365-1362),  or such other
address or telecopy  number as may hereafter be furnished to the Master Servicer
and the  Trustee  in  writing  by the  Depositor,  (b) in the case of the Master
Servicer,  11000 Broken Land Parkway,  Columbia,  Maryland 21044, Attention: Ace
Securities  Corp.,  2001-HE1  (telecopy number:  (410) 884-2360),  or such other
address or telecopy  number as may hereafter be furnished to the Trustee and the
Depositor in writing by the Master  Servicer and (c) in the case of the Trustee,
401 South Tryon Street, NC1179, Charlotte, North Carolina 28288-1179, Attention:
Structured  Finance Trust Services  (telecopy  number (704) 383- 6039),  or such
other  address or telecopy  number as may  hereafter  be furnished to the Master
Servicer and the  Depositor in writing by the  Trustee.  Any notice  required or
permitted to be given to a Certificateholder shall be given by first class mail,
postage  prepaid,  at the  address  of such  Holder as shown in the  Certificate
Register.  Any notice so mailed  within the time  prescribed  in this  Agreement
shall be conclusively  presumed to have been duly given when mailed,  whether or
not the Certificateholder receives such notice. A copy of any notice required to
be telecopied  hereunder  also shall be mailed to the  appropriate  party in the
manner set forth above.

                                     -122-
<PAGE>

     SECTION 11.06. 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 11.07. Notice to Rating Agencies.

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

     1.   Any material change or amendment to this Agreement;

     2.   The  occurrence of any Master  Servicer  Event of Default that has not
          been cured or waived;

     3.   The resignation or termination of the Master Servicer, the Trustee;

     4.   The  repurchase or  substitution  of Mortgage  Loans pursuant to or as
          contemplated by Section 2.03;

     5.   The final payment to the Holders of any Class of Certificates;

     6.   Any change in the location of the Master Servicer  Collection  Account
          or the Distribution Account; and

     7.   Any event that would  result in the  inability  of the Trustee to make
          advances regarding delinquent Mortgage Loans.

     In  addition,  the Trustee  shall  promptly  furnish to each Rating  Agency
copies of each report to Certificateholders described in Section 4.02.

     The Master Servicer shall promptly  furnish to each Rating Agency copies of
the following:

                                     -123-
<PAGE>

          1.   Each annual statement as to compliance described in Section 3.16;
               and

          2.   Each annual  independent  public  accountants'  servicing  report
               described in Section 3.17.

          Any such notice pursuant to this Section 11.07 shall be in writing and
     shall be  deemed  to have been duly  given if  personally  delivered  at or
     mailed by first class mail, postage prepaid, or by express delivery service
     Fitch.  Inc., One State Street Plaza, New York, New York 10004, to Standard
     & Poor's, a division of the McGraw-Hill  Companies,  Inc., 55 Water Street,
     New York, New York 10041 and to Moody's Investors Service,  Inc., 99 Church
     Street,  New York,  New York  10007 or such other  addresses  as the Rating
     Agencies may designate in writing to the parties hereto.

     SECTION 11.08. Article and Section References.

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

     SECTION 11.09. Grant of Security Interest.

     It is the express  intent of the parties  hereto that the conveyance of the
Mortgage  Loans by the Depositor to the Trustee,  on behalf of the Trust and for
the benefit of the  Certificateholders,  be, and be construed  as, a sale of the
Mortgage Loans by the Depositor and not a pledge of the Mortgage Loans to secure
a debt or  other  obligation  of the  Depositor.  However,  in the  event  that,
notwithstanding the aforementioned intent of the parties, the Mortgage Loans are
held to be property of the Depositor,  then, (a) it is the express intent of the
parties that such  conveyance  be deemed a pledge of the  Mortgage  Loans by the
Depositor  to the  Trustee,  on behalf of the Trust and for the  benefit  of the
Certificateholders,  to secure a debt or other  obligation  of the Depositor and
(b)(1) this Agreement shall also be deemed to be a security agreement within the
meaning of  Articles 8 and 9 of the  Uniform  Commercial  Code as in effect from
time to time in the  State  of New  York;  (2) the  conveyance  provided  for in
Section  2.01  hereof  shall be  deemed  to be a grant by the  Depositor  to the
Trustee,  on behalf of the Trust and for the benefit of the  Certificateholders,
of a security  interest in all of the Depositor's  right,  title and interest in
and to the Mortgage Loans and all amounts payable to the holders of the Mortgage
Loans in accordance  with the terms thereof and all proceeds of the  conversion,
voluntary or involuntary, of the foregoing into cash, instruments, securities or
other property,  including without limitation all amounts, other than investment
earnings,  from time to time held or invested in the Master Servicer  Collection
Account and the Distribution Account,  whether in the form of cash, instruments,
securities  or other  property;  (3) the  obligations  secured by such  security
agreement  shall be deemed to be all of the Depositor's  obligations  under this
Agreement,  including the  obligation to provide to the  Certificateholders  the
benefits of this  Agreement  relating to the Mortgage  Loans and the Trust Fund;
and (4)  notifications  to persons holding such property,  and

                                     -124-
<PAGE>

acknowledgments,  receipts or confirmations  from persons holding such property,
shall be deemed notifications to, or acknowledgments,  receipts or confirmations
from, financial intermediaries, bailees or agents (as applicable) of the Trustee
for the purpose of  perfecting  such security  interest  under  applicable  law.
Accordingly,  the Depositor hereby grants to the Trustee, on behalf of the Trust
and for the  benefit  of the  Certificateholders,  a  security  interest  in the
Mortgage Loans and all other  property  described in clause (2) of the preceding
sentence,  for the purpose of securing  to the  Trustee the  performance  by the
Depositor of the obligations  described in clause (3) of the preceding sentence.
Notwithstanding the foregoing, the parties hereto intend the conveyance pursuant
to Section 2.01 to be a true,  absolute and  unconditional  sale of the Mortgage
Loans and assets constituting the Trust Fund by the Depositor to the Trustee, on
behalf of the Trust and for the benefit of the Certificateholders.

     SECTION 11.10. Third Party Beneficiaries.

     For  purposes  of  Section  3.26,  the  Servicers   shall  be  third  party
beneficiaries of this Agreement.

                                     -125-
<PAGE>

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

                                        ACE SECURITIES CORP.,
                                        as Depositor

                                        By:  /s/ Douglas K. Johnson
                                             ----------------------------------
                                        Name:     Douglas K. Johnson
                                        Title:    President

                                        By:  /s/ Evelyn Echevarria
                                             ----------------------------------
                                        Name:     Evelyn Echevarria
                                        Title:    Vice President

                                        WELLS FARGO BANK MINNESOTA, NATIONAL
                                        ASSOCIATION,
                                        as Master Servicer

                                        By:  /s/ Peter Masterman
                                             ----------------------------------
                                        Name:     Peter Masterman
                                        Title:    Vice President

                                        FIRST UNION NATIONAL BANK,
                                        not in its individual capacity but
                                        solely as Trustee

                                        By:  /s/ Robert Ashbaugh
                                             ----------------------------------
                                        Name:     Robert Ashbaugh
                                        Title:    Vice President

<PAGE>

STATE OF NORTH CAROLINA  )
                         ) ss.:
COUNTY OF MECKLENBURG    )

     On the ___th day of November,  2001,  before me, a notary public in and for
said State, personally appeared _____________ known to me to be a ___________ of
ACE  Securities  Corp.,  one  of  the  corporations  that  executed  the  within
instrument,  and also known to me to be the person who  executed it on behalf of
said  corporation,  and  acknowledged to me that such  corporation  executed the
within instrument.

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

                                                  ------------------------------
                                                  Notary Public

[Notarial Seal]                                   My commission expires

<PAGE>

STATE OF NORTH CAROLINA  )
                         ) ss.:
COUNTY OF MECKLENBURG    )

     On the __ th day of November,  2001,  before me, a notary public in and for
said  State,  personally  appeared  ___________________  known  to  me  to  be a
_____________ of ACE Securities Corp., one of the corporations that executed the
within  instrument,  and also known to me to be the person  who  executed  it on
behalf  of  said  corporation,  and  acknowledged  to me that  such  corporation
executed the within instrument.

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

                                                  ------------------------------
                                                  Notary Public

[Notarial Seal]                                   My commission expires

<PAGE>

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

     On the ___nd day of November,  2001,  before me, a notary public in and for
said  State,   personally  appeared   _______________   known  to  me  to  be  a
_______________  of  ________________,  Wells  Fargo  Bank  Minnesota,  National
Association,  one of the corporations that executed the within  instrument,  and
also known to me to be the person who executed it on behalf of said corporation,
and acknowledged to me that such corporation executed the within instrument.

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

                                                  ------------------------------
                                                  Notary Public

[Notarial Seal]                                   My commission expires

<PAGE>

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

     On the ___ day of  November,  2001,  before me, a notary  public in and for
said State, personally appeared _____________, known to me to be a _____________
of First Union National Bank, one of the  corporations  that executed the within
instrument,  and also known to me to be the person who  executed it on behalf of
said  corporation,  and  acknowledged to me that such  corporation  executed the
within instrument.

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

                                                  ------------------------------
                                                  Notary Public

[Notarial Seal]<PAGE>
                                                                    EXHIBIT 10.2

                                                        OPTION NUMBER:__________

                            VIRAGE LOGIC CORPORATION
                           1997 EQUITY INCENTIVE PLAN
                                OPTION AGREEMENT

        This Stock Option Agreement (this "AGREEMENT") is made and entered into
between Virage Logic Corporation, a Delaware corporation (the "COMPANY"), and
the person (the "PARTICIPANT") named in the attached Notice of Grant of Stock
Options and Option Agreement (the "NOTICE"). Capitalized terms not defined
herein shall have the meaning ascribed to them in the Company's 1997 Equity
Incentive Plan (the "PLAN"), a copy of which is attached hereto as Exhibit A.

        1. GRANT OF OPTION. The Company hereby grants to Participant pursuant to
the Plan an option (this "OPTION") to purchase the total number of shares of
Common Stock of the Company (the "SHARES") at the price per share (the "EXERCISE
PRICE"), each as set forth in the Notice, subject to all of the terms and
conditions of this Agreement and the Plan. If the Notice designates this Option
as an incentive stock option, this Option is intended to qualify as an
"incentive stock option" (an "ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "CODE"). If designated otherwise,
this Option is intended not to qualify as an "incentive stock option."

        2. EXERCISE PERIOD AND VESTING SCHEDULE.

                (a) This Option shall become first exercisable ("vest") as to:

                        (i) 25% of the Shares on the first anniversary of the
Vesting Commencement Date, and

                        (ii) an additional 2.0833% of the Shares each month
beginning with the month following the first anniversary of the Vesting
Commencement Date.

        3. EXPIRATION; TERMINATION.

                3.1 Expiration. This Option shall expire on the expiration date
set forth in the Notice (the "Expiration Date") or earlier due to Participant's
Termination, but in no event later than ten (10) years after the effective grant
date set forth in the Notice (the "GRANT DATE") (or no later than five (5) years
after the Grant Date if this Option is designated as an ISO and the Participant
owns directly, indirectly or constructively more than 10% of the voting stock of
the Company or any Parent or Subsidiary as of the Grant Date). In no event may
this Option be exercised after the Expiration Date.

                3.2 Termination.

                        (i) Unless a longer period is allowed by the Committee,
this Option may be exercised for the following periods following Termination
under the following circumstances:

<TABLE>
<CAPTION>
Termination Due to:                       Post-Termination Exercise Period:
-------------------                       ---------------------------------
<S>                                       <C>
Other than Death or Disability or Cause                3 months

Death                                                  12 months

Disability                                             12 months

Cause                                                    None
</TABLE>

                        (ii) This option shall terminate to the extent not
exercised within the post-Termination exercise periods specified above.

                                       1
<PAGE>

                        (iii) If Death occurs within 3 months following
Termination other than for Disability or Cause, Termination shall be treated as
being due to Death.

                        (iv) Unless otherwise permitted by the Committee, this
Option may be exercised following Termination only to the extent it was
exercisable on the Termination Date.

                        (v) Notwithstanding the foregoing, this Option may
terminate upon the occurrence of a corporate transaction in the manner
determined by the Board pursuant to Section 17 of the Plan.

                3.3 No Obligation to Employ. Nothing in the Plan or this
Agreement shall confer on Participant any right to continue in the employ of, or
other relationship with, the Company or any Parent or Subsidiary of the Company,
or limit in any way the right of the Company or any Parent or Subsidiary of the
Company to terminate or alter the terms of Participant's employment or other
relationship at any time.

        4. MANNER OF EXERCISE.

                4.1 Stock Option Exercise Notice. To exercise this Option,
Participant (or in the case of exercise after Participant's death, Participant's
executor, administrator, heir or legatee, as the case may be) must deliver to
the Company an executed Notice of Exercise of Stock Option in the form attached
hereto as Exhibit B, or in such other form as may be approved by the Committee
from time to time (the "EXERCISE NOTICE"). If someone other than Participant
exercises this Option, then such person must submit documentation reasonably
acceptable to the Company verifying that such person has the legal right to
exercise this Option. This Option shall be deemed to be exercised upon receipt
by the Company of the Exercise Notice, Exercise Price and withholding taxes.

                4.2 Limitations on Exercise. This Option may not be exercised
unless such exercise is in compliance with all applicable federal and state
securities laws, as they are in effect on the date of exercise. This Option may
not be exercised as to fewer than fifty (50) Shares unless it is exercised as to
all Shares as to which this Option is then exercisable.

                4.3 Payment. Unless otherwise permitted by the Committee at the
time of payment, where permitted by law, payment of the Exercise Price shall be
by any of the following, or a combination thereof, at the election of the
Participant:

                (a) In cash (by check);

                (b) by surrender of shares of the Company's Common Stock that
(i) either (A) have been owned by Participant for more than six (6) months and
have been paid for within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note has been fully
paid with respect to such shares); or (B) were obtained by Participant in the
open public market; and (ii) are clear of all liens, claims, encumbrances or
security interests; or

                (c) provided that a public market for the Company's stock
exists, through a "same day sale" commitment from Participant and a
broker-dealer that is a member of the National Association of Securities Dealers
(an "NASD DEALER") whereby Participant irrevocably elects to exercise this
Option and to sell a portion of the Shares so purchased sufficient to pay for
the total Exercise Price and whereby the NASD Dealer irrevocably commits upon
receipt of such Shares to forward the total Exercise Price directly to the
Company.

                4.4 Tax Withholding. Prior to the issuance of the Shares upon
exercise of this Option, Participant must pay or provide for any applicable
federal, state and local withholding taxes that the Committee, in its sole
discretion, determines that the Company is obligated to collect. Unless
otherwise permitted by the Committee, payment of such taxes shall be made in
cash (by check) or by withholding amounts otherwise payable by the Company to
the Participant.

                4.5 Issuance of Shares. Provided that the Exercise Notice,
Exercise Price and tax withholding payments are in form and substance
satisfactory to counsel for the Company, the Company shall issue the Shares
registered in the name of Participant, Participant and Participant's spouse as
community property,

                                       2
<PAGE>

Participant and a joint tenant with rights of survivorship or Participant's
legal representative, executor, heir or legatee, as the case may be and shall
deliver certificates representing the Shares with the appropriate legends
affixed thereto or make appropriate entries on its records for shares requested
to be issued in book-entry form only.

        5. NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If this Option is
designated as an ISO and the Participant sells or otherwise disposes of,
including by gift, any of the Shares acquired pursuant to this Option on or
before the later of (i) the date two (2) years after the Grant Date, and (ii)
the date one (1) year after transfer of such Shares to Participant upon exercise
of this Option, Participant shall immediately notify the Company in writing of
such disposition. Participant agrees that Participant may be subject to federal,
state and local income and employment tax withholding by the Company on the
compensation income recognized by Participant from the early disposition and
Participant agrees to pay such withholding taxes to the Company in cash (by
check) or out of the current wages or other amounts payable to Participant.

        6. NONTRANSFERABILITY OF OPTION AND SHARES. This Option may not be
transferred in any manner other than by will or the laws of descent and
distribution and may be exercised during the lifetime of Participant only by
Participant. The terms of this Option shall be binding upon the executors,
administrators, successors and assigns of Participant. Unvested Shares may not
be transferred in any manner and Participant understands and agrees that the
Company will place legends to such effect on any stock certificate(s) evidencing
the unvested Shares, together with any other legends that may be required by
state or U.S. Federal securities laws, the Company's Articles of Incorporation
or Bylaws, any other agreement between Participant and the Company or any
agreement between Participant and any third party. Participant agrees that, to
ensure compliance with the restrictions imposed on the unvested Shares by this
Agreement, the Company may issue appropriate "stop-transfer" instructions to its
transfer agent. Further, the Company will not be required (i) to transfer on its
books any Shares that have been sold or otherwise transferred in violation of
any of the provisions of this Agreement or (ii) to treat as owner of such
Shares, or to accord the right to vote or receive dividends to any purchaser or
other transferee to whom such Shares have been so transferred.

        7. PRIVILEGES OF STOCK OWNERSHIP. Participant shall not have any of the
rights of a shareholder with respect to any Shares until the Shares are issued
to Participant.

        8. INTERPRETATION. Participant acknowledges that he or she has received
a copy of the Plan, is familiar with its terms and provisions and accepts this
Option subject to those terms and provisions. Any dispute regarding the
interpretation of the Plan or this Agreement shall be submitted by Participant
or the Company to the Committee for review. Participant agrees to accept as
final and binding all decisions or interpretations of the Committee upon any
question arising under the Plan or this Agreement.

        9. NO TAX ADVICE FROM COMPANY. Participant represents that he or she has
consulted with such tax advisors as Participant has deemed desirable in
connection with the grant of this Option and that Participant is not relying
upon the Company or any agent or employee of, or advisor to, the Company for any
tax advice.

        10. ENTIRE AGREEMENT. The Plan is incorporated herein by reference. This
Agreement and the Plan constitute the entire agreement of the parties and
supersede all prior undertakings and agreements with respect to the subject
matter hereof.

        11. NOTICES. Any notice required to be given or delivered to the Company
under the terms of this Agreement shall be in writing and addressed to the
Corporate Secretary of the Company at its principal corporate offices. Any
notice required to be given or delivered to Participant shall be in writing and
addressed to Participant at the address indicated on the Notice or to such other
address as the Participant may designate in writing from time to time to the
Company. All notices shall be deemed to have been given or delivered upon: (i)
personal delivery; (ii) three (3) days after deposit in the United States mail
by certified or registered mail (return receipt requested); (iii) one (1)
business day after deposit with any return receipt express courier (prepaid); or
(iv) one (1) business day after transmission by facsimile, rapifax or
telecopier.

        12. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement, including its rights to purchase Shares under the
Repurchase Option. This Agreement shall be binding upon and inure to the benefit
of the successors and assigns of the Company. Subject to the restrictions on
transfer set forth

                                       3
<PAGE>

herein, this Agreement shall be binding upon Participant and Participant's
heirs, executors, administrators, legal representatives, successors and assigns.

        13. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California as such laws are applied to
agreements between California residents entered into and to be performed
entirely within California. If any provision of this Agreement is determined by
a court of law to be illegal or unenforceable, then such provision will be
enforced to the maximum extent possible and the other provisions will remain
fully effective and enforceable.

                                       4
<PAGE>

                                    EXHIBIT A

                           1997 EQUITY INCENTIVE PLAN

                                       A-1
<PAGE>

                                    EXHIBIT B

                               NOTICE OF EXERCISE

                                       B-1
<PAGE>

                            VIRAGE LOGIC CORPORATION
                           1997 EQUITY INCENTIVE PLAN
                       NOTICE OF EXERCISE OF STOCK OPTION

    (A) Name of Purchaser: ___________________________________

    (B) Social Security Number: ______________________________

    (C) Date of Option Agreement: ________________

    (D) Number of Shares for which Option is being Exercised: _________________

    (E) Exercise Price Per Share: ________________

    (F) Total Exercise Price: ____________________

EXERCISE ELECTION

Pursuant to Section 4 of the Option Agreement between the undersigned and Virage
Logic Corporation (the "Company") dated as of the date referred to in (C) above,
the undersigned hereby irrevocably elects to exercise the purchase right
represented by the Option Agreement for, and to purchase under that Option
Agreement, the number of shares set forth in (D) above. The undersigned hereby
submits payment for the total exercise price set forth in (F) above by (check
one):

______  submitting a check payable to Virage Logic Corporation in the amount of
        $______________;

______  submitting ______________ shares of the Company's Common Stock having a
        "fair market value"** equal to the total exercise price as of the date
        of exercise. The undersigned hereby represents that such shares: (A)
        have been owned by the undersigned for more than six (6) months and have
        been paid for within the meaning of SEC Rule 144 (and, if such shares
        were purchased from the Company by use of a promissory note, such note
        has been fully paid with respect to such shares); or (B) were obtained
        by the undersigned in the open public market; and (ii) are clear of all
        liens, claims, encumbrances or security interests; or

______  by authorizing my broker (who is a member of the NASD) to remit to the
        Company the total exercise price received through a "same day sale"

** The "fair market value" of the Common Stock is the closing price on the
Nasdaq National Market as of the date of exercise.

TAX MATTERS

I understand that federal, state and local income and employment taxes may be
required to be withheld by the Company as a result of my exercise of this
Option. Accordingly (check one):

______  I am submitting a check to the Company in the amount of all such taxes
        that the Company has indicated are due; or

______  I hereby authorize the Company to withhold the amount of all such taxes
        that the Company has indicated are due from amounts otherwise payable to
        me by the Company.

I understand that the shares purchased upon the exercise of the Option may be
subject to the Company's Right of Repurchase and thus may be subject to a
"substantial risk of forfeiture" within the meaning of Section 83 of the
Internal Revenue Code. I understand further that an election under Section 83(b)
of the Internal Revenue Code with respect to such shares can only be made within
30 days after I purchase them.

I have discussed the vesting and other restrictions applicable to the shares
with the Company. I understand that the Company recommends that I discuss
whether these restrictions constitute a "substantial risk of forfeiture" within
the meaning of Code Section 83(c) (and the consequences thereof, including an
election under Code Section 83(b)) with my tax personal advisor.

ISSUANCE OF SHARES

                                       2
<PAGE>

Please issue the shares as follows (check one):

     ____ in my name individually; or

     ____ in my name and _________________________ as __________________________
          (i.e. community property or joint tenants with rights of survivorship)

DELIVERY OF SHARES

Please deliver the shares as follows (check one):

     ____ Hold in book entry; or

     ____ Mail to the following address: If to a Broker please include Brokerage
          name, account name and account number.

                        _________________________________
                        _________________________________
                        _________________________________
                        _________________________________

Date:_______________________        Signature:_________________________________

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

STOCK ADMINISTRATION USE ONLY

Report Control Number ____________________________

Date of Certificate/Exercise date ____________________________

                                       3

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