Document:

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                                                                     EXHIBIT 4.2

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                                                                  EXECUTION COPY

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                       MORGAN STANLEY ABS CAPITAL I INC.,
                                  AS DEPOSITOR,

                      DEUTSCHE BANK NATIONAL TRUST COMPANY,
                                   AS TRUSTEE,

                                       and

                             BANK OF AMERICA, N.A.,
                                   AS SERVICER

                               SERVICING AGREEMENT

                            DATED AS OF JUNE 1, 2004

                MORGAN STANLEY ABS CAPITAL I INC. TRUST 2004-SD2

                       MORTGAGE PASS-THROUGH CERTIFICATES,
                                 SERIES 2004-SD2

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                                TABLE OF CONTENTS

<TABLE>
                                                              ARTICLE I

                                                             DEFINITIONS

   <S>                  <C>                                                                                      <C>
   Section 1.01         Defined Terms.............................................................................1
   Section 1.02         Accounting...............................................................................15

                                                             ARTICLE II

                                                    ADMINISTRATION AND SERVICING
                                                        OF THE MORTGAGE LOANS

   Section 2.01         Servicer to Act as Servicer; Subservicing................................................15
   Section 2.02         Collection of Mortgage Loan Payments.....................................................17
   Section 2.03         Realization Upon Defaulted Mortgage Loans................................................18
   Section 2.04         Collection Account.......................................................................19
   Section 2.05         Permitted Withdrawals From the Collection Account........................................20
   Section 2.06         Establishment of Escrow Accounts; Deposits in Escrow Accounts............................21
   Section 2.07         Permitted Withdrawals From Escrow Account................................................21
   Section 2.08         Payment of Taxes, Insurance and Other Charges; Collections Thereunder....................22
   Section 2.09         Transfer of Accounts.....................................................................22
   Section 2.10         Maintenance of Hazard Insurance..........................................................22
   Section 2.11         Maintenance of Mortgage Impairment Insurance Policy......................................23
   Section 2.12         Fidelity Bond, Errors and Omissions Insurance............................................23
   Section 2.13         Title, Management and Disposition of REO Property........................................24
   Section 2.14         Due-on-Sale Clauses; Assumption and Substitution Agreements..............................25
   Section 2.15         Notification of Adjustments..............................................................26
   Section 2.16         Optional Purchases of Mortgage Loans by Servicer.........................................26
   Section 2.17         Trustee to Cooperate; Release of Files...................................................27
   Section 2.18         Servicing Compensation...................................................................28
   Section 2.19         Annual Statement as to Compliance........................................................28
   Section 2.20         Annual Independent Certified Public Accountants' Reports.................................28
   Section 2.21         Access to Certain Documentation and Information Regarding the Mortgage Loans.............28
   Section 2.22         Substitution Adjustment Amounts..........................................................28
   Section 2.23         Obligations of the Servicer in Respect of Compensating Interest..........................29
   Section 2.24         Obligations of the Servicer in Respect of Mortgage Interest Rates and Monthly Payments...29
   Section 2.25         Investment of Funds in the Collection Account............................................29
   Section 2.26         Liability of Servicer; Indemnification...................................................30
   Section 2.27         Reports of Foreclosure and Abandonment of Mortgaged Properties...........................30
   Section 2.28         Remittance Reports; Advances.............................................................30
   Section 2.29         Periodic Filings.........................................................................32
   Section 2.30         Gramm-Leach-Bliley.......................................................................32
   Section 2.31         Inspections..............................................................................32
   Section 2.32         Restoration of Mortgaged Property........................................................33
</TABLE>

                                        i
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<TABLE>
                                                             ARTICLE III

                                                              [RESERVED]

                                                             ARTICLE IV

                                                    THE SERVICER AND THE DEPOSITOR

   <S>                  <C>                                                                                      <C>
   Section 4.01         Liability of the Servicer and the Depositor..............................................33
   Section 4.02         Merger or Consolidation of, or Assumption of the Obligations of  the Servicer or the
                        Depositor................................................................................33
   Section 4.03         Limitation on Liability of the Servicer and Others.......................................34
   Section 4.04         Servicer Not to Resign...................................................................34
   Section 4.05         Delegation of Duties.....................................................................34
   Section 4.06         Representations, Warranties and Covenants of the Servicer................................35

                                                              ARTICLE V

                                                               DEFAULT

   Section 5.01         Servicer Events of Termination...........................................................36
   Section 5.02         Trustee to Act; Appointment of Successor.................................................38
   Section 5.03         Waiver of Defaults.......................................................................38
   Section 5.04         Notification to Certificateholders.......................................................39
   Section 5.05         Survivability of Servicer Liabilities....................................................39

                                                             ARTICLE VI

                                                             TERMINATION

   Section 6.01         Termination..............................................................................39

                                                             ARTICLE VII

                                                      MISCELLANEOUS PROVISIONS

   Section 7.01         Amendment................................................................................39
   Section 7.02         Recordation of Agreement; Counterparts...................................................40
   Section 7.03         Governing Law; Jurisdiction..............................................................40
   Section 7.04         Notices..................................................................................41
   Section 7.05         Severability of Provisions...............................................................41
   Section 7.06         Article and Section References...........................................................41
   Section 7.07         Notice to the Rating Agencies............................................................41
   Section 7.08         Further Assurances.......................................................................42
   Section 7.09         Benefits of Agreement....................................................................42
   Section 7.10         Acts of Certificateholders...............................................................42
   Section 7.11         Exhibits and Schedules...................................................................42
</TABLE>

                                    EXHIBITS:

Exhibit A       Mortgage Loan Schedule
Exhibit B       Form of Request for Release
Exhibit C       Monthly Information Provided by Servicer
Exhibit D       Annual Certifications
Exhibit E       Data and Format to be Provided by the Servicer to the Depositor

                                       ii

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         This Servicing Agreement is dated as of June 1, 2004 (the "Agreement"),
among MORGAN STANLEY ABS CAPITAL I INC., a Delaware corporation, as depositor
(the "Depositor"), DEUTSCHE BANK NATIONAL TRUST COMPANY, a national banking
association, as trustee (the "Trustee"), and BANK OF AMERICA, N.A., a national
banking association, as servicer (the "Servicer").

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

         WHEREAS, the Depositor intends to sell pass-through certificates
(collectively, the "Certificates"), which are to be issued pursuant to a pooling
agreement, dated as of June 1, 2004 (the "Pooling Agreement"), among the
Depositor, the Seller, the Trustee and the Custodian (each, as hereinafter
defined).

         WHEREAS, the Certificates will be backed by certain Mortgage Loans.

         WHEREAS, the Servicer, the Trustee and the Depositor have agreed that
the Servicer shall service certain of such Mortgage Loans on behalf of the
Depositor and the parties hereto desire to provide the mechanics of such
servicing by the Servicer.

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

                                   ARTICLE I

                                   DEFINITIONS

Section 1.01      Defined Terms.

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

         "1934 Act":  The Securities Exchange Act of 1934, as amended.

         "60+ Day Delinquent Loan": Without duplication, (i) each Mortgage Loan
with respect to which any portion of a Monthly Payment is, as of the last
calendar day of the prior Collection Period, two months or more past due (other
than a Re-Performing 60+ Day Delinquent Loan), (ii) each Mortgage Loan in
foreclosure (other than a Re-Performing 60+ Day Delinquent Loan), (iii) each
Mortgage Loan for which the Mortgagor has filed for bankruptcy after the Closing
Date (other than a Re-Performing 60+ Day Delinquent Loan) and (iv) all REO
Property.

         "Account":  Either of the Collection Account or the Distribution
Account.

         "Actuarial Mortgage Loan": Any Mortgage Loan other than a Simple
Interest Mortgage Loan.

         "Adjustable-Rate Mortgage Loan": A Mortgage Loan which has a rate at
which interest accrues that adjusts based on an Index plus a related Gross
Margin, as set forth and subject to the limitations in the related Mortgage
Note.

         "Adjustment Date": With respect to each Adjustable-Rate Mortgage Loan,
each adjustment date, on which the Mortgage Interest 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.

         "Advance": As to any Actuarial Mortgage Loan, any advance made by the
Servicer in respect of any Distribution Date pursuant to Section 2.28.

<PAGE>

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

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

         "Applicable Regulations": As to any Mortgage Loan, all federal, state
and local laws, statutes, rules and regulations applicable thereto, including
with respect to each FHA Loan, the FHA Regulations and the related FHA Insurance
Contract.

         "Balloon Mortgage Loan": A Mortgage Loan that provides for the payment
of the unamortized principal balance of such Mortgage Loan in a single payment
at the maturity of such Mortgage Loan that is substantially greater than the
preceding monthly payment.

         "Balloon Payment": A payment of the unamortized principal balance of a
Mortgage Loan in a single payment at the maturity of such Mortgage Loan that is
substantially greater than the preceding Monthly Payment.

         "Bankruptcy Code":  Title 11 of the United States Code, as amended.

         "Business Day": Any day other than a Saturday, a Sunday or a day on
which banking institutions in the State of Delaware, the State of New York, the
State of California, the State of Virginia 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.

         "Certificate":  As defined in the Recitals hereto.

         "Certificate Register": The register maintained pursuant to the Pooling
Agreement.

         "Certificateholder" or "Holder": The Person in whose name a Certificate
is registered in the Certificate Register, in accordance with the Pooling
Agreement.

         "Certification":  As defined in Section 2.29(b).

         "Class P Certificate":  As defined in the Pooling Agreement.

         "Class R Certificate":  As defined in the Pooling Agreement.

         "Class X Certificate":  As defined in the Pooling Agreement.

         "Closing Date":  June 4, 2004.

         "Code": The Internal Revenue Code of 1986, as it may be amended from
time to time.

         "Collection Account": The account or accounts created and maintained by
the Servicer pursuant to Section 2.04, which shall be entitled "Collection
Account, Bank of America, N.A., as Servicer for the Trust under the Servicing
Agreement dated as of June 1, 2004 between Morgan Stanley ABS Capital I Inc., as
Depositor, Deutsche Bank National Trust Company, as Trustee and Bank of America,
N.A., as Servicer, in trust for registered Holders of Morgan Stanley ABS Capital
I Inc. Trust 2004-SD2, Mortgage Pass-Through Certificates, Series 2004-SD2", and
which must be an Eligible Account.

         "Collection Period": With respect to any Distribution Date or Servicer
Remittance Date, the calendar month preceding the month in which such
Distribution Date or Servicer Remittance Date occurs.

                                       2
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         "Combined Amortized Loan-to-Value Ratio": As of any date and Mortgage
Loan, the fraction, expressed as a percentage, the numerator of which is (i) the
Principal Balance of the Mortgage Loan, as of such date of determination, plus
(ii) the principal balance of any related senior mortgage loan at the time of
origination of such Mortgage Loan, and the denominator of which is the Value at
the time of origination of such Mortgage Loan, of the related Mortgaged
Property.

         "Compensating Interest":  As defined in Section 2.23 hereof.

         "Condemnation Proceeds": All awards or settlements in respect of a
taking of a Mortgaged Property by exercise of the power of eminent domain or
condemnation.

         "Conventional Mortgage Loan": Any Mortgage Loan that is not an FHA Loan
or a VA Loan.

         "Convertible Mortgage Loan": An Adjustable-Rate Mortgage Loan that by
its terms and subject to certain conditions allows the Mortgagor to convert the
adjustable Mortgage Interest Rate thereon to a fixed Mortgage Interest Rate.

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

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

         "Cooperative Loan Documents": With respect to any Cooperative Loan, (i)
the Cooperative Shares, together with a stock power in blank; (ii) the original
executed Security Agreement and the assignment of the Security Agreement
endorsed in blank; (iii) the original executed Proprietary Lease and the
assignment of the Proprietary Lease endorsed in blank; (iv) the original
executed Recognition Agreement and the assignment of the Recognition Agreement
(or a blanket assignment of all Recognition Agreements) endorsed in blank; (v)
the executed UCC-1 financing statement with evidence of recording thereon, which
has been filed in all places required to perfect the security interest in the
Cooperative Shares and the Proprietary Lease; and (vi) the Seller's executed
UCC-3 financing statements (or copies thereof) or other appropriate UCC
financing statements required by state law, evidencing a complete and unbroken
chain of title from the mortgagee to the Seller with evidence of recording
thereon (or in a form suitable for recordation).

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

         "Cooperative Shares":  Shares issued by a Cooperative Corporation.

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

         "Corporate Trust Office": With respect to the Trustee, the corporate
trust office of the Trustee at which at any particular time its corporate trust
business in connection with this Agreement shall be administered, which office
at the date of the execution of this instrument is located at 1761 East St.
Andrew Place, Santa Ana, California, 92705, Attention: Trust Administration
MS04S2 and for purposes of transfer, exchange and surrender, the office of the
Trustee's agent located at c/o DTC Transfer Agent Services, 55 Water Street,
Jeanette Park Entrance, New York, New York, 10041, or at such other address as
the Trustee may designate from time to time by notice to the Certificateholders,
the Depositor, the Custodian and the Servicer.

         "Cumulative Loss 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 from the Cut-off Date to the last day of the
preceding calendar month and the denominator of which is the Principal Balance
of the Mortgage Loans as of the Cut-off Date.

         "Custodian": Deutsche Bank National Trust Company, a national banking
association, or any successor in interest.

                                       3
<PAGE>

         "Cut-off Date":  May 1, 2004.

         "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.

         "Defective Mortgage Loan": A Mortgage Loan replaced or to be replaced
by one or more Eligible Substitute Mortgage Loans.

         "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.

         "Delinquent Loan": A Mortgage Loan for which the related Monthly
Payment due on any Due Date is not received by the close of business on the next
scheduled Due Date for such Mortgage Loan.

         "Depositor": Morgan Stanley ABS Capital I Inc., a Delaware corporation,
or any successor in interest.

         "Determination Date": With respect to any Distribution Date, the 10th
day of the calendar month in which such Distribution Date occurs or, if such
10th calendar day is not a Business Day, the Business Day immediately preceding
such 10th calendar day.

         "Distribution Account": The trust account or accounts by such name
created and maintained by the Trustee pursuant to the Pooling Agreement.

         "Distribution Date": The 25th day of any calendar month, or if such
25th calendar day is not a Business Day, the Business Day immediately following
such 25th calendar day, commencing in June 2004.

         "Due Date": With respect to each Mortgage Loan and any Distribution
Date, the day of the calendar month in which such Distribution Date occurs on
which the Monthly Payment for such Mortgage Loan was due, exclusive of any grace
period.
         "Eligible Account": Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the
commercial paper, short-term debt obligations, demand deposits or other
short-term deposits of which are rated in one of the two highest rating
categories by each of the Rating Agencies at the time any amounts are held on
deposit therein, (ii) an account or accounts the deposits in which are fully
insured by the FDIC (to the limits established by such corporation), the
uninsured deposits in which account are otherwise secured such that, as
evidenced by an Opinion of Counsel delivered to the Trustee and to each Rating
Agency, the Certificateholders will have a claim with respect to the funds in
such account or a perfected first priority security interest against such
collateral (which shall be limited to Permitted Investments) securing such funds
that is superior to claims of any other depositors or creditors of the
depository institution with which such account is maintained, (iii) a trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution, national banking association or trust company
acting in its fiduciary capacity or (iv) an account otherwise acceptable to each
Rating Agency. Eligible Accounts may bear interest.

         "Eligible Substitute Mortgage Loan": A mortgage loan substituted for a
Defective 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 to the month of substitution, not in excess of, and not more than 10% less
than, the outstanding principal balance of the Defective Mortgage Loan as of the
Due Date in the calendar month during which the substitution occurs, (ii) have a
Mortgage Interest Rate, with respect to a Fixed-Rate Mortgage Loan, not less
than the Mortgage Interest Rate of the Defective Mortgage Loan and not more than
1% in excess of the Mortgage Interest Rate of such Defective Mortgage Loan,
(iii) if an Adjustable-Rate Mortgage Loan, have a Lifetime Rate Cap not less
than the Lifetime Rate Cap for the Defective Mortgage Loan, (iv) if an
Adjustable-Rate Mortgage Loan, have a Minimum Loan Rate not less than the
Minimum Loan Rate of the Defective Mortgage Loan, (v) if an Adjustable-Rate
Mortgage Loan, have a Gross Margin equal to or greater than the Gross Margin of
the Defective Mortgage Loan, (vi) if an Adjustable-Rate Mortgage Loan, have a
next Adjustment Date not more than two months later than the next Adjustment
Date on the Defective Mortgage Loan, (vii) have a remaining term to maturity not
greater than (and not more than one year less than) that of the Defective
Mortgage Loan, (viii) be current as of the date of substitution, (ix) have a
Combined Amortized Loan-to-Value Ratio as of the date of substitution equal to
or lower than the Combined Amortized Loan-to-Value Ratio of the Defective
Mortgage Loan as of such date, but in no event greater than 125%, (x) have been
reunderwritten by the Seller in accordance with materially similar underwriting
criteria and guidelines as the Defective Mortgage Loan and (xi) conform to each
representation and warranty set forth in Section 2.04 of the Pooling Agreement
applicable to the Defective Mortgage Loan. In the event that one or more
mortgage loans are substituted for one or more Defective Mortgage Loans, the
amounts described in clause (i) hereof shall be determined on the basis of
aggregate principal balances, the Mortgage Interest Rates described in clause
(ii) hereof shall be determined on the basis of weighted average Mortgage
Interest Rates, the terms described in clause (vii) hereof shall be determined
on the basis of weighted average remaining term to maturity, the Combined
Amortized Loan-to-Value Ratios described in clause (ix) 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 (xi) hereof must be satisfied as to each Eligible Substitute Mortgage
Loan or in the aggregate, as the case may be.

                                       4
<PAGE>

         "Escrow Account": The account or accounts created and maintained
pursuant to Section 2.06.

         "Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, mortgage insurance premiums, fire and hazard insurance
premiums and other payments required to be escrowed by the Mortgagor with the
mortgagee pursuant to any Mortgage Loan.

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

         "Expense Fee Rate":  As defined  in the Pooling Agreement.

         "Fannie Mae": Fannie Mae (formerly known as the Federal National
Mortgage Association) and any successor thereto.

         "Fannie Mae Guides": The Fannie Mae Sellers' Guide and the Fannie Mae
Servicers' Guide and all amendments or additions thereto.

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

         "FHA":  The Federal Housing Administration, an agency within HUD.

         "FHA Approved Mortgagee": Those institutions which are approved by FHA
to act as servicer and mortgagee of record pursuant to FHA Regulations.

         "FHA Insurance Contract" or "FHA Insurance": The contractual obligation
of FHA respecting the insurance of an FHA Loan pursuant to the National Housing
Act, as amended.

         "FHA Loan": A Mortgage Loan which is the subject of an FHA Insurance
Contract as evidenced by a Mortgage Insurance Certificate.

         "FHA Regulations": Regulations promulgated by HUD under the National
Housing Act, codified in 24 Code of Federal Regulations, and other HUD issuances
relating to FHA Loans, including the related handbooks, circulars, notices and
mortgagee letters.

         "Fidelity Bond":  Shall have the meaning assigned thereto in
Section 2.12.

         "Final Recovery Determination": With respect to any defaulted Mortgage
Loan or any REO Property, a determination made by the Servicer that all
Insurance Proceeds, Liquidation Proceeds and other payments or recoveries which
the Servicer, in its reasonable good faith judgment, expects to be finally
recoverable in respect thereof have been so recovered. The Servicer shall
maintain records, prepared by a Servicing Officer, of each Final Recovery
Determination made thereby.

                                       5
<PAGE>

         "Fitch": Fitch, Inc. and its successors, and if such company shall for
any reason no longer perform the functions of a securities rating agency,
"Fitch" shall be deemed to refer to any other "nationally recognized statistical
rating organization" as set forth on the most current list of such organizations
released by the SEC.

         "Fixed-Rate Mortgage Loan": A Mortgage Loan which has a constant annual
rate at which interest accrues in accordance with the provisions of the related
Mortgage Note.

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

         "Freddie Mac Guide": The Freddie Mac Single Family Seller/Servicer
Guide and all amendments or additions thereto.

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

         "HUD": The United States Department of Housing and Urban Development,
or any successor thereto and including the Federal Housing Commissioner and the
Secretary of Housing and Urban Development where appropriate under the FHA
Regulations.

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

         "Index": With respect to each Adjustable-Rate Mortgage Loan and with
respect to each related Adjustment Date, the index as specified in the related
Mortgage Note.

         "Initial Rate Cap": As to each Adjustable-Rate Mortgage Loan, the
maximum increase or decrease in the Mortgage Interest Rate on the first
Adjustment Date as provided in the related Mortgage Note.

         "Insurance Proceeds": Proceeds of any title policy, hazard policy or
other insurance policy (including, without limitation FHA or VA mortgage
insurance) 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 procedures that the Servicer would follow in
servicing mortgage loans held for its own account, subject to the terms and
conditions of the related Mortgage Note and Mortgage.

         "Late Collections": With respect to any Mortgage Loan, all amounts
received subsequent to the Determination Date immediately following any related
Collection 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 on a
contractual basis for such Collection Period and not previously recovered.

         "LGC": A Loan Guaranty Certificate issued by the VA as a guarantee that
the federal government will repay to the lender a specified percentage of the
loan balance in the event of the borrower's default.

                                       6
<PAGE>

         "Lifetime Rate Cap": As to each Adjustable-Rate Mortgage Loan, the
maximum Mortgage Interest Rate which shall be as permitted in accordance with
the provisions of the related Mortgage Note. The Mortgage Interest Rate during
the term of each Adjustable-Rate Mortgage Loan shall not at any time exceed the
Mortgage Interest Rate at the time of origination of such Adjustable-Rate
Mortgage Loan by more than the amount per annum set forth on the related
Mortgage Loan Schedule.

         "Liquidated Mortgage Loan": As to any Distribution Date, any Mortgage
Loan in respect of which the Servicer has determined, in accordance with the
servicing procedures specified herein, as of the end of the related Prepayment
Period, that all Liquidation Proceeds and Insurance Proceeds which it expects to
recover with respect to the liquidation of the Mortgage Loan or disposition of
the related REO Property have been 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 the Trust Fund by reason of its being purchased, sold or replaced
pursuant to or as contemplated by Section 2.03 of the Pooling Agreement. 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 the Trust Fund by reason of its being sold or purchased
pursuant to Section 2.13 hereof or Section 2.03 of the Pooling Agreement.

         "Liquidation Proceeds": The amount (other than amounts received in
respect of the rental of any REO Property prior to REO Disposition) received by
the 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 or (ii) the
liquidation of a defaulted Mortgage Loan by means of a trustee's sale,
foreclosure sale or otherwise.

         "Liquidation Report": The report with respect to a Liquidated Mortgage
Loan as provided by the Servicer to the Trustee.

         "Majority Certificateholders": The Holders of Certificates evidencing
at least 51% of the Voting Rights.

         "MIC": Mortgage Insurance Certificate issued by HUD/FHA as evidence
that a mortgage has been insured and that a contract of mortgage insurance
exists between HUD/FHA and the lender.

         "Minimum Loan Rate": With respect to each Adjustable-Rate Mortgage
Loan, the percentage set forth in the related Mortgage Note as the minimum
Mortgage Interest 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 or principal collectible from the related Mortgagor
pursuant to the Relief Act; (b) without giving effect to any extension granted
or agreed to by the Servicer pursuant to Section 2.01; 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. and its successors, and if
such company shall for any reason no longer perform the functions of a
securities rating agency, "Moody's" shall be deemed to refer to any other
"nationally recognized statistical rating organization" as set forth on the most
current list of such organizations released by the SEC.

         "Mortgage": With respect to any Mortgage Loan that is not a Cooperative
Loan, the mortgage, deed of trust or other instrument creating a first lien on
the Mortgaged Property securing the Mortgage Note and, with respect to a
Cooperative Loan, the related Security Agreement.

         "Mortgage File": The mortgage documents pertaining to a particular
Mortgage Loan and any additional documents required to be added to the Mortgage
File pursuant to the Pooling Agreement.

                                       7
<PAGE>

         "Mortgage Insurance Certificate": The certificate evidencing an FHA
Insurance Contract.

         "Mortgage Interest 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 (i) in
the case of each Fixed-Rate Mortgage Loan shall remain constant at the rate set
forth in the Mortgage Loan Schedule as the Mortgage Interest Rate in effect
immediately following the Cut-off Date and (ii) in the case of 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 Interest 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, to equal the
sum, rounded to the nearest 0.125% as provided in the Mortgage Note, of the
Index, determined as set forth in the related Mortgage Note, plus the related
Gross Margin subject to the limitations (including, but not limited to the
Initial Rate Cap, the Periodic Rate Cap and the Lifetime Rate Cap, if any) set
forth in the related Mortgage Note. 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.

         "Mortgage Loan": Each mortgage loan transferred and assigned to the
Trustee pursuant to the Pooling Agreement as from time to time held as a part of
the Trust Fund, the Mortgage Loans so held being identified in the Mortgage Loan
Schedule. The term "Mortgage Loan" includes a Cooperative Loan.

         "Mortgage Loan Schedule": As of any date (i) with respect to the
Mortgage Loans, the list of such Mortgage Loans included in the Trust Fund on
such date, separately identifying the Fixed-Rate Mortgage Loans and the
Adjustable-Rate Mortgage Loans, attached hereto as Exhibit A. The Mortgage Loan
Schedule shall set forth the following information with respect to each Mortgage
Loan: (1) the Mortgage Loan identifying number; (2) the city, state and zip code
of the Mortgaged Property; (3) the type of Residential Dwelling constituting the
Mortgaged Property or a designation that the Mortgaged Property is a
multi-family property; (4) the occupancy status of the Mortgaged Property at
origination; (5) the original months to maturity; (6) the date of origination;
(7) the first payment date; (8) the stated maturity date; (9) the stated
remaining months to maturity; (10) the original principal amount of the Mortgage
Loan; (11) the Principal Balance of each Mortgage Loan as of the Cut-off Date;
(12) the Servicing Fee Rate; (13) the Mortgage Interest Rate of the Mortgage
Loan as of the Cut-off Date; (14) the current principal and interest payment of
the Mortgage Loan as of the Cut-off Date; (15) the contractual interest paid to
date of the Mortgage Loan; (16) if the Mortgage Loan is not owner-financed, the
Combined Amortized Loan-to-Value Ratio at origination; (17) a code indicating
the loan performance status of the Mortgage Loan as of the Cut-off Date; (18) a
code indicating whether the Mortgage Loan is a Simple Interest Mortgage Loan or
an Actuarial Mortgage Loan; (19) a code indicating whether the Mortgaged
Property is in bankruptcy or in its forbearance period as of the Cut-off Date;
(20) a code indicating whether the Mortgage Loan is conventional or insured by
the FHA; (21) a code indicating the Index that is associated with such Mortgage
Loan; (22) the Gross Margin; (23) the Periodic Rate Cap; (24) the Minimum Loan
Rate; (25) the Lifetime Rate Cap; (26) the Initial Rate Cap (27) a code
indicating whether the Mortgage Loan has a prepayment penalty and the type and
the amount of the prepayment penalty; (28) the first Adjustment Date immediately
following the Cut-off Date; (29) the rate adjustment frequency; (30) the payment
adjustment frequency; (31) a code indicating whether the Mortgage Loan is
owner-financed; (32) a code indicating whether the Mortgage Loan is subject to
negative amortization; (33) a code indicating whether the Mortgage Loan is a
second lien; and (34) a code indicating whether a Primary Insurance Policy has
been issued with respect to the Mortgage Loan and the name of the insurer and
the amount of such Primary Insurance Policy; (35) the Mortgagor's first and last
name; (36) a code indicating the purpose of the Mortgage Loan (i.e., purchase
financing, rate/term refinancing or cash-out refinancing); (37) a code
indicating the documentation style; (38) the original amortization schedule;
(39) the paid-through date; (40) the Net Mortgage Interest Rate; (41) the Value
of the Mortgage Loan; (42) the number of times during the twelve month period
preceding the Closing Date that any Monthly Payment has been received more than
thirty days after its Due Date; (43) a code indicating the FICO score of the
Mortgagor at the time of origination; (44) in connection with a condominium
unit, a code indicating whether the condominium project where such unit is
located is low-rise or high-rise; (45) a code indicating whether such Mortgage
is insured by the FHA or guaranteed by the VA; (46) with respect to any
Non-Conventional Mortgage Loan, the related VA entitlement percentage of FHA
case number, as applicable.

                                       8
<PAGE>

         The Mortgage Loan Schedule shall set forth the following information,
as of the Cut-off Date, with respect to the Mortgage Loans in the aggregate, for
the Fixed-Rate Mortgage Loans and for the Adjustable-Rate Mortgage Loans, as
applicable: (1) the number of Mortgage Loans; (2) the current Principal Balance
of the Mortgage Loans; (3) the weighted average Mortgage Interest Rate of the
Mortgage Loans; (4) the weighted average maturity of the Mortgage Loans; (5) the
weighted average Lifetime Rate Cap; and (6) the weighted average Gross Margin.
The Mortgage Loan Schedule shall be amended from time to time in accordance with
the provisions of this Agreement. With respect to any Eligible Substitute
Mortgage Loan, 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
indebtedness evidencing the indebtedness of a Mortgagor under a Mortgage Loan.

         "Mortgage Pool": The pool of Mortgage Loans, identified on Exhibit A
from time to time, and any REO Properties acquired in respect thereof.

         "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 or multi-family dwelling or, in the case of a Cooperative
Loan, the related Cooperative Shares allocated to a Cooperative Unit in the
related Cooperative Corporation that were pledged to secure such Cooperative
Loan and Proprietary Lease.

         "Mortgagor":  The obligor on a Mortgage Note.

         "NAIC": The National Association of Insurance Commissioners or any
successor organization.

         "Net Interest Margin Securities":  As defined in Section 2.16 hereof.

         "Net Liquidation Proceeds": With respect to any Liquidated Mortgage
Loan or any other disposition of related Mortgaged Property (including REO
Property) the related Liquidation Proceeds net of Advances, Servicing Advances,
Servicing Fees and any other accrued and unpaid servicing fees received and
retained in connection with the liquidation of such Mortgage Loan or Mortgaged
Property.

         "Net Mortgage Interest Rate": With respect to any Mortgage Loan, the
Mortgage Interest Rate borne by such Mortgage Loan minus (i) the Servicing Fee
Rate and (ii) the Expense Fee Rate.

         "Nonrecoverable Advance": Any Advance or Servicing Advance previously
made or proposed to be made in respect of a Mortgage Loan that, in the good
faith business judgment of the Servicer, will not or, in the case of a proposed
Advance or Servicing Advance, would not be ultimately recoverable from Late
Collections on such Mortgage Loan as provided herein.

         "Non-Conventional Mortgage Loan":  Each FHA Loan and each VA Loan.

         "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 Servicer or the Depositor,
as applicable.

         "Opinion of Counsel": A written opinion of counsel, who may, without
limitation, be a salaried counsel for the Depositor or the Servicer except that
any opinion of counsel relating to (a) the qualification of any REMIC as a REMIC
or (b) compliance with the REMIC Provisions must be an opinion of Independent
counsel.

         "OTS":  The Office of Thrift Supervision, or any successor thereto.

         "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 Interest Rate
for such Mortgage Loan may increase or decrease (without regard to the Lifetime
Rate Cap or the Minimum Loan Rate) on such Adjustment Date from the Mortgage
Interest Rate in effect immediately prior to such Adjustment Date.

                                       9
<PAGE>

         "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 or managed by the Depositor, the Servicer, the Trustee or any
of their respective Affiliates or for which an Affiliate of the Trustee serves
as an advisor:

                  (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,
         bankers' acceptances issued by or federal funds sold by any depository
         institution or trust company (including the Trustee or their agents
         acting in their respective commercial capacities) incorporated under
         the laws of the United States of America or any state thereof and
         subject to supervision and examination by federal and/or state
         authorities, so long as, at the time of such investment or contractual
         commitment providing for such investment, such depository institution
         or trust company or its ultimate parent has a short-term uninsured debt
         rating in one of the two highest available rating categories of S&P and
         Moody's and the highest available rating category of Fitch and provided
         that each such investment has an original maturity of no more than 365
         days and (B) any other demand or time deposit or deposit which is fully
         insured by the FDIC;

                  (iii) repurchase obligations with a term not to exceed 30 days
         with respect to any security described in clause (i) above and entered
         into with a depository institution or trust company (acting as
         principal) rated A or higher by S&P and Fitch and rated A2 or higher by
         Moody's, provided, however, that collateral transferred pursuant to
         such repurchase obligation must be of the type described in clause (i)
         above and must (A) be valued daily at current market prices plus
         accrued interest or (B) pursuant to such valuation, be equal, at all
         times, to 105% of the cash transferred by the Trustee in exchange for
         such collateral and (C) be delivered to the Trustee or, if the Trustee
         is supplying the collateral, an agent for the Trustee, in such a manner
         as to accomplish perfection of a security interest in the collateral by
         possession of certificated securities;

                  (iv) securities bearing interest or sold at a discount 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 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 in its highest
         short-term unsecured debt rating available at the time of such
         investment;

                  (vi) units of money market funds including funds managed or
         advised by the Trustee or affiliates thereof having the highest rating
         category by the applicable Rating Agency; 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;

provided, 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.

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

         "Pool Balance": As of any date of determination, the aggregate
Principal Balance of the Mortgage Loans.

                                       10
<PAGE>

         "Pooling Agreement": The Pooling Agreement, dated as of June 1, 2004,
among the Depositor, the Seller, the Trustee and the Custodian.

         "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 in full that was applied by the Servicer to reduce the
outstanding principal balance of such loan on a date preceding the related Due
Date, an amount equal to interest at the applicable Mortgage Interest Rate (net
of the Servicing Fee 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 calendar day of the related Prepayment Period.

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

         "Primary Insurance Policy": Each policy of primary guaranty mortgage
insurance issued by a Qualified Insurer in effect with respect to any Mortgage
Loan, or any replacement policy therefor obtained by the Servicer pursuant to
Section 2.08.

         "Principal Balance": As to any Mortgage Loan and any day, other than a
Liquidated Mortgage Loan, the related scheduled principal balance thereof as of
the Cut-off Date, minus all collections credited against the principal balance
of any such Mortgage Loan and the principal portion of Advances plus, Deferred
Interest, if any. For purposes of this definition, a Liquidated Mortgage Loan
shall be deemed to have a Principal Balance equal to the Principal Balance of
the related Mortgage Loan as of the final recovery of related Liquidation
Proceeds and a Principal Balance of zero thereafter. As to any REO Property and
any day, the Principal Balance of the related Mortgage Loan immediately prior to
such Mortgage Loan becoming REO Property minus any REO Principal Amortization
received with respect thereto on or prior to such day.

         "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.

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

         "Purchase Price": With respect to any Mortgage Loan or REO Property to
be purchased by the Seller pursuant to or as contemplated in the Pooling
Agreement, an amount equal to the sum of (i) 100% of the Principal Balance
thereof as of the date of purchase, (ii) accrued interest on such Principal
Balance at the applicable Mortgage Interest 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 an Advance by the Servicer, through the end of the calendar month
in which the purchase is to be effected, (iii) any unreimbursed Servicing
Advances and Advances and any unpaid Servicing Fees allocable to such Mortgage
Loan or REO Property, (iv) any amounts previously withdrawn from the Collection
Account in respect of such Mortgage Loan or REO Property pursuant to Section
2.13, (v) expenses reasonably incurred or to be incurred by the Servicer or
Trustee in respect of the breach or defect giving rise to the purchase
obligation and (vi) any costs and damages incurred by the Trust Fund in
connection with any violation of any predatory or abusive lending law with
respect thereto.

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

                                       11
<PAGE>

         "Rating Agency" or "Rating Agencies": Fitch, Moody's and S&P, or their
respective successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating organizations as set forth on the most current list of such organizations
released by the SEC and designated by the Depositor, notice of which designation
shall be given to the Trustee and the Servicer.

         "Realized Loss": With respect to a Liquidated Mortgage Loan, the amount
by which the remaining unpaid principal balance of the Mortgage Loan exceeds the
amount of Net Liquidation Proceeds applied to the principal balance of the
related Mortgage Loan.

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

         "Related Documents": With respect to any Mortgage Loan, the related
Mortgage Notes, Mortgages and other related documents.

         "Relief Act": The Servicemembers Civil Relief Act, as amended, or any
other similar state law(s).

         "Relief Act Shortfall": With respect to any Distribution Date, for any
Mortgage Loan with respect to which there has been a reduction in the amount of
interest or principal collectible thereon for the most recently ended Collection
Period as a result of the application of the Relief Act, the amount by which (i)
interest or principal collectible on such Mortgage Loan during such Collection
Period is less than (ii) one month's interest on the Principal Balance of such
Mortgage Loan at the Mortgage Interest Rate or that month's principal payment
for such Mortgage Loan before giving effect to the application of the Relief
Act.

         "Remainder Amount":  As defined in Section 2.16 hereof.

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

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

         "Remittance Report": A report prepared by the Servicer and delivered to
the Trustee pursuant to Section 2.28, containing the information attached hereto
as Exhibit C.

         "REO Disposition": The sale or other disposition of an REO Property on
behalf of the Trust Fund.

         "REO Principal Amortization": With respect to any REO Property, for any
calendar month, 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 any purchase price paid
in connection with a purchase of all of the Mortgage Loans and REO Properties
pursuant to Section 7.01 of the Pooling Agreement that is allocable to such REO
Property) or otherwise, net of any portion of such amounts (i) payable pursuant
to Section 2.13 in respect of the proper operation, management and maintenance
of such REO Property or (ii) payable or reimbursable to the Servicer pursuant to
Section 2.13 for unpaid Servicing Fees in respect of the related Mortgage Loan
and unreimbursed Servicing Advances and Advances in respect of such REO Property
or the related Mortgage Loan.

         "REO Property": A Mortgaged Property acquired by the Servicer on behalf
of the Trust Fund through foreclosure or deed-in-lieu of foreclosure, as
described in Section 2.13.

         "Re-Performing 60+ Day Delinquent Loan": Each Mortgage Loan with
respect to which, as of any date of determination, (x) any portion of a Monthly
Payment is, as of the last calendar day of the prior Collection Period, two
months or more past due and (y) with respect to which the Mortgagor has made
three aggregate Monthly Payments within the three calendar months preceding such
date of determination.

                                       12
<PAGE>

         "Re-Performance Test": The following criteria one of which must be met
for a Mortgage Loan to qualify as a Re-Performing Mortgage Loan: (1) the
Mortgagor has made at least three aggregate Monthly Payments in the three
calendar months preceding the Cut-off Date (regardless of either the timing of
receipt of such payments or the payment history of such loans prior to February
1, 2004), or (2) the Mortgagor has made at least four aggregate Monthly Payments
in the four calendar months preceding the Cut-off Date (regardless of either the
timing of receipt of such payments or the payment history of such loans prior to
January 1, 2004), or (3) the Mortgagor has made at least five aggregate Monthly
Payments in the five calendar months preceding the Cut-off Date (regardless of
either the timing of receipt of such payments or the payment history of such
loans prior to December 1, 2003).

         "Re-Performing Mortgage Loan": A Mortgage Loan which has defaulted in
the past and which is at least 90 days Delinquent with respect to certain
Monthly Payments but which satisfies one of the Re-Performance Test criteria.

         "Request for Release": A release signed by a Servicing Officer, in the
form of Exhibit B attached hereto.

         "Residential Dwelling": Any one of the following: (i) a one-family
dwelling, (ii) a two- to four-family dwelling, (iii) a one-family dwelling unit
in a Fannie Mae eligible condominium project, (iv) a one-family dwelling in a
planned unit development, which is not a co-operative, or (v) a mobile or
manufactured home (as defined in 42 United States Code, Section 5402(6)).

         "Responsible Officer": With respect to the Trustee, any vice president,
assistant vice president, associate or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers who at such time shall be officers to whom, with respect to
a particular matter, such matter is referred because of such officer's knowledge
of and familiarity with the particular subject and who shall have direct
responsibility for the administration of this Agreement.

         "S&P": Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., and its successors, and if such company shall for any reason no longer
perform the functions of a securities rating agency, "S&P" shall be deemed to
refer to any other "nationally recognized statistical rating organization" as
set forth on the most current list of such organizations released by the SEC.

         "SEC":  As defined in Section 2.29(a).

         "Security Agreement": With respect to any Cooperative Loan, the
agreement between the owner of the related Cooperative Shares and the originator
of the related Mortgage Note that defines the terms of the security interest in
such Cooperative Shares and the related Proprietary Lease.

         "Seller":  Morgan Stanley Mortgage Capital Inc., a Delaware
corporation, or any successor in interest.

         "Servicer": Bank of America, N.A., a national banking association, or
any successor servicer appointed as herein provided, in its capacity as Servicer
hereunder.

          "Servicer Affiliate": A Person (i) controlling, controlled by or under
common control with the Servicer or which is 50% or more owned by the Servicer
and (ii) which is qualified to service residential mortgage loans.

         "Servicer Event of Termination": One or more of the events described in
Section 5.01.

         "Servicer Remittance Date": With respect to any Distribution Date,
three (3)Business Days prior to such Distribution Date.

         "Servicer Report Date": With respect to any Distribution Date, the 12th
day of the calendar month in which such Distribution Date occurs or, if such
12th calendar day is not a Business Day, the Business Day immediately preceding
such 12th calendar day.

                                       13
<PAGE>

         "Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred 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 the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the REO Property and (iv) compliance with the
obligations under Sections 2.01, 2.03, 2.08 and 2.28. Servicing Advances also
include any reasonable "out-of-pocket" cost and expenses (including reasonable
legal fees) incurred by the Servicer in connection with executing and recording
instruments of satisfaction, deeds of reconveyance or Assignments of Mortgage to
the extent not recovered from the Mortgagor or otherwise payable under this
Agreement.

          "Servicing Fee": With respect to each Mortgage Loan (including each
REO Property) and for any calendar month, an amount equal to one month's
interest at the Servicing Fee Rate on the same principal amount on which
interest on such Mortgage Loan accrues for such calendar month. The Servicing
Fee is limited to, and payable solely from, the interest portion (including
recoveries with respect to interest from Liquidation Proceeds and other
proceeds, to the extent permitted by Section 2.05) of related Monthly Payments
collected by the Servicer, or as otherwise provided under Section 2.05.

         "Servicing Fee Rate": With respect to each Mortgage Loan, the rate set
forth on the Mortgage Loan Schedule, with respect to such Mortgage Loan.

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

         "Servicing Standards": Shall mean the standards set forth in Section
2.01.

         "Simple Interest Method": The method of allocating a payment to
principal and interest, pursuant to which the portion of such payment that is
allocated to interest is equal to the product of the fixed rate of interest
multiplied by the unpaid principal balance multiplied by the period of time
elapsed since the preceding payment of interest was made and divided by either
360 or 365, as specified in the related Mortgage Note, and the remainder of such
payment is allocated to principal.

         "Simple Interest Mortgage Loan": Any Mortgage Loan under which the
portion of a payment allocable to interest and the portion of such payment
allocable to principal is determined in accordance with the Simple Interest
Method.

         "Startup Day": With respect to each REMIC established pursuant to the
Pooling Agreement, the Closing Date.

         "Stayed Funds": Any payment required to be made under the terms of the
Certificates and this Agreement but which is not remitted by the Servicer
because the Servicer is the subject of a proceeding under the Bankruptcy Code
and the making of such remittance is prohibited by Section 362 of the Bankruptcy
Code.

         "Substitution Adjustment Amount":  As defined in Section 2.22 hereof.

         "Termination Notice":  As defined in Section 2.16 hereof.

         "Termination Price":  As defined in the Pooling Agreement.

         "Trust": Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, the trust
created pursuant to the Pooling Agreement.

         "Trust Fund": The segregated pool of assets subject to the Pooling
Agreement, constituting the primary trust created pursuant to the Pooling
Agreement and to be administered pursuant to the Pooling Agreement.

                                       14
<PAGE>

         "Trustee": Deutsche Bank National Trust Company, a national banking
association, or any successor Trustee appointed pursuant to the Pooling
Agreement.

         VA: The Department of Veterans Affairs, an agency of the United States
of America, or any successor thereto, including the Administrator of Veterans
Affairs.

         VA Loan: A Mortgage Loan that has a LGC issued by the VA.

         "Value": With respect to any Mortgaged Property, the value thereof as
determined by an independent appraisal made at the time of the origination of
the related Mortgage Loan or the sale price, if the appraisal is not available;
except that, with respect to any Mortgage Loan that is a purchase money mortgage
loan, the lesser of (i) the value thereof as determined by an independent
appraisal made at the time of the origination of such Mortgage Loan, if any, and
(ii) the sales price of the related Mortgaged Property.

         "Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate in accordance with the
Pooling Agreement.

         "Washington Mutual": Washington Mutual Bank, FA, a savings association
organized under the laws of the United States, or any successor servicer
thereto, in its capacity as servicer under the Washington Mutual Servicing
Agreement.

         "Washington Mutual Servicing Agreement": The servicing agreement dated
as of June 1, 2004 by and among the Depositor, the Trustee and Washington Mutual
Bank, FA, as servicer.

         "Wilshire": Wilshire Credit Corporation, a Nevada corporation, or any
successor servicer thereto, in its capacity as servicer under the Wilshire
Servicing Agreement.

         "Wilshire Servicing Agreement": The servicing agreement dated as of
June 1, 2004 by and among the Depositor, the Trustee and Wilshire, as servicer.

Section 1.02      Accounting.

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

                                   ARTICLE II

                          ADMINISTRATION AND SERVICING
                              OF THE MORTGAGE LOANS

Section 2.01      Servicer to Act as Servicer; Subservicing

         (a) The Servicer, as independent contract servicer, shall service and
administer the Mortgage Loans in accordance with this Agreement, the terms of
the Mortgages and the terms of the Mortgage Notes and the normal and usual
standards of practice of prudent mortgage servicers, and shall have full power
and authority, acting alone or through subservicers or agents, to do or cause to
be done any and all things in connection with such servicing and administration
which the Servicer may deem necessary or desirable and consistent with the terms
of this Agreement and the Fannie Mae Guides including, in the case of
Non-Conventional Mortgage Loans, taking all actions that a mortgagee is
permitted or required to take by the FHA or the VA, as applicable (the
"Servicing Standards").

         (b) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if in the Servicer's reasonable and prudent
determination such waiver, modification, postponement or indulgence is not
materially adverse to the Certificateholders; provided, however, that the
Servicer shall not make future advances and (unless the Mortgagor is in default
with respect to the Mortgage Loan or such default is, in the judgment of the
Servicer, reasonably foreseeable) the Servicer shall not permit any modification
with respect to any Mortgage Loan that would (i) change the Mortgage Interest
Rate, defer or forgive the payment thereof of any principal or interest
payments, reduce the outstanding principal amount (except for actual payments of
principal) or extend the final maturity date with respect to such Mortgage Loan,
(ii) in the case of FHA Loans, affect the FHA Insurance Contract with respect to
such Mortgage Loan, (iii) affect adversely the status of any REMIC as a REMIC or
(iv) cause any REMIC to be subject to a tax on "prohibited transactions" or
"contributions" pursuant to the REMIC Provisions. Notwithstanding the foregoing,
the Servicer shall not permit any modification with respect to any Mortgage Loan
that would both (x) effect an exchange or reissuance of such Mortgage Loan under
Section 1.860G-2(b) of the Treasury Regulations and (y) cause any REMIC
constituting part of the Trust Fund to fail to qualify as a REMIC under the Code
or the imposition of any tax on "prohibited transactions" or "contributions"
after the Startup Day under the REMIC Provisions. Without limiting the
generality of the foregoing, the Servicer shall continue, and is hereby
authorized and empowered to execute and deliver on behalf of itself, and the
Trustee, all instruments of satisfaction or cancellation, or of partial or full
release, discharge and all other comparable instruments, with respect to the
Mortgage Loans and with respect to the Mortgaged Property. The Servicer shall
make all required Servicing Advances and shall service and administer the
Mortgage Loans in accordance with Applicable Regulations and the servicing
standards set forth in the Fannie Mae Guides, and shall provide to the Mortgagor
any reports required to be provided to them thereby. If reasonably required by
the Servicer and commercially reasonable in form and substance, the Trustee
shall execute any powers of attorney and other documents provided to it by the
Servicer that are necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Agreement.

                                       15
<PAGE>

         (c) In servicing and administering FHA Loans, the Servicer shall comply
strictly with the National Housing Act and the FHA Regulations and
administrative guidelines issued thereunder or pursuant thereto (insofar as the
same apply to any Mortgage Loan) and, to the extent permitted hereunder,
promptly discharge all of the obligations of the mortgagee thereunder and under
each Mortgage including the timely giving of notices, the essence hereof being
that the full benefits of each FHA Insurance Contract inure to the Trustee, on
behalf of the Certificateholders.

         (d) In servicing and administering the Mortgage Loans, the Servicer
shall employ procedures including collection procedures and exercise the same
care that it customarily employs and exercises in servicing and administering
mortgage loans for its own account giving due consideration to accepted mortgage
servicing practices of prudent lending institutions and the FHA Insurance
Contracts, where applicable, and the Certificateholders' reliance on the
Servicer.

         (e) The Servicer shall give prompt notice to the Trustee of any action,
of which the Servicer has actual knowledge, to (i) assert a claim against the
Trust Fund or (ii) assert jurisdiction over the Trust Fund.

         (f) Notwithstanding anything in this Agreement to the contrary, in the
event of a Principal Prepayment in full of a Mortgage Loan, the Servicer may not
waive any prepayment penalty or portion thereof required by the terms of the
related Mortgage Note unless (i) the Servicer determines that such waiver would
maximize recovery of Liquidation Proceeds for such Mortgage Loan, taking into
account the value of such prepayment penalty, or (ii) (A) the enforceability
thereof is limited (1) by bankruptcy, insolvency, moratorium, receivership, or
other similar law relating to creditors' rights generally or (2) due to
acceleration in connection with a foreclosure or other involuntary payment, or
(B) the enforceability is otherwise limited or prohibited by applicable law. If
the Servicer has waived or does not collect all or a portion of a prepayment
penalty relating to a Principal Prepayment in full due to any action or omission
of the Servicer, other than as provided above, the Servicer shall, within 90
days of the date on which the Principal Prepayment in full is remitted to the
Trustee deliver to the Trustee the amount of such prepayment penalty (or such
portion thereof as had been waived for deposit) into the Distribution Account
for distribution in accordance with the terms of the Pooling Agreement.

         (g) The Servicer may perform its servicing responsibilities through
agents or independent contractors, but shall not thereby be released from any of
its responsibilities hereunder. Notwithstanding anything to the contrary, the
Servicer may delegate any of its duties under this Agreement to one or more of
its affiliates without regard to any of the requirements of this section;
provided, however, that the Servicer shall not be released from any of its
responsibilities hereunder by virtue of such delegation. The Mortgage Loans may
be subserviced by one or more unaffiliated subservicers on behalf of the
Servicer provided (i) with respect to the Conventional Mortgage Loans, each
subservicer is a Fannie Mae approved seller/servicer or a Freddie Mac approved
seller/servicer in good standing, and no event has occurred, including but not
limited to a change in insurance coverage, that would make it unable to comply
with the eligibility for seller/servicers imposed by Fannie Mae or Freddie Mac,
or which would require notification to Fannie Mae or Freddie Mac and, (ii) with
respect to the Non-Conventional Mortgage Loans, each subservicer is an eligible
FHA and VA servicer in good standing, and no event has occurred, including but
not limited to a change in insurance coverage, that would make it unable to
comply with the eligibility for imposed by FHA or VA, or which would require
notification to FHA or VA. The Servicer shall pay all fees and expenses of the
subservicer from its own funds (provided that any such expenditures that would
constitute Servicing Advances if made by the Servicer hereunder shall be
reimbursable to the Servicer as Servicing Advances), and the subservicer's fee
shall not exceed the Servicing Fee.

                                       16
<PAGE>

         (h) At the cost and expense of the Servicer, without any right of
reimbursement from the Collection Account, the Servicer shall be entitled to
terminate the rights and responsibilities of a subservicer and arrange for any
servicing responsibilities to be performed by a successor subservicer meeting
the requirements in the preceding paragraph; provided, however, that nothing
contained herein shall be deemed to prevent or prohibit the Servicer, at the
Servicer's option, from electing to service the related Mortgage Loans itself.
If the Servicer's responsibilities and duties under this Agreement are
terminated and if requested to do so by the Trustee, the Servicer shall at its
own cost and expense terminate the rights and responsibilities of the
subservicer as soon as is reasonably possible. The Servicer shall pay all fees,
expenses or penalties necessary in order to terminate the rights and
responsibilities of the subservicer from the Servicer's own funds without
reimbursement from the Trustee or the Trust.

         (i) The Servicer shall be entitled to enter into an agreement with the
subservicer for indemnification of the Servicer by the subservicer and nothing
contained in this Agreement shall be deemed to limit or modify such
indemnification.

         (j) Any subservicing agreement and any other transactions or services
relating to the Mortgage Loans involving the subservicer shall be deemed to be
between the subservicer and Servicer alone, and neither the Depositor nor the
Trustee shall have any obligations, duties or liabilities with respect to the
subservicer including no obligation, duty or liability to pay the subservicer's
fees and expenses. For purposes of distributions and advances by the Servicer
pursuant to this Agreement, the Servicer shall be deemed to have received a
payment on a Mortgage Loan when the subservicer has received such payment.

Section 2.02      Collection of Mortgage Loan Payments.

         Continuously from the date hereof until the principal and interest on
all Mortgage Loans are paid in full, the Servicer will diligently collect all
payments due under each Mortgage Loan when the same shall become due and payable
and shall, to the extent such procedures shall be consistent with this Agreement
and the terms and provisions of any related Primary Insurance Policy and
Applicable Regulations, follow such collection procedures as it follows with
respect to mortgage loans comparable to the Mortgage Loans and held for its own
account. The Servicer shall apply all payments on a Mortgage Loan as follows:
first, to reimburse itself for any related unreimbursed Advances; second, to the
Monthly Payment due on the Mortgage Loan with respect to the current Due Date;
third, to unpaid Monthly Payments due on the Mortgage Loan as of any prior Due
Date since the Cut-off Date with respect to which the Servicer has not
previously made an Advance; fourth, to reimburse itself for any related
unreimbursed Servicing Advances; fifth, to any ancillary servicing compensation
(i.e. amounts that may be retained by the Servicer pursuant to Section 2.18
hereof); and sixth, to any partial prepayments on such Mortgage Loan; provided;
that with respect to any Liquidated Mortgage Loan, (i) the Servicer may apply
Liquidation Proceeds thereon to cover both unreimbursed Advances and
unreimbursed Servicing Advances on such Liquidated Mortgage Loan pursuant to
priority first above and (ii) following application of such Liquidation Proceeds
to cover unreimbursed Advance and Servicing Advances, all remaining Liquidation
Proceeds shall be applied to the outstanding Principal Balance of such
Liquidated Mortgage Loan prior to applying any remaining amounts pursuant to the
payment application procedures set forth pursuant to clauses fourth and fifth
above. The Servicer will take special care in ascertaining and estimating annual
ground rents, taxes, assessments, water rates, fire and hazard insurance
premiums, mortgage insurance premiums, and all other charges that, as provided
in the Mortgage, will become due and payable to that end that the installments
payable by the Mortgagors will be sufficient to pay such charges as and when
they become due and payable.

                                       17
<PAGE>

Section 2.03      Realization Upon Defaulted Mortgage Loans.

         In the event that any payment due under any Conventional Mortgage Loan
is not paid when the same becomes due and payable, or in the event the Mortgagor
fails to perform any other covenant or obligation under the Mortgage Loan and
such failure continues beyond any applicable grace period, the Servicer shall
take such action as it shall deem to be in the best interest of the
Certificateholders. In the event that any payment due under any FHA Loan becomes
delinquent, the Servicer shall take all such actions as are in the best
interests of the Certificateholders and permitted under any applicable FHA loss
mitigation proceedings, including, but not limited to, requesting the FHA to
accept an assignment of such FHA Loan, and, upon the Servicer's determination
that foreclosure is in the best interest of the Certificateholders, commencing
foreclosure proceedings. With respect to any defaulted Mortgage Loan, the
Servicer shall have the right to review the status of the related forbearance
plan and, subject to the second paragraph of Section 2.01, may modify such
forbearance plan; including, extending the Mortgage Loan repayment date for a
period of one year or reducing the Mortgage Interest Rate up to 50 basis points.

         In connection with a foreclosure or other conversion, the Servicer
shall exercise such rights and powers vested in it hereunder and use the same
degree of care and skill in its exercise as prudent mortgage servicers would
exercise or use under the circumstances in the conduct of their own affairs and
consistent with Applicable Regulations, including, without limitation, advancing
funds for the payment of taxes and insurance premiums with respect to first lien
Mortgage Loans.

         Notwithstanding the foregoing provisions of this Section 2.03, with
respect to any Mortgage Loan as to which the Servicer has received actual notice
of, or has actual knowledge of, the presence of any toxic or hazardous substance
on the related Mortgaged Property, the Servicer shall not either (i) obtain
title to such Mortgaged Property as a result of or in lieu of foreclosure or
otherwise, or (ii) otherwise acquire possession of, or take any other action
with respect to, such Mortgaged Property if, as a result of any such action, the
Trust Fund would be considered to hold title to, to be a mortgagee-in-possession
of, or to be an owner or operator of such Mortgaged Property within the meaning
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, or any comparable law, unless the Servicer
has also previously determined, based on its reasonable judgment and a prudent
report prepared by a Person who regularly conducts environmental audits using
customary industry standards, that:

                  A. such Mortgaged Property is in compliance with applicable
         environmental laws or, if not, that it would be in the best economic
         interest of the Certificateholders to take such actions as are
         necessary to bring the Mortgaged Property into compliance therewith;
         and

                  B. there are no circumstances present at such Mortgaged
         Property relating to the use, management or disposal of any hazardous
         substances, hazardous materials, hazardous wastes, or petroleum-based
         materials for which investigation, testing, monitoring, containment,
         clean-up or remediation could be required under any federal, state or
         local law or regulation, or that if any such materials are present for
         which such action could be required, that it would be in the best
         economic interest of the Certificateholders to take such actions with
         respect to the affected Mortgaged Property.

         The cost of the environmental audit report contemplated by this Section
2.03 shall be advanced by the Servicer, subject to the Servicer's right to be
reimbursed therefor from the Collection Account as provided in Section 2.05(ii).

         If the Servicer determines, as described above, that it is in the best
economic interest of the Certificateholders to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes, or petroleum-based materials affecting any such Mortgaged Property, then
the Servicer shall take such action as it deems to be in the best economic
interest of the Certificateholders. The cost of any such compliance,
containment, cleanup or remediation shall be advanced by the Servicer, subject
to the Servicer's right to be reimbursed therefor from the Collection Account as
provided in Section 2.05(ii).

                                       18
<PAGE>

         Notwithstanding anything to the contrary set forth herein, the Servicer
will not institute foreclosure proceedings (i.e. putting a stop code on the
Mortgage Loan in the Servicer's system) with respect to any Mortgage Loan based
solely on such Mortgage Loan's status as a Delinquent Loan as of the Cut-off
Date.

Section 2.04      Collection Account.

         (a) The Servicer shall segregate and hold all funds collected and
received pursuant to each Mortgage Loan separate and apart from any of its own
funds and general assets and shall establish and maintain one or more Collection
Accounts. Each Collection Account shall be an Eligible Account.

         The Servicer shall deposit in the Collection Account on a daily basis
within two Business Days of receipt, and retain therein, the following payments
and collections received or made by it after the Cut-off Date with respect to
the Mortgage Loans:

                  (i) all payments on account of principal, including Principal
         Prepayments, on the Mortgage Loans;

                  (ii) all payments on account of interest on the Mortgage Loans
         adjusted to the Mortgage Interest Rate less the Servicing Fee Rate;

                  (iii) all Liquidation Proceeds;

                  (iv) all Insurance Proceeds including amounts required to be
         deposited pursuant to Section 2.10, other than proceeds to be held in
         the Escrow Account and applied to the restoration or repair of the
         Mortgaged Property or released to the Mortgagor in accordance with the
         Servicer's normal servicing procedures, the loan documents or
         applicable law;

                  (v) all Condemnation Proceeds affecting any Mortgaged Property
         which are not released to the Mortgagor in accordance with the
         Servicer's normal servicing procedures, the loan documents or
         applicable law; and

                  (vi) any amounts required to be deposited by the Servicer in
         connection with any REO Property pursuant to Section 2.13.

         Any interest paid on funds deposited in the Collection Account, subject
to Section 2.25, shall accrue to the benefit of the Servicer and the Servicer
shall be entitled to retain and withdraw such interest from the Collection
Account pursuant to Section 2.05(v). The foregoing requirements for deposit from
the Collection 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, prepayment charges that are not prepayment penalties, and
assumption fees need not be deposited by the Servicer in the Collection Account.

         (b) On behalf of the Trust Fund, the Servicer shall, subject to
withdrawals pursuant to Section 2.05, deliver to the Trustee in immediately
available funds for deposit in the Distribution Account by 1:00 p.m. New York
time on the Servicer Remittance Date, all amounts then on deposit in the
Collection Account from whatever source with respect to amounts due during the
related Collection Period. In the event the Servicer does not remit such amounts
to the Trustee on the Servicer Remittance Date, the Servicer shall pay to the
Trustee interest at the "prime rate" (as published in the "Money Rates" section
of the Wall Street Journal) on the amount of such remittance from and including
the Servicer Remittance Date to but excluding the day such remittance is made.

         (c) Funds in the Collection Account may be invested in Permitted
Investments in accordance with the provisions set forth in Section 2.25. The
Servicer shall give notice to the Trustee of the location of the Collection
Account maintained by it when established and prior to any change thereof. The
Trustee shall give notice to the Servicer and the Depositor of the location of
the Distribution Account when established and prior to any change thereof.

                                       19
<PAGE>

         (d) In the event the Servicer shall deliver to the Trustee for deposit
in the Distribution Account any amount not required to be deposited therein, it
may at any time request that the Trustee withdraw such amount from such Account
and remit to the Servicer any such amount, any provision herein to the contrary
notwithstanding. In addition, the Servicer shall deliver to the Trustee from
time to time for deposit, and the Trustee shall so deposit, in the Distribution
Account:

                  (i) any Advances, as required pursuant to Section 2.28;

                  (ii) any Stayed Funds, as soon as permitted by the federal
         bankruptcy court having jurisdiction in such matters;

                  (iii) any prepayment penalties or amounts in connection with
         the waiver of such prepayment penalties, in each case required to be
         deposited pursuant to Section 2.01;

                  (iv) any amounts required to be deposited in the Distribution
         Account pursuant to Sections 2.04, 2.15, 2.16, 2.23 or 2.28; and

                  (v) any amounts required to be deposited by the Servicer
         pursuant to Section 2.11 in connection with the deductible clause in
         any blanket hazard insurance policy, such deposit being made from the
         Servicer's own funds, without reimbursement therefor.

         (e) Promptly upon receipt of any Stayed Funds, whether from the
Servicer, a trustee in bankruptcy, or federal bankruptcy court or other source,
the Trustee shall notify the Servicer of such receipt and deposit such funds in
the Distribution Account, subject to withdrawal thereof as permitted hereunder.

Section 2.05      Permitted Withdrawals From the Collection Account.

         The Servicer may, from time to time, withdraw from the Collection
Account for the following purposes:

                  (i) to remit to the Trustee for deposit in the Distribution
         Account the amounts required to be so remitted pursuant to Section
         2.04(b) or permitted to be so remitted pursuant to the first sentence
         of Section 2.04(d);

                  (ii) to reimburse itself for Advances and Servicing Advances;
         the Servicer's right to reimburse itself pursuant to this subclause
         (ii) being limited to amounts received on the related Mortgage Loan
         which represent Late Collections, Condemnation Proceeds, Insurance
         Proceeds or Liquidation Proceeds;

                  (iii) to reimburse itself for (A) unreimbursed Servicing
         Advances and for unreimbursed Advances to the extent that such amounts
         are deemed to be Nonrecoverable Advances, and (B) any unpaid Servicing
         Fees to the extent not recoverable from Liquidation Proceeds, Insurance
         Proceeds or other amounts received with respect to the related Mortgage
         Loan under Section 2.05(ii);

                  (iv) to reimburse itself for any amounts paid pursuant to
         Section 2.03 (and not otherwise previously reimbursed);

                  (v) to pay to itself as servicing compensation (in addition to
         the Servicing Fee) any interest earned or any investment earnings on
         funds in the Collection Account net of any losses on such investments
         (all such interest to be withdrawn monthly not later than each Servicer
         Remittance Date);

                  (vi) to pay or reimburse itself for any amounts payable or
         paid pursuant to Section 4.03 (and not otherwise previously
         reimbursed);

                  (vii) to pay, or to reimburse the Servicer for advances in
         respect of, expenses incurred in connection with any Mortgage Loan
         pursuant to Section 2.13;

                                       20
<PAGE>

                  (viii) to withdraw amounts deposited in the Collection Account
         in error; and

                  (ix) to clear and terminate the Collection Account upon the
         termination of this Agreement.

         The foregoing requirements for withdrawal from the Collection Account
shall be exclusive. In the event the Servicer shall deposit in the Collection
Account any amount not required to be deposited therein, it may at any time
withdraw such amount from the Collection Account, any provision herein to the
contrary notwithstanding.

         Upon request, the Servicer shall provide the Depositor and/or the
Trustee with copies of reasonably acceptable invoices or other documentation
relating to Advances and/or Servicing Advances that have been reimbursed from
the Collection Account.

Section 2.06      Establishment of Escrow Accounts; Deposits in Escrow Accounts.

         The Servicer shall segregate and hold all funds collected and received
pursuant to each Mortgage Loan which constitute Escrow Payments separate and
apart from any of its own funds and general assets and shall establish and
maintain one or more Escrow Accounts. Each Escrow Account shall be an Eligible
Account.

         The Servicer shall deposit in the Escrow Account or Accounts on a daily
basis within two Business Days of receipt, and retain therein, (i) all Escrow
Payments collected on account of the Mortgage Loans, for the purpose of
effecting timely payment of any such items as required under the terms of this
Agreement, and (ii) all Insurance Proceeds which are to be applied to the
restoration or repair of any Mortgaged Property. The Servicer shall make
withdrawals therefrom only to effect such payments as are required under this
Agreement, and for such other purposes as shall be set forth in, or in
accordance with, Section 2.07. The Servicer shall be entitled to retain any
interest paid on funds deposited in the Escrow Account by the depository
institution other than interest on escrowed funds required by law to be paid to
the Mortgagor and, to the extent required by the related Mortgage Loan or
Applicable Regulations, the Servicer shall pay interest on escrowed funds to the
Mortgagor notwithstanding that the Escrow Account is non-interest bearing or
that interest paid thereon is insufficient for such purposes.

Section 2.07      Permitted Withdrawals From Escrow Account.

         Withdrawals from the Escrow Account may be made by the Servicer (i) to
effect timely payments of ground rents, taxes, assessments, water rates, sewer
rents, fire, flood and hazard insurance premiums, Primary Insurance Policy
premiums, if applicable, and comparable items, (ii) to reimburse the Servicer
for any Servicing Advance made by the Servicer with respect to a related
Mortgage Loan but only from amounts received on the related Mortgage Loan which
represent late payments or Late Collections of Escrow Payments thereunder, (iii)
to refund to the Mortgagor any funds as may be determined to be overages, (iv)
for transfer to the Collection Account in accordance with the terms of this
Agreement, (v) for application to restoration or repair of the Mortgaged
Property, (vi) to pay to the Servicer, or to the Mortgagor to the extent
required by the related Mortgage Loan or Applicable Regulations, any interest
paid on the funds deposited in the Escrow Account, (vii) to clear and terminate
the Escrow Account on the termination of this Agreement, (viii) to transfer to
the Collection Account any Insurance Proceeds, (ix) in the case of FHA Loans,
for transfer to the Collection Account, fire and hazard insurance proceeds and
Escrow Payments with respect to any Mortgage Loan where the FHA has directed
application of such funds as a credit against the proceeds of the FHA Insurance
Contract, (x) to the extent permitted under the terms of the related Mortgage
Note and applicable law, to pay late fees with respect to any Monthly Payment
which is received after the applicable grace period or (xi) to withdraw suspense
payments that are deposited into the Escrow Account. As part of its servicing
duties, the Servicer shall pay to the Mortgagor interest on funds in the Escrow
Account, to the extent required by the related Mortgage Loan or Applicable
Regulations, and to the extent that interest earned on funds in the Escrow
Account is insufficient, shall pay such interest from its own funds, without any
reimbursement therefor.

         In the event the Servicer shall deposit in the Escrow Account any
amount not required to be deposited therein, it may at any time withdraw such
amount from the Escrow Account, any provision herein to the contrary
notwithstanding.

                                       21
<PAGE>

Section 2.08      Payment of Taxes, Insurance and Other Charges; Collections
                  Thereunder.

         With respect to each first lien Mortgage Loan, the Servicer shall
maintain accurate records reflecting the status of ground rents, taxes,
assessments, water rates and other charges which are or may become a lien upon
the Mortgaged Property and the status of Primary Insurance Policy premiums and
fire, flood and hazard insurance coverage and shall obtain, from time to time,
all bills for the payment of such charges (including renewal premiums) and shall
effect payment thereof prior to the applicable penalty or termination date and
at a time appropriate for securing maximum discounts allowable, employing for
such purpose deposits of the Mortgagor in the Escrow Account which shall have
been estimated and accumulated by the Servicer in amounts sufficient for such
purposes, as allowed under the terms of the Mortgage or Applicable Regulations.
To the extent that the Mortgage does not provide for Escrow Payments, the
Servicer shall determine that any such payments are made by the Mortgagor at the
time they first become due. The Servicer assumes full responsibility for the
timely payment of all such bills and shall effect timely payments of all such
bills irrespective of the Mortgagor's faithful performance in the payment of
same or the making of the Escrow Payments and shall make Servicing Advances from
its own funds to effect such payments. No costs incurred by the Servicer or
subservicers in effecting the payment of taxes and assessments on the Mortgaged
Properties shall, for the purpose of calculating remittances to the Trustee, be
added to the amount owing under the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit.

         The Servicer, on behalf of the Trustee, as mortgagee, will maintain in
full force and effect (to the extent a Mortgage Loan has a Primary Insurance
Policy) a Primary Insurance Policy issued by a Qualified Insurer with respect to
each Mortgage Loan for which a Primary Insurance Policy is in effect on the
Closing Date. Such coverage will be maintained until the Combined Amortized
Loan-to-Value Ratio of the related Mortgage Loan is reduced to 80% or less. The
Servicer will not cancel or refuse to renew any Primary Insurance Policy in
effect on the Closing Date that is required to be kept in force under this
Agreement unless a replacement Primary Insurance Policy for such cancelled or
non-renewed policy is obtained from and maintained with a Qualified Insurer. The
Servicer shall not take any action which would result in non-coverage under any
applicable Primary Insurance Policy of any loss which, but for the actions of
the Servicer, would have been covered thereunder. In connection with any
assumption or substitution agreement entered into or to be entered into pursuant
to Section 2.14, the Servicer shall promptly notify the insurer under the
related Primary Insurance Policy, if any, of such assumption or substitution of
liability in accordance with the terms of such policy and shall take all actions
which may be required by such insurer as a condition to the continuation of
coverage under the Primary Insurance Policy. If such Primary Insurance Policy is
terminated as a result of such assumption or substitution of liability, the
Servicer shall use reasonable efforts to obtain a replacement Primary Insurance
Policy as provided above.

         In connection with its activities as servicer, the Servicer agrees to
prepare and present, on behalf of itself and the Trustee, claims to the insurer
under any Primary Insurance Policy in a timely fashion in accordance with the
terms of such policies and, in this regard, to take such action as shall be
necessary to permit recovery under any Primary Insurance Policy respecting a
defaulted Mortgage Loan. Pursuant to Section 2.04, any amounts collected by the
Servicer under any Primary Insurance Policy shall be deposited in the Collection
Account, subject to withdrawal pursuant to Section 2.05.

Section 2.09      Transfer of Accounts.

         The Servicer may transfer the Collection Account or the Escrow Account
to a different depository institution from time to time upon obtaining the prior
written consent of the Depositor, such consent not to be unreasonably withheld
and with prior notice to the Trustee. Upon such transfer, the Servicer shall
deliver to the Trustee and the Depositor a certification or letter agreement, as
the case may be, as required pursuant to Sections 2.04 and 2.06.

                                       22
<PAGE>

Section 2.10      Maintenance of Hazard Insurance.

         The Servicer shall cause to be maintained with a Qualified Insurer for
each first lien Mortgage Loan fire and hazard insurance with extended coverage
as is customary in the area where the Mortgaged Property is located in an amount
which is at least equal to the lesser of (i) the amount necessary to fully
compensate for any damage or loss to the improvements which are a part of such
property on a replacement cost basis (less reasonable deductibles), (ii) the
Principal Balance of the Mortgage Loan, in each case in an amount not less than
such amount as is necessary to prevent the Mortgagor and/or the Mortgagee from
becoming a co-insurer or (iii) the amount required under applicable HUD/FHA
regulations. If the Mortgaged Property is in an area identified in the Federal
Register by the Flood Emergency Management Agency as having special flood
hazards and flood insurance has been made available, the Servicer will cause to
be maintained a flood insurance policy meeting the requirements of the current
guidelines of the Federal Insurance Administration with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(i) the Principal Balance of the Mortgage Loan, (ii) the maximum insurable value
of the improvements securing such Mortgage Loan or (iii) the maximum amount of
insurance which is available under the Flood Disaster Protection Act of 1973, as
amended. The Servicer shall also maintain on the REO Property for the benefit of
the Certificateholders (in each case, with reasonable deductibles), (x) fire and
hazard insurance with extended coverage in an amount which is at least equal to
the replacement cost of the improvements which are a part of such property, (y)
public liability insurance and, (z) to the extent required and available under
the Flood Disaster Protection Act of 1973, as amended, flood insurance in an
amount as provided above. Any amounts collected by the Servicer under any such
policies other than amounts to be deposited in the Escrow Account and applied to
the restoration or repair of the Mortgaged Property or REO Property, or released
to the Mortgagor in accordance with the Servicer's normal servicing procedures,
shall be deposited in the Collection Account, subject to withdrawal pursuant to
Section 2.05. It is understood and agreed that no earthquake or other additional
insurance is required to be maintained by the Servicer or the Mortgagor or
maintained on property acquired in respect of the Mortgage Loan, other than
pursuant to such Applicable Regulations as shall at any time be in force and as
shall require such additional insurance. All such policies shall be endorsed
with standard mortgagee clauses with loss payable to the Servicer and shall
provide for at least thirty days prior written notice of any cancellation,
reduction in the amount of or material change in coverage to the Servicer. The
Servicer shall not interfere with the Mortgagor's freedom of choice in selecting
either his insurance carrier or agent, provided, however, that the Servicer
shall not accept any such insurance policies from insurance companies unless
such companies are Qualified Insurers and such insurance policies would meet the
requirements of Fannie Mae if Fannie Mae were the purchaser of the Mortgage
Loans.

Section 2.11      Maintenance of Mortgage Impairment Insurance Policy.

         In the event that the Servicer shall obtain and maintain a blanket
policy issued by a Qualified Insurer insuring against hazard losses on all of
the Mortgage Loans, then, to the extent such policy provides coverage in an
amount equal to the amount required pursuant to Section 2.10 and otherwise
complies with all other requirements of Section 2.10, it shall conclusively be
deemed to have satisfied its obligations as set forth in Section 2.10, it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property or REO Property a policy complying with
Section 2.10, and there shall have been a loss which would have been covered by
such policy, deliver to the Trustee for deposit in the Distribution Account the
amount not otherwise payable under the blanket policy because of such deductible
clause, which amount shall not be reimbursable to the Servicer from the Trust
Fund. In connection with its activities as servicer of the Mortgage Loans, the
Servicer agrees to prepare and present, on behalf of the Trustee, claims under
any such blanket policy in a timely fashion in accordance with the terms of such
policy. Upon request of the Trustee, the Servicer shall cause to be delivered to
the Trustee a certified true copy of such policy and a statement from the
insurer thereunder that such policy shall in no event be terminated or
materially modified without thirty days prior written notice to the Trustee.

Section 2.12      Fidelity Bond, Errors and Omissions Insurance.

         The Servicer shall maintain, at its own expense, a blanket fidelity
bond (the "Fidelity Bond") and an errors and omissions insurance policy, with
broad coverage with financially responsible companies that meet the requirements
of Fannie Mae or Freddie Mac and FHA or VA on all officers, employees or other
persons acting in any capacity with regard to the Mortgage Loans to handle
funds, money, documents and papers relating to the Mortgage Loans. The Fidelity
Bond and errors and omissions insurance shall be in the form of the Mortgage
Banker's Blanket Bond and shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such persons. Such Fidelity Bond shall also protect and insure
the Servicer against losses in connection with the failure to maintain any
insurance policies required pursuant to this Agreement and the release or
satisfaction of a Mortgage Loan without having obtained payment in full of the
indebtedness secured thereby. No provision of this Section 2.12 requiring the
Fidelity Bond and errors and omissions insurance shall diminish or relieve the
Servicer from its duties and obligations as set forth in this Agreement. The
minimum coverage under any such bond and insurance policy shall be at least
equal to the corresponding amounts required by Fannie Mae in the Fannie Mae
Guides or by Freddie Mac in the Freddie Mac Guide and required by FHA or VA
regulations, as applicable. Upon request of the Trustee, the Servicer shall
cause to be delivered to the requesting party a certified true copy of the
Fidelity Bond and errors and omissions insurance policy and a statement from the
surety and the insurer that such Fidelity Bond and errors and omissions
insurance policy shall in no event be terminated or materially modified without
thirty days' prior written notice to the Trustee.

                                       23
<PAGE>

Section 2.13      Title, Management and Disposition of REO Property.

         (a) In the event that title to a Mortgaged Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken (pursuant to a limited power of attorney to be provided by the
Trustee to the Servicer) in the name of the Trustee, on behalf of the
Certificateholders, or in the event the Trustee is not authorized or permitted
to hold title to real property in the state where the REO Property is located,
or would be adversely affected under the "doing business" or tax laws of such
state by so holding title, the deed or certificate of sale shall be taken in the
name of such Person or Persons as shall be consistent with an Opinion of Counsel
obtained by the Servicer from an attorney duly licensed to practice law in the
state where the REO Property is located. Any Person or Persons holding such
title other than the Trustee shall acknowledge in writing that such title is
being held as nominee for the benefit of the Trustee. The Servicer shall provide
written notice to the Trustee after any REO Property is acquired in foreclosure
or by deed in lieu of foreclosure.

         (b) In the event that the Trust Fund acquires any REO Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Servicer shall dispose of such REO Property before the end of
the third calendar year beginning after the year of its acquisition by the Trust
Fund for purposes of Section 860G(a)(8) of the Code or, at the expense of the
Trust Fund, request from the Internal Revenue Service, more than 60 days before
the day on which the above-mentioned grace period would otherwise expire, an
extension of the above-mentioned grace period, unless the Servicer obtains an
Opinion of Counsel, addressed to the Servicer and the Trustee, to the effect
that the holding by the Trust Fund of such REO Property subsequent to such
period will not: (i) result in the imposition of any tax on "prohibited
transactions" as defined in Section 860F of the Code; or (ii) cause any REMIC
constituting any part of the Trust Fund 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 REO Property (subject to any conditions contained in such
Opinion of Counsel). The Servicer shall be entitled to be reimbursed from the
Collection Account for any costs incurred in obtaining such Opinion of Counsel,
as provided in Section 2.05.

         Subject to compliance with applicable laws and regulations as shall at
any time be in force, and notwithstanding any other provisions of this
Agreement, no REO Property acquired by the Trust Fund shall be rented (or
allowed to continue to be rented) or otherwise used by or on behalf of the Trust
Fund in such a manner or pursuant to any terms that would: (i) cause such REO
Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code; or (ii) subject any REMIC constituting part of
the Trust Fund to the imposition of any federal income taxes on the income
earned from such REO Property, including any taxes imposed by reason of Sections
860F or 860G(c) of the Code, unless the Servicer has agreed to indemnify and
hold harmless the Trust Fund with respect to the imposition of any such taxes.

         The Servicer shall manage, conserve, protect and operate each REO
Property for the Certificateholders and the Trust Fund solely for the purpose of
its prompt disposition and sale in a manner which does not cause such REO
Property to fail to qualify as "foreclosure property" within the meaning of
Section 860G(a)(8) of the Code or result in the receipt by the related REMIC of
any "income from non-permitted assets" within the meaning of Section
860F(a)(2)(B) of the Code, or any "net income from foreclosure property" which
is subject to taxation under the REMIC Provisions. The Servicer shall cause each
REO Property to be inspected promptly upon the acquisition of title thereto and
shall cause each REO Property to be inspected at least annually thereafter. The
Servicer shall make or cause to be made a written report of each such
inspection. Such reports shall be retained in the Mortgage Servicing File and
copies thereof shall be forwarded by the Servicer to the Trustee upon request.
The Servicer shall attempt to sell the same (and may temporarily rent the same)
on such terms and conditions as the Servicer deems to be in the best interest of
the Certificateholders and the Trust Fund.

         With respect to each REO Property, the Servicer shall account
separately for each REO Property with respect to all funds collected and
received in connection with the operation of such REO Property.

                                       24
<PAGE>

         The Servicer shall deposit or cause to be deposited, on a daily basis,
within two Business Days of receipt, in the Collection Account, all revenues
received with respect to each REO Property and shall withdraw therefrom funds
necessary for the proper operation, management and maintenance of the related
REO Property, including the cost of maintaining any hazard insurance pursuant to
Section 2.10 hereof and the fees of any managing agent acting on behalf of the
Servicer.

         The Servicer shall furnish to the Depositor, on each Servicer
Remittance Date, an operating statement for each REO Property covering the
operation of each REO Property for the previous month. Such operating statement
shall be accompanied by such other information as the Depositor shall reasonably
request.

         The Servicer shall use its best efforts to dispose of the REO Property
as promptly as is practically consistent with protecting the Certificateholders'
interests.

         Each REO Disposition shall be carried out by the Servicer at such price
and upon such terms and conditions as the Servicer deems to be in the best
interest of the Certificateholders. If as of the date title to any REO Property
was acquired by the Servicer there were outstanding unreimbursed Servicing
Advances with respect to the REO Property, the Servicer, upon an REO Disposition
of such REO Property, shall be entitled to reimbursement for any related
unreimbursed Servicing Advances from proceeds received in connection with such
REO Disposition. The proceeds from the REO Disposition, net of any payment to
the Servicer as provided above, shall be deposited in the Collection Account for
distribution on the succeeding Servicer Remittance Date.

         Any REO Disposition shall be for cash only (unless changes in the REMIC
Provisions made subsequent to the Startup Day allow a sale for other
consideration and an Opinion of Counsel is obtained by the Servicer to the
effect that such sale shall not cause any REMIC constituting part of the Trust
Fund to fail to qualify as a REMIC).

Section 2.14      Due-on-Sale Clauses; Assumption and Substitution Agreements.

         When a Mortgaged Property has been or is about to be conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such conveyance
or prospective conveyance, exercise its rights to accelerate the maturity of the
related Mortgage Loan under any "due-on-sale" clause contained in the related
Mortgage or Mortgage Note; provided, however, that the Servicer shall not
exercise any such right if the "due-on-sale" clause, in the reasonable belief of
the Servicer, (i) is not enforceable under applicable law, (ii) would impair or
threaten to impair any recovery under the related Primary Insurance Policy, if
any, or (iii) would impair or threaten to impair any recovery under the related
MIC or LGC. An Opinion of Counsel at the expense of the Servicer (which expense
shall constitute a Servicing Advance) delivered to the Trustee and the Depositor
to the foregoing effect shall conclusively establish the reasonableness of such
belief. In such event, the Servicer shall make reasonable efforts to enter into
an assumption and modification agreement with the Person to whom such property
has been or is about to be conveyed, pursuant to which such Person becomes
liable under the Mortgage Note and, unless prohibited by applicable law or the
Mortgage, the Mortgagor remains liable thereon. If the foregoing is not
permitted under applicable law, the Servicer is authorized to enter into a
substitution of liability agreement with such Person, pursuant to which the
original Mortgagor is released from liability and such Person is substituted as
Mortgagor and becomes liable under the Note. The Mortgage Loan, as assumed,
shall conform in all respects to the requirements, representations and
warranties of this Agreement. The Servicer shall notify the Trustee that any
such assumption or substitution agreement has been completed, and shall forward
to the Custodian a copy of such assumption or substitution agreement (indicating
the Mortgage File to which it relates) which copy shall be added by the
Custodian to the related Mortgage File (pending receipt from the Servicer of the
original recorded assumption or substitution agreement) and which shall, for all
purposes, be considered a part of such Mortgage File to the same extent as all
other documents and instruments constituting a part thereof. The Servicer shall
be responsible for recording any such assumption or substitution agreements and
sending the original recorded copy to the Custodian for inclusion in the related
Mortgage File, as set forth in the preceding sentence. In connection with any
such assumption or substitution agreement, the Monthly Payment, the Mortgage
Interest Rate, the Lifetime Rate Cap, the Gross Margin, the Initial Rate Cap and
the Periodic Rate Cap, as applicable, on the related Mortgage Loan shall not be
changed but shall remain as in effect immediately prior to the assumption or
substitution, the stated maturity or outstanding principal amount of such
Mortgage Loan shall not be changed nor shall any required monthly payments of
principal or interest be deferred or forgiven. Any fee collected by the Servicer
for consenting to any such conveyance or entering into an assumption or
substitution agreement shall be retained by or paid to the Servicer as
additional servicing compensation.

                                       25
<PAGE>

         Notwithstanding the foregoing paragraph or any other provision of this
Agreement, the Servicer shall not be deemed to be in default, breach or any
other violation of its obligations hereunder by reason of any assumption of a
Mortgage Loan by operation of law or any assumption which the Servicer may be
restricted by law from preventing, for any reason whatsoever.

Section 2.15      Notification of Adjustments.

         On each Adjustment Date, the Servicer shall make Mortgage Interest Rate
adjustments for each Adjustable-Rate Mortgage Rate Loan in compliance with the
requirements of the related Mortgage and Mortgage Note and Applicable
Regulations. The Servicer shall execute and deliver the notices required by each
Mortgage and Mortgage Note and Applicable Regulations regarding Mortgage
Interest Rate adjustments. The Servicer also shall provide timely notification
to the Trustee of all applicable data and information regarding such Mortgage
Interest Rate adjustments and the Servicer's methods of implementing such
Mortgage Interest Rate adjustments. Upon the discovery by the Servicer that the
Servicer has failed to adjust or has incorrectly adjusted a Mortgage Interest
Rate or a Monthly Payment pursuant to the terms of the related Mortgage Note and
Mortgage, the Servicer shall deliver to the Trustee for deposit in the
Distribution Account from its own funds the amount of any interest loss caused
thereby without reimbursement therefor; provided, however, the Servicer shall be
held harmless with respect to any Mortgage Interest Rate adjustments made by any
servicer prior to the Servicer.

Section 2.16      Optional Purchases of Mortgage Loans by Servicer.

         The Servicer, together with Washington Mutual, as servicer under the
Washington Mutual Servicing Agreement and Wilshire, as servicer under the
Wilshire Servicing Agreement, may, if each of the Servicer, Washington Mutual
and Wilshire agree to do so in a written notice provided to the Trustee at least
five Business Days prior to the related Distribution Date (the "Termination
Notice"), terminate the Trust Fund and retire the Offered Certificates on the
next succeeding Distribution Date as of which the aggregate current Pool Balance
is less than 10% of the aggregate Pool Balance of the Mortgage Loans as of the
Cut-off Date by purchasing all of the outstanding Mortgage Loans in the Trust
Fund at a price equal to the Termination Price and by reimbursing all Servicers
for outstanding Advances; provided, however, that Washington Mutual may exercise
its option under this Section 2.16 only if the Termination Price is equal to or
less than the aggregate fair market value of all of the assets in the Trust Fund
(as determined by Washington Mutual as of the close of business on the third
Business Day preceding the date on which the Certificates are to be retired
pursuant to this Section 2.16). The Termination Price and reimbursement amounts
shall be allocated among and paid by the Servicer, Washington Mutual or Wilshire
and the purchased Mortgage Loans shall be distributed among the Servicer,
Washington Mutual and Wilshire in the manner set forth in the Termination
Notice. If the Servicer, Washington Mutual and Wilshire elect not to purchase
all of the outstanding Mortgage Loans in the Trust Fund on the Optional
Termination Date, then the non-electing party's option to purchase such Mortgage
Loans may be exercised by the Servicer, Washington Mutual and/or Wilshire, as
the case may be, as agreed to by such electing parties, provided that all and
not part of the Mortgage Loans are purchased at the Termination Price. If the
option is not exercised on such Distribution Date then on the next succeeding
Distribution Date, and on each Distribution Date thereafter until such time, if
any, as the Mortgage Loans are repurchased, any of the Servicer, Washington
Mutual and/or Wilshire (or any combination thereof) may, at their option,
purchase all of the outstanding Mortgage Loans in the Trust Fund, in the manner
described above, for the Termination Price as of such Distribution Date and
reimbursement to all Servicers for outstanding Advances. Notwithstanding the
foregoing, if S&P has rated a class of debt securities ("Net Interest Margin
Securities") that are backed by the Class X Certificates and Class P
Certificates and that are outstanding on any date on which the Servicer,
Washington Mutual and/or Wilshire, as applicable, intend to exercise their
option to purchase the Mortgage Loans, the Servicer, Washington Mutual and/or
Wilshire, as applicable, will be permitted to exercise such option only if one
of the following conditions is met: (i) after distribution of the Termination
Price to the Certificateholders (other than the Holders of the Class X
Certificates, Class P Certificates and Class R Certificates) to redeem the
related Certificates, the remainder of the Termination Price (the "Remainder
Amount") is distributed to the Holders of the Class X Certificates and Class P
Certificates and is sufficient to pay the outstanding principal amount of and
accrued and unpaid interest on the Net Interest Margin Securities; or (ii) (A)
at the same time that the Servicer, Washington Mutual and/or Wilshire, as
applicable, remit the Termination Price to the Trustee, they also remit to the
Trustee an additional amount which, in combination with the Remainder Amount, is
sufficient to pay the outstanding principal amount of and accrued and unpaid
interest on the Net Interest Margin Securities, and (B) the Trustee remits the
Remainder Amount to the Holders of the Class X Certificates and Class P
Certificates and remits that additional amount directly to the indenture trustee
(plus any outstanding expenses due and owing to the indenture trustee) under the
indenture creating the Net Interest Margin Securities.

                                       26
<PAGE>

Section 2.17      Trustee to Cooperate; Release of Files.
                  --------------------------------------

         (a) Upon the payment in full of any Mortgage Loan (including any
liquidation of such Mortgage Loan through foreclosure or otherwise, or the
receipt by the Servicer of a notification that payment in full will be escrowed
in a manner customary for such purposes), the Servicer shall deliver to the
Trustee and the Custodian one executed copy of a completed "Request for Release"
in the form of Exhibit B. Upon receipt of such Request for Release of Documents,
the Trustee shall instruct (which instruction may be a standing instruction) the
Custodian, in accordance with the Pooling Agreement, to release the related
Mortgage File, in trust to (i) the Servicer, or (ii) such other party identified
in the related Request for Release. Upon any such payment in full, or the
receipt of such notification that such funds have been placed in escrow, the
Servicer shall direct the Trustee in writing to execute an instrument of
satisfaction (or assignment of Mortgage without recourse) regarding the
Mortgaged Property relating to such 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 payment in full, it being
understood and agreed that no expense incurred in connection with such
instrument of satisfaction or assignment, as the case may be, shall be
chargeable to the Collection Account. In lieu of executing any such satisfaction
or assignment, as the case may be, the Servicer may prepare and submit to the
Trustee a satisfaction (or assignment without recourse, if requested by the
Person or Persons entitled thereto) in form for execution by the Trustee with
all requisite information completed by the Servicer; in such event, the Trustee
shall execute and acknowledge such satisfaction or assignment, as the case may
be, and deliver the same with the related Mortgage File, as aforesaid.

         (b) From time to time and as appropriate in the servicing of any
Mortgage Loan, including, without limitation, foreclosure or other comparable
conversion of a Mortgage Loan or collection under any insurance policy relating
to a Mortgage Loan, the Trustee shall (except in the case of the payment or
liquidation pursuant to which the related Mortgage File is released to an escrow
agent or an employee, agent or attorney of the Trustee), upon written request of
the Servicer and delivery to the Trustee and the Custodian of one executed copy
of a "Request for Release" in the form of Exhibit B signed by a Servicing
Officer, instruct (which instruction may be a standing instruction) the
Custodian to release the related Mortgage File to the Servicer in accordance
with the Pooling Agreement and shall execute such documents as shall be
necessary to the prosecution of any such proceedings, including, without
limitation, an assignment without recourse of the related Mortgage to the
Servicer. Such receipt shall obligate the Servicer to return the Mortgage File
to the Custodian when the need therefor by the Servicer no longer exists, as
determined by the Servicer, unless the Mortgage Loan shall be liquidated, in
which case, upon receipt of a Request for Release evidencing such liquidation,
the receipt shall be released by the Custodian to the Servicer. The Custodian
shall send such Mortgage File to the Servicer by overnight mail at the request
of the Servicer.

         (c) Subject to Section 2.01, the Servicer shall have the right to
accept applications of Mortgagors for consent to (i) partial releases of
Mortgages, (ii) alterations, (iii) removal, demolition or division of properties
subject to Mortgages and (iv) second mortgage subordination agreements. No
application for approval shall be considered by the Servicer unless: (w) it has
received an Opinion of Counsel, addressed to the Trustee (which opinion shall
not be an expense of the Trustee or the Trust Fund) that such sale, disposition,
substitution, acquisition or contribution will not affect adversely the status
of any REMIC constituting part of the Trust Fund as a REMIC or cause any REMIC
constituting part of the Trust Fund to be subject to a tax on "prohibited
transactions" or "contributions" pursuant to the REMIC Provisions; (x) the
provisions of the related Note and Mortgage have been complied with; (y) the
Combined Amortized Loan-to-Value Ratio and debt-to-income ratio after any
release does not exceed the maximum Combined Amortized Loan-to-Value Ratio and
debt-to-income ratio established in accordance with the underwriting standards
of the Mortgage Loans; and (z) the lien priority of the related Mortgage is not
affected. Upon receipt by the Trustee of a Servicing Officer's certificate
setting forth the action proposed to be taken in respect of a particular
Mortgage Loan and certifying that the criteria set forth in the immediately
preceding sentence have been satisfied, the Trustee shall execute and deliver to
the Servicer the partial release so requested by the Servicer. A proposed form
of partial release shall accompany any Servicing Officer's certificate delivered
by the Servicer pursuant to this paragraph.

                                       27
<PAGE>

Section 2.18      Servicing Compensation.

         As compensation for its activities hereunder, the Servicer shall be
entitled to retain the amount of the Servicing Fee with respect to each Mortgage
Loan (including REO Properties) from interest payments actually collected on the
Mortgage Loans. The Servicer shall be entitled to retain additional servicing
compensation in the form of release fees, bad check charges, assumption fees,
modification or extension fees, late payment charges, or any other
service-related fees, Insurance Proceeds and Liquidation Proceeds not required
to be deposited in the Collection Account and similar items, to the extent
collected from Mortgagors. The Servicer shall be required to pay all expenses
incurred by it in connection with its servicing activities hereunder and shall
not be entitled to reimbursement therefor except as specifically provided for
herein.

Section 2.19      Annual Statement as to Compliance.

         The Servicer, at its own expense, will deliver to the Trustee and the
Depositor, not later than March 15th of each year, commencing in 2005, a
Servicing Officer's certificate stating, as to each signer thereof, that (i) a
review of the activities of the Servicer during the preceding fiscal year (or
such shorter period in the case of the first such report) and of performance
under this Agreement has been made under such officers' supervision, and (ii) to
the best of such officers' knowledge, based on such review, the Servicer has
fulfilled all its obligations under this Agreement for such year, or, if there
has been a default in the fulfillment of all such obligations, specifying each
such default known to such officers and the nature and status thereof including
the steps being taken by the Servicer to remedy such default.

Section 2.20      Annual Independent Certified Public Accountants' Reports.

         Not later than March 15th of each year, commencing in 2005, the
Servicer, at its expense, shall cause a nationally recognized firm of
independent certified public accountants to furnish to the Trustee and the
Depositor a report stating that (i) it has obtained a letter of representation
regarding certain matters from the management of the Servicer which includes an
assertion that the Servicer has complied with certain minimum residential
mortgage loan servicing standards, identified in either the Uniform Single
Attestation Program for Mortgage Bankers established by the Mortgage Bankers
Association of America or the Audit Program for Mortgages serviced by Freddie
Mac, with respect to the servicing of residential mortgage loans during the most
recently completed fiscal year and (ii) on the basis of an examination conducted
by such firm in accordance with standards established by the American Institute
of Certified Public Accountants, such representation is fairly stated in all
material respects, subject to such exceptions and other qualifications that may
be appropriate. Immediately upon receipt of such report, the Servicer shall
furnish a copy of such report to the Trustee. Copies of such statement shall be
provided by the Trustee to the Depositor, each Rating Agency and, upon request,
to any Certificateholder at the requesting Certificateholder's expense, in each
case, provided that such statement is delivered by the Servicer to the Trustee.

Section 2.21      Access to Certain Documentation and Information Regarding the
                  Mortgage Loans.

         The Servicer shall provide to the Trustee, Certificateholders that are
federally insured savings and loan associations, the OTS, the FDIC, the NAIC and
the supervisory agents and examiners of each of the foregoing (which, in the
case of supervisory agents and examiners, may be required by applicable state
and federal regulations) access to the documentation regarding the Mortgage
Loans, such access being afforded without charge but only upon reasonable
request and during normal business hours at the offices of the Servicer
designated by it.

Section 2.22      Substitution Adjustment Amounts.

         For any month in which the Seller substitutes one or more Eligible
Substitute Mortgage Loans for one or more Defective Mortgage Loans in accordance
with the provisions of the Pooling Agreement, the Servicer will determine the
amount (the "Substitution Adjustment Amount"), if any, by which the aggregate
Purchase Price of all such Defective Mortgage Loans exceeds the aggregate, as to
each such Eligible Substitute Mortgage Loan, of the principal balance thereof as
of the date of substitution, together with one month's interest on such
principal balance at the applicable Net Mortgage Interest Rate. In accordance
with the Pooling Agreement, on the date of such substitution, the Seller will
deliver or cause to be delivered to the Servicer for deposit in the Collection
Account an amount equal to the Substitution Adjustment Amount, if any.

                                       28
<PAGE>

Section 2.23      Obligations of the Servicer in Respect of Compensating
                  Interest.

         Not later than 1:00 p.m. New York time on each Servicer Remittance
Date, the Servicer shall deliver to the Trustee for deposit in the Distribution
Account an amount ("Compensating Interest") equal to the lesser of (A) the
aggregate of the Prepayment Interest Shortfalls on the Actuarial Mortgage Loans
for the related Distribution Date resulting from Principal Prepayments on the
Actuarial Mortgage Loans during the related Prepayment Period and (B) its
aggregate Servicing Fee received in the related Collection Period. The Servicer
shall apply Compensating Interest to offset any Prepayment Interest Shortfalls
on the Actuarial Mortgage Loans. The Servicer shall not have the right to
reimbursement for any amounts remitted to the Trustee in respect of Compensating
Interest. The Servicer shall not be obligated to pay Compensating Interest with
respect to Prepayment Interest Shortfalls on Simple Interest Mortgage Loans or
Relief Act Shortfalls.

Section 2.24      Obligations of the Servicer in Respect of Mortgage Interest
                  Rates and Monthly Payments.

         In the event that a shortfall in any collection on or liability with
respect to any Mortgage Loan results from or is attributable to adjustments to
Mortgage Interest Rates, Monthly Payments or Principal Balances that were made
by the Servicer in a manner not consistent with the terms of the related
Mortgage Note and this Agreement, the Servicer, upon discovery or receipt of
notice thereof, immediately shall deliver to the Trustee for deposit in the
Distribution Account from its own funds the amount of any such shortfall and
shall indemnify and hold harmless the Trust Fund, the Trustee, the Depositor and
any successor servicer in respect of any such liability. Such indemnities shall
survive the termination or discharge of this Agreement.

Section 2.25      Investment of Funds in the Collection Account.

         The Servicer may direct any depository institution maintaining the
Collection Account or Accounts (for purposes of this Section 2.25, each an
"Investment Account"), to invest the funds in such Investment 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 is the
obligor thereon, 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 is the obligor thereon. All such Permitted Investments shall be held to
maturity, unless payable on demand. Any investment of funds in an Investment
Account shall be made in the name of the Trustee or the Servicer, as applicable
(in its capacity as such) or in the name of a nominee of the Trustee. The
Trustee shall be entitled to sole possession over each such investment and the
income thereon, and any certificate or other instrument evidencing any such
investment shall be delivered directly to the Trustee or its agent, together
with any document of transfer necessary to transfer title to such investment to
the Trustee or its nominee.

         (a) All income and gain realized from the investment of funds in the
Collection Account shall be for the benefit of the Servicer. The Servicer shall
deposit in the Collection Account the amount of any loss incurred in respect of
any such Permitted Investment made with funds in such account immediately upon
realization of such loss.

         (b) Except as otherwise expressly provided in this Agreement, if any
default occurs in the making of a payment due under any Permitted Investment, or
if a default occurs in any other performance required under any Permitted
Investment, the Trustee may and, upon the request of the Holders of Certificates
representing more than 50% of the Voting Rights allocated to any Class of
Certificates, shall take such action as may be appropriate to enforce such
payment or performance, including the institution and prosecution of appropriate
proceedings.

                                       29
<PAGE>

         The Trustee shall not in any way be held liable by reason of any
insufficiency in any Account held by the Trustee resulting from any investment
loss on any Permitted Investment included therein (except to the extent that the
Trustee is the obligor and has defaulted thereon).

Section 2.26      Liability of Servicer; Indemnification.

         (a) Subject to clause (b) below and Section 4.03, the Servicer
indemnifies and holds the Trustee, the Depositor, any successor Servicer and
each Certificateholder harmless against any and all claims, losses, penalties,
fines, forfeitures, reasonable legal fees and related costs, judgments, and any
other costs, fees and expenses that the Trustee, the Depositor and any
Certificateholder may sustain in any way related to the failure of the Servicer
to perform its duties and service the Mortgage Loans in compliance with the
Servicing Standards, the terms of this Agreement and the terms of the Mortgage
Notes. The Servicer shall immediately notify the Trustee, the Depositor and each
Certificateholder if a claim is made that may result in such claims, losses,
penalties, fines, forfeitures, legal fees or related costs, judgments, or any
other costs, fees and expenses, and the Servicer shall assume (with the consent
of the Depositor) the defense of any such claim and pay all expenses in
connection therewith, including reasonable counsel fees, and promptly pay,
discharge and satisfy any judgment or decree which may be entered against the
Servicer, the Trustee, the Depositor and/or Certificateholder in respect of such
claim. The provisions of this Section 2.26 shall survive the termination of this
Agreement and the payment of the outstanding Certificates. The indemnification
obligations under this Section 2.26(a) shall not be assumed by the Trustee in
its role as successor Servicer.

         (b) None of the Depositor, the Servicer, or any of the directors,
officers, employees or agents of the Depositor or the 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 or the Servicer or any such Person against any
breach of warranties or representations made herein, or against any specific
liability imposed on the Servicer for a breach of the Servicing Standards, or
against any liability which would otherwise be imposed by reason of its
respective willful misfeasance, bad faith, fraud or negligence in the
performance of its duties or by reasons of negligent disregard of its respective
obligations or duties hereunder.

         The Depositor, the Servicer and any director, officer, employee or
agent of the Depositor or the Servicer may rely in good faith on any document of
any kind which, prima facie, is properly executed and submitted by any
appropriate Person with respect to any matters arising hereunder. The Depositor,
the Servicer and any director, officer, employee or agent of the Depositor or
the 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 or the Certificates, other than any loss, liability
or expense incurred in connection with any legal action incurred by reason of
its respective misfeasance, bad faith, fraud or negligence, a breach of a
representation or warranty hereunder or (in the case of the Servicer) a breach
of the Servicing Standards in the performance of its respective duties or by
reason of negligent disregard of its respective obligations or duties hereunder.
Neither the Depositor nor the 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 expose it to
any expense or liability; provided, however, that the Depositor or the Servicer
may in its discretion undertake any action related to its obligations hereunder
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.

Section 2.27      Reports of Foreclosure and Abandonment of Mortgaged
                  Properties.

         On or before the last day of January of each year beginning in 2005,
the Servicer shall file the reports of foreclosure and abandonment of any
Mortgaged Property required by Section 6050J of the Code with the Internal
Revenue Service. The reports from the Servicer shall be in form and substance
sufficient to meet the reporting requirements imposed by such Section 6050J.

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<PAGE>

Section 2.28      Remittance Reports; Advances.

         (a) On the Servicer Report Date, the Servicer shall deliver to the
Trustee in electronic form (or by such other means as the Servicer and the
Trustee may agree from time to time) a Remittance Report with respect to the
related Distribution Date and any other information that the Trustee reasonably
requests. The Trustee shall not be responsible to recompute, recalculate or
verify any information provided to it by the Servicer.

         (b) The Servicer shall use reasonable efforts to provide to the
Depositor the following notices and reports in a timely manner and using the
same methodology and calculations used in its Remittance Report. The Servicer
shall send all such notices and reports to the Depositor in electronic format
unless otherwise specified herein or agreed to in writing by the Depositor.

                  (i) All Mortgage Loans - Within ten (10) Business Days after
         each month-end, commencing with the month ending June 30, 2004, the
         Servicer shall provide the Depositor a report of each Mortgage Loan,
         indicating the information contained in Exhibit E to this Agreement for
         the Due Date relating to such month to the extent such information is
         reasonably available to the Servicer.

                  (ii) Liquidated Mortgage Loans - Within ten (10) Business Days
         after each month-end, commencing with the month ending June 30, 2004,
         the Servicer shall provide the Depositor and the Trustee with copies of
         realized loss certificates or any such itemization regarding Liquidated
         Mortgage Loans.

                  (iii) Primary Mortgage Insurance Claims - Where applicable,
         the Servicer shall provide the Depositor with copies of all primary
         mortgage insurance claims filed, as well as the actual amount paid on
         each claim in respect of a Mortgage Loan. The Servicer shall provide
         the Depositor with copies of primary mortgage insurance claims
         simultaneously with their filing with the mortgage insurance company.

                  (iv) Hazard and Flood Insurance Claims - Where applicable, the
         Servicer shall provide the Depositor with copies of all hazard and
         flood insurance claims filed, as well as the actual amount paid on each
         claim in respect of a Mortgage Loan. The Servicer shall provide the
         Depositor with copies of hazard and flood insurance claims
         simultaneously with their filing with the mortgage insurance company.

         (c) The amount of Advances to be made by the Servicer for any
Distribution Date shall equal, subject to Section 2.28(d), the aggregate amount
of Monthly Payments (net of the related Servicing Fee), due during the related
Collection Period in respect of the Actuarial Mortgage Loans, which Monthly
Payments were delinquent on a contractual basis as of the close of business on
the related Determination Date. For purposes of the preceding sentence, the
Monthly Payment on each Balloon Mortgage Loan with a delinquent Balloon Payment
is equal to the assumed monthly payment that would have been due on the related
Due Date based on the original principal amortization schedule for such Balloon
Mortgage Loan. The Servicer shall not be obligated to make any Advance with
respect to Simple Interest Mortgage Loans or REO Properties.

         On or before 1:00 p.m. New York time on the Servicer Remittance Date,
the Servicer shall remit in immediately available funds to the Trustee for
deposit in the Distribution Account an amount equal to the aggregate amount of
Advances, if any, to be made in respect of the Mortgage Loans for the related
Distribution Date either (i) from its own funds or (ii) from the Collection
Account, to the extent of funds held therein for future distribution (in which
case it will cause to be made an appropriate entry in the records of the
Collection Account that amounts held for future distribution have been, as
permitted by this Section 2.28, used by the Servicer in discharge of any such
Advance) or (iii) in the form of any combination of (i) and (ii) aggregating the
total amount of Advances to be made by the Servicer with respect to the Mortgage
Loans. Any amounts held for future distribution and so used shall be
appropriately reflected in the Servicer's records and replaced by the Servicer
by deposit in the Collection Account on or before any future Servicer Remittance
Date. The Trustee will provide notice to the Servicer electronically or by
telecopy by the close of business on any Servicer Remittance Date in the event
that the amount remitted by the Servicer to the Trustee on such date is less
than the amount required to be remitted by the Servicer for the related
Distribution Date, as set forth in the related Remittance Report.

         (d) The obligation of the Servicer to make such Advances is mandatory,
notwithstanding any other provision of this Agreement but subject to (e) below,
and, with respect to any Mortgage Loan, shall continue until the earlier of such
time as the Trust acquires title to the related Mortgaged Property or such
Mortgage Loan is paid in full by the Mortgagor or disposed of by the Trust, or
until the recovery of all Liquidation Proceeds thereon.

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<PAGE>

         (e) Notwithstanding anything herein to the contrary, no Advance or
Servicing Advance shall be required to be made hereunder by the Servicer if such
Advance would, if made, constitute a Nonrecoverable Advance. The determination
by the Servicer that it has made a Nonrecoverable Advance or that any proposed
Advance, if made, would constitute a Nonrecoverable Advance, shall be evidenced
by an Officers' Certificate of the Servicer delivered to the Depositor and the
Trustee.

Section 2.29      Periodic Filings.

         (a) The Servicer shall reasonably cooperate with the Trustee and the
Depositor in connection with the Trust's satisfying the reporting requirements
under the 1934 Act as set forth in Section 6.17 of the Pooling Agreement. Upon
the request of the Trustee or the Depositor, the Servicer shall cooperate with
the Trustee in the preparation of any such report and shall provide to the
Trustee in a timely manner all such information or documentation as the Trustee
may reasonably request in connection with the performance of its duties and
obligations under this Section.

         (b) A Servicing Officer of the Servicer who is responsible for the
servicing and administration of the Mortgage Loans shall sign a certification in
the form attached hereto as Exhibit D for the benefit of the Depositor, the
Trustee and their respective officers, directors and Affiliates in respect of
items 4 and 5 of the Certification. Each such certification shall be delivered
to the Depositor and the Trustee (as applicable), no later than March 15th of
each year (or if such day is not a Business Day, the immediately preceding
Business Day) and the Depositor shall deliver the Certification to be filed to
the Trustee no later than March 20th of each year, beginning in 2005, (or if
such day is not a Business Day, the immediately preceding Business Day). In the
event that prior to the filing date of the Form 10-K in March of each year, the
Trustee or the Servicer has actual knowledge of information material to the
Certification, that party shall promptly notify the Depositor and each of the
other parties signing the certifications. In addition, the Servicer shall
indemnify and hold harmless the Depositor, the Trustee and their respective
officers, directors and Affiliates from and against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments and other costs and expenses arising out of or based upon any
breach of the Servicer's obligations under this Section 2.29(c) or the
Servicer's negligence, bad faith or willful misconduct in connection therewith.
If the indemnification provided for herein is unavailable or insufficient to
hold harmless the indemnified party then the Servicer agrees in connection with
a breach of the Servicer's obligations under this Section 2.29(c) or the
Servicer's negligence, bad faith or willful misconduct in connection therewith
that it shall contribute to the amount paid or payable by the Depositor and the
Trustee as a result of the losses, claims, damages or liabilities of the
Depositor and the Trustee in such proportion as is appropriate to reflect the
relative fault of the Depositor and the Trustee on the one hand and the Servicer
on the other.

         (c) The Servicer shall prepare and file any and all tax returns,
information statements or other filings required to be delivered to any
governmental taxing authority, the Mortgagor or to the Trustee or the Depositor,
as applicable, pursuant to any applicable law with respect to the Mortgage Loans
and the transactions contemplated hereby. In addition, the Servicer shall
provide the Trustee and the Depositor with such information concerning the
Mortgage Loans as is necessary for the Trustee or Depositor, as applicable, to
prepare federal income tax returns as the Trustee or Depositor may reasonably
request from time to time.

Section 2.30      Gramm-Leach-Bliley.

         The Servicer shall comply with Title V of the Gramm-Leach-Bliley Act of
1999 and all applicable regulations promulgated thereunder, relating to the
Mortgage Loans and the related borrowers and shall provide all required notices
thereunder. The Servicer hereby represents and warrants that it has procedures
and systems in place in order to comply with Title V of the Gramm-Leach-Bliley
Act of 1999 and all applicable regulations promulgated thereunder.

Section 2.31      Inspections

         The Servicer shall inspect the Mortgaged Property as often deemed
necessary by the Servicer to assure itself that the value of the Mortgaged
Property is being preserved. In addition, if any Mortgage Loan is more than
sixty (60) days delinquent, the Servicer immediately shall inspect the Mortgaged
Property and shall conduct subsequent inspections in accordance with the
Servicing Standards or as may be required by the primary mortgage guaranty
insurer. The Servicer shall keep written reports of each such inspection and
shall provide a copy of such inspection to the Trustee and/or the Depositor upon
the request of the Trustee or Depositor, as applicable.

                                       32
<PAGE>

         Section 2.32      Restoration of Mortgaged Property.

         The Servicer need not obtain the approval of the Trustee prior to
releasing any Insurance Proceeds or Condemnation Proceeds to the Mortgagor to be
applied to the restoration or repair of the Mortgaged Property if such release
is in accordance with the Servicing Standards. At a minimum, the Servicer shall
comply with the following conditions in connection with any such release of
Insurance Proceeds or Condemnation Proceeds:

         (a) the Servicer shall receive satisfactory independent verification of
completion of repairs and issuance of any required approvals with respect
thereto;

         (b) the Servicer shall take all steps necessary to preserve the
priority of the lien of the Mortgage, including, but not limited to requiring
waivers with respect to mechanics' and materialmen's liens;

         (c) the Servicer shall verify that the Mortgage Loan is not in default;
and

         (d) pending repairs or restoration, the Servicer shall place the
Insurance Proceeds or Condemnation Proceeds in the Escrow Account.

         If the Trustee or the Depositor is named as an additional loss payee,
the Servicer is hereby empowered to endorse any loss draft issued in respect of
such a claim in the name of the Trustee or the Depositor, as applicable.

                                  ARTICLE III

                                   [RESERVED]

                                   ARTICLE IV

                         THE SERVICER AND THE DEPOSITOR

Section 4.01      Liability of the Servicer and the Depositor.

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

Section 4.02      Merger or Consolidation of, or Assumption of the Obligations
                  of the Servicer or the Depositor.

         Any Person into which the Servicer or the Depositor may be merged or
consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Servicer or the Depositor shall be a party, or any
Person succeeding to the business or assets of the Servicer or the Depositor,
shall be the successor of the Servicer or the Depositor, as the case may be,
hereunder, without the execution or filing of any paper or any further act on
the part of any of the parties hereto, anything herein to the contrary
notwithstanding; provided, however, that the successor Servicer shall be an
institution that is a Fannie Mae or Freddie Mac approved servicer in good
standing. In addition, the successor Servicer shall be an institution (i) having
a GAAP net worth of not less than $25,000,000, (ii) the deposits of which are
insured by the FDIC or which is a HUD-approved mortgagee whose primary business
is in origination and servicing of first lien mortgage loans and (iii)
satisfying all the requirements of Section 5.02 with respect to the
qualifications of a successor Servicer.

                                       33
<PAGE>

Section 4.03      Limitation on Liability of the Servicer and Others.

         Neither the Servicer nor any of the directors or officers or employees
or agents of the Servicer shall be under any liability to the Trust or the
Certificateholders for any action taken or for refraining from the taking of any
action by the Servicer in good faith pursuant to this Agreement, or for errors
in judgment; provided, however, that this provision shall not protect the
Servicer or any such Person against any liability which would otherwise be
imposed by reason of its willful misfeasance, bad faith or gross negligence in
the performance of duties of the Servicer or by reason of its reckless disregard
of its obligations and duties of the Servicer hereunder; provided, further, that
this provision shall not be construed to entitle the Servicer to indemnity in
the event that amounts advanced by the Servicer to retire any senior lien exceed
Liquidation Proceeds (in excess of related liquidation expenses) realized with
respect to the related Mortgage Loan. The Servicer and any director or officer
or employee or agent of the Servicer may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder. The Servicer and any director or officer or
employee or agent of the Servicer shall be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement or the Certificates, other than any
loss, liability or expense incurred by reason of its willful misfeasance, bad
faith or negligence in the performance of duties hereunder or by reason of its
reckless disregard of obligations and duties hereunder. The Servicer may
undertake any such action which it may deem necessary or desirable in respect of
this Agreement, and the rights and duties of the parties hereto and the
interests of the Certificateholders hereunder. In such event, the reasonable
legal expenses and costs of such action and any liability resulting therefrom
shall be expenses, costs and liabilities of the Trust and the Servicer shall be
entitled to pay such expenses from the proceeds of the Trust or to be reimbursed
therefor pursuant to Section 2.05 upon presentation to the Trustee of
documentation of such expenses, costs and liabilities. The Servicer's right to
indemnity or reimbursement pursuant to this Section shall survive any
resignation or termination of the Servicer pursuant to Section 4.04 or 5.01 with
respect to any losses, expenses, costs or liabilities arising prior to such
resignation or termination (or arising from events that occurred prior to such
resignation or termination). This paragraph shall apply to the Servicer solely
in its capacity as Servicer hereunder and in no other capacities.

Section 4.04      Servicer Not to Resign.

         Subject to the provisions of Section 5.01 and Section 4.02, the
Servicer shall not resign from the obligations and duties hereby imposed on it
except (i) upon determination that the performance of its obligations or duties
hereunder are no longer permissible under applicable law or are in material
conflict by reason of applicable law with any other activities carried on by it
or its subsidiaries or Affiliates, the other activities of the Servicer so
causing such a conflict being of a type and nature carried on by the Servicer or
its subsidiaries or Affiliates at the date of this Agreement or (ii) upon
satisfaction of the following conditions: (a) the Servicer has proposed a
successor servicer to the Trustee in writing and such proposed successor
servicer is reasonably acceptable to the Trustee and the Depositor; and (b) each
Rating Agency shall have delivered a letter to the Trustee prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of the then current rating of the Certificates; provided, however,
that no such resignation by the Servicer shall become effective until such
successor servicer or, in the case of (i) above, the Trustee shall have assumed
the Servicer's responsibilities and obligations hereunder or the Trustee shall
have designated a successor servicer in accordance with Section 5.02. Any such
resignation shall not relieve the Servicer of responsibility for any of the
obligations specified in Sections 5.01 and 5.02 as obligations that survive the
resignation or termination of the Servicer. Any such determination permitting
the resignation of the Servicer pursuant to clause (i) above shall be evidenced
by an Opinion of Counsel to such effect delivered to the Trustee. Any such
determination permitting the resignation of the Servicer shall be evidenced by
an Opinion of Counsel to such effect delivered to the Trustee.

Section 4.05      Delegation of Duties.

         In the ordinary course of business, the Servicer at any time may
delegate any of its duties hereunder to any Person, including any of its
Affiliates, who agrees to conduct such duties in accordance with standards
comparable to those set forth in Section 2.01. Such delegation shall not relieve
the Servicer of its liabilities and responsibilities with respect to such duties
and shall not constitute a resignation within the meaning of Section 4.04. The
Servicer shall provide the Trustee and the Rating Agencies with 60 days prior
written notice prior to the delegation of any of its duties to any Person other
than any of the Servicer's Affiliates or their respective successors and
assigns.

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<PAGE>

Section 4.06      Representations, Warranties and Covenants of the Servicer.

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

                  (i) The Servicer is duly organized, validly existing, and in
         good standing under the laws of the jurisdiction of its formation and
         has all licenses necessary to carry on its business as now being
         conducted, except for such licenses, certificates and permits the
         absence of which, individually or in the aggregate, would not have a
         material adverse effect on the ability of the Servicer to conduct its
         business as it is presently conducted, and is licensed, qualified and
         in good standing in the states where the Mortgaged Property is located
         if the laws of such state require licensing or qualification in order
         to conduct business of the type conducted by the Servicer or to ensure
         the enforceability or validity of each Mortgage Loan; the Servicer has
         the power and authority to execute and deliver this Agreement and to
         perform in accordance herewith; the execution, delivery and performance
         of this Agreement (including all instruments of transfer to be
         delivered pursuant to this Agreement) by the Servicer and the
         consummation of the transactions contemplated hereby have been duly and
         validly authorized;

                  (ii) The consummation of the transactions contemplated by this
         Agreement are in the ordinary course of business of the Servicer and
         will not result in the breach of any term or provision of the
         certificate of formation, by-laws or the partnership agreement of the
         Servicer or result in the breach of any term or provision of, or
         conflict with or constitute a default under or result in the
         acceleration of any obligation under, any agreement, indenture or loan
         or credit agreement or other instrument to which the Servicer or its
         property is subject, or result in the violation of any law, rule,
         regulation, order, judgment or decree to which the Servicer or its
         property is subject;

                  (iii) The Servicer is an approved seller/servicer of
         conventional mortgage loans for Fannie Mae, and is an FHA Approved
         Mortgagee in good standing to service mortgages and has not been
         suspended as a mortgagee or servicer by the FHA and has the facilities,
         procedures and experienced personnel necessary for the sound servicing
         of mortgage loans of the same type as the Mortgage Loans. The Servicer
         is, and shall remain for as long as it is servicing the Mortgage Loans
         hereunder, in good standing as an FHA Approved Mortgagee and to service
         mortgage loans for HUD, Fannie Mae or Freddie Mac, and no event has
         occurred, including but not limited to a change in insurance coverage,
         which would make the Servicer unable to comply with HUD, Fannie Mae,
         Freddie Mac, FHA, OTS, OCC and FDIC eligibility requirements (including
         but not limited to minimum capital requirements) or which would require
         notification to any of HUD, Fannie Mae, Freddie Mac or FHA;

                  (iv) This Agreement, and all documents and instruments
         contemplated hereby which are executed and delivered by the Servicer,
         constitute and will constitute valid, legal and binding obligations of
         the Servicer, enforceable in accordance with their respective terms,
         except as the enforcement thereof may be limited by applicable
         bankruptcy laws and general principles of equity;

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

                  (vi) Except as previously disclosed to the Depositor, there is
         no action, suit, proceeding or investigation pending or, to its
         knowledge, threatened against the Servicer that, either individually or
         in the aggregate, may result in any material adverse change in the
         business, operations, financial condition, properties or assets of the
         Servicer, or in any material impairment of the right or ability of the
         Servicer to carry on its business substantially as now conducted, or in
         any material liability on the part of the Servicer, or that would draw
         into question the validity or enforceability of this Agreement or of
         any action taken or to be taken in connection with the obligations of
         the Servicer contemplated herein, or that would be likely to impair
         materially the ability of the Servicer to perform under the terms of
         this Agreement;

                                       35
<PAGE>

                  (vii) No consent, approval or order of any court or
         governmental agency or body (including, without limitation, VA, FHA and
         HUD) is required for the execution, delivery and performance by the
         Servicer of or compliance by the Servicer with this Agreement or the
         consummation of the transactions contemplated by this Agreement, except
         for such consents, approvals, authorizations and orders, if any, that
         have been obtained;

                  (viii) Neither this Agreement nor any information, certificate
         of an officer, statement furnished in writing or report delivered to
         the Trustee by the Servicer in connection with the transactions
         contemplated hereby contains or will contain any untrue statement of a
         material fact or omits or will omit to state a material fact necessary
         in order to make the statements contained therein, in light of the
         circumstances under which they were made, not misleading; and

                  (ix) The Servicer covenants that, subject to Section 4.02, it
         shall keep in full force and effect its existence, rights and
         franchises as a corporation and its status as a Fannie Mae or Freddie
         Mac approved servicer in good standing and shall obtain and preserve
         its qualification to do business as a foreign corporation in each
         jurisdiction in which such qualification is or shall be necessary to
         protect the validity and enforceability of this Agreement or any of the
         Mortgage Loans and to perform its duties under this Agreement.

         It is understood and agreed that the representations, warranties and
covenants set forth in this Section 4.06 shall survive delivery of the Mortgage
Files to the Trustee and shall inure to the benefit of the Trustee, the
Depositor and the Certificateholders. Upon discovery by any of the Depositor,
the Trustee or the Servicer of a breach of any of the foregoing representations,
warranties and covenants which materially and adversely affects the value of any
Mortgage Loan or the interests therein of the Certificateholders, the party
discovering such breach shall give prompt written notice (but in no event later
than two Business Days following such discovery) to each of the other parties
hereto.

                                    ARTICLE V

                                     DEFAULT

Section 5.01      Servicer Events of Termination.

         (a) If any one of the following events ("Servicer Events of
Termination") shall occur and be continuing:

                  (i) (A) The failure by the Servicer to make any Advance; or
         (B) any other failure by the Servicer to deposit in the Collection
         Account or Distribution Account any deposit required to be made under
         the terms of this Agreement which continues unremedied for a period of
         one Business Day after the date upon which written notice of such
         failure shall have been given to the Servicer by the Trustee or by any
         Holder of a Certificate evidencing at least 25% of the Voting Rights;
         or

                  (ii) The failure by the Servicer to make any required
         Servicing Advance which failure continues unremedied for a period of 30
         days, or the failure by the Servicer duly to observe or perform, in any
         material respect, any other covenants, obligations or agreements of the
         Servicer as set forth in this Agreement, which failure continues
         unremedied for a period of 30 days, after the date (A) on which written
         notice of such failure, requiring the same to be remedied, shall have
         been given to the Servicer by the Trustee or by any Holder of a
         Certificate evidencing at least 25% of the Voting Rights or (B) actual
         knowledge of such failure by a Servicing Officer of the Servicer; or

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

                                       36
<PAGE>

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

                  (v) Any reduction, withdrawal or qualification of the
         Servicer's rating by S&P, Moody's or Fitch which results in the
         inability of the Servicer, or the unacceptability by any such rating
         agency to allow the Servicer, in either case, to act as a primary
         servicer for this transaction or a primary servicer or special servicer
         for any other mortgage-backed or asset-backed transaction rated or to
         be rated by any such rating agency; or

                  (vi) the Servicer shall fail to be an approved servicer of
         mortgage loans for Fannie Mae and Freddie Mac, in good standing; or

                  (vii) the Servicer shall fail to be in compliance with the
         "doing business" or licensing laws of any jurisdiction where a
         Mortgaged Property is located.

         (b) Then, and in each and every such case, so long as a Servicer Event
of Termination shall not have been remedied within the applicable grace period,
if any, (x) with respect solely to clause (i)(A) above, if such Advance is not
made by 2:00 P.M., New York time, on the Business Day immediately following the
Servicer Remittance Date, the Trustee may terminate all of the rights and
obligations of the Servicer under this Agreement and the Trustee, or a successor
servicer appointed in accordance with Section 5.02, shall immediately make such
Advance and assume, pursuant to Section 5.02, the duties of a successor Servicer
and (y) in the case of (i)(B), (ii), (iii), (iv), (v), (vi) and (vii) above, the
Trustee may and, at the direction of the Holders of each Class of Certificates
evidencing Percentage Interests aggregating not less than 51%, shall by notice
then given in writing in accordance with Section 7.04 hereof to the Servicer,
terminate all of the rights and obligations of the Servicer as servicer under
this Agreement. Any such notice to the Servicer shall also be given to each
Rating Agency and the Depositor. On or after the receipt by the Servicer of such
written notice, all authority and power of the Servicer under this Agreement,
whether with respect to the Certificates or the Mortgage Loans or otherwise,
shall pass to and be vested in the Trustee pursuant to and under this Section,
provided that the succession of the Trustee to all of the responsibilities,
duties and liabilities of the terminated Servicer may not be complete for up to
90 days after the delivery of such written notice, as set forth in Section
5.02(a) hereof; and, without limitation, the Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Servicer, as attorney-in-fact
or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement of each Mortgage Loan and Related Documents or otherwise. The
Servicer agrees to cooperate with the Trustee (or the applicable successor
Servicer) in effecting the termination of the responsibilities and rights of the
Servicer hereunder, including, without limitation, the delivery to the Trustee
of all documents and records requested by it to enable it to assume the
Servicer's functions under this Agreement within ten Business Days subsequent to
such notice, the transfer within one Business Day subsequent to such notice to
the Trustee (or the applicable successor Servicer) for the administration by it
of all cash amounts that shall at the time be held by the Servicer and to be
deposited by it in the Collection Account, the Distribution Account, any REO
Account or any Escrow Account or that have been deposited by the Servicer in
such accounts or thereafter received by the Servicer with respect to the
Mortgage Loans or any REO Property received by the Servicer. All reasonable
costs and expenses (including reasonable attorneys' fees) incurred in connection
with transferring the servicing to the successor Servicer and amending this
Agreement to reflect such succession as Servicer pursuant to this Section shall
be paid by the predecessor Servicer (or if the predecessor Servicer is the
Trustee, the initial Servicer) upon presentation of reasonable documentation of
such costs and expenses. The Servicer shall continue to be entitled to the
benefits of Section 4.03, notwithstanding any termination hereunder, with
respect to events occurring prior to such termination. If such predecessor
Servicer does not pay such costs and expenses within a reasonable period of
time, the successor Servicer shall be entitled to be reimbursed from the Trust
Fund for such costs and expenses for which the Trust Fund will retain a right of
recovery against the predecessor or initial Servicer, as applicable. Any
Advances made by the predecessor Servicer will be reimbursed by the successor
Servicer (other than Nonrecoverable Advances which shall be reimbursed from the
amounts on deposit in the Collection Account).

                                       37
<PAGE>

         (c) In the event that the Servicer's duties, responsibilities and
liabilities under this Agreement shall be terminated, the Servicer shall
discharge such duties and responsibilities during the period from the date it
acquires knowledge of such termination until the effective date thereof with the
same degree of diligence and prudence which it is obligated to exercise under
this Agreement, and shall take no action whatsoever that might impair or
prejudice the rights or financial condition of its successor.

Section 5.02      Trustee to Act; Appointment of Successor.

         (a) Within 90 days of the time the Servicer receives a notice of
termination pursuant to Section 5.01, the Trustee (or such other successor
Servicer as is approved in accordance with this Agreement) shall be the
successor in all respects to the Servicer in its capacity as servicer under this
Agreement and the transactions set forth or provided for herein and shall be
subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof arising on and after
its succession. As compensation therefor, the Trustee (or such other successor
Servicer) shall be entitled to such compensation as the Servicer would have been
entitled to hereunder if no such notice of termination had been given.
Notwithstanding the above, (i) if the Trustee is unwilling to act as successor
Servicer or (ii) if the Trustee is legally unable so to act, the Trustee shall
appoint or petition a court of competent jurisdiction to appoint, any
established housing and home finance institution, bank or other mortgage loan or
home equity loan servicer having a net worth of not less than $50,000,000 as the
successor to the Servicer hereunder in the assumption of all or any part of the
responsibilities, duties or liabilities of the Servicer hereunder; provided,
that the appointment of any such successor Servicer will not result in the
qualification, reduction or withdrawal of the ratings assigned to the
Certificates or the ratings that are in effect by the Rating Agencies as
evidenced by a letter to such effect from the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. In connection with such appointment and assumption, the
successor shall be entitled to receive compensation out of payments on Mortgage
Loans in an amount equal to the compensation which the Servicer would otherwise
have received pursuant to Section 2.18 (or such other compensation as the
Trustee and such successor shall agree, not to exceed the Servicing Fee). The
successor servicer shall be entitled to withdraw from the Collection Account all
costs and expenses associated with the transfer of the servicing to the
successor servicer. The appointment of a successor servicer shall not affect any
liability of the predecessor Servicer which may have arisen under this Agreement
prior to its termination as Servicer to pay any deductible under an insurance
policy pursuant to Section 2.12 or to indemnify the parties indicated in Section
2.26 pursuant to the terms thereof, nor shall any successor Servicer be liable
for any acts or omissions of the predecessor Servicer or for any breach by such
Servicer of any of its representations or warranties contained herein or in any
related document or agreement. The Trustee and such successor shall take such
action, consistent with this Agreement, as shall be necessary to effectuate any
such succession.

         (b) Any successor, including the Trustee, to the Servicer as servicer
shall during the term of its service as servicer continue to service and
administer the Mortgage Loans for the benefit of Certificateholders, and
maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
Fidelity Bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 2.12.

Section 5.03      Waiver of Defaults.

         The Majority Certificateholders may, on behalf of all
Certificateholders, waive any events permitting removal of the Servicer as
servicer pursuant to this Article V, provided, however, that the Majority
Certificateholders may not waive a default in making a required distribution on
a Certificate without the consent of the Holder of such Certificate. Upon any
waiver of a past default, such default shall cease to exist and any Servicer
Event of Termination arising therefrom shall be deemed to have been remedied for
every purpose of this Agreement. No such waiver shall extend to any subsequent
or other default or impair any right consequent thereto except to the extent
expressly so waived. Notice of any such waiver shall be given by the Trustee to
the Rating Agencies.

                                       38
<PAGE>

Section 5.04      Notification to Certificateholders.

         (a) On any termination or appointment of a successor the Servicer
pursuant to this Article V or Section 4.04, the Trustee shall give prompt
written notice thereof to the Certificateholders at their respective addresses
appearing in the Certificate Register and each Rating Agency.

         (b) No later than 60 days after the occurrence of any event which
constitutes or which, with notice or a lapse of time or both, would constitute a
Servicer Event of Termination for five Business Days after a Responsible Officer
of the Trustee obtains actual knowledge of the occurrence of such an event, the
Trustee shall transmit by mail to all Certificateholders notice of such
occurrence unless such default or Servicer Event of Termination shall have been
waived or cured. Such notice shall be given to the Rating Agencies promptly
after any such occurrence.

Section 5.05      Survivability of Servicer Liabilities.

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

                                   ARTICLE VI

                                   TERMINATION

Section 6.01      Termination.

         The respective obligations and responsibilities of the Servicer, the
Depositor and the Trustee hereunder shall terminate upon termination of the
Trust in accordance with Section 7.01 of the Pooling Agreement.

                                  ARTICLE VII

                            MISCELLANEOUS PROVISIONS

Section 7.01      Amendment.

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

         In addition, this Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee with the consent of the Majority
Certificateholders for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment or waiver shall (x) reduce in any manner the
amount of, or delay the timing of, payments on the Certificates which are
required to be made on any Certificate without the consent of the Holder of such
Certificate, (y) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in
clause (x) above, without the consent of the Holders of Certificates of such
Class evidencing at least a 66% of the Voting Rights of such Class, or (z)
reduce the percentage of Voting Rights required by clause (y) above without the
consent of the Holders of all Certificates of such Class then outstanding. Upon
approval of an amendment, a copy of such amendment shall be sent to the Rating
Agencies. Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel (at the expense
of the Person seeking such amendment) stating that the execution of such
amendment is authorized or permitted by this Agreement. The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties or immunities under this Agreement.

                                       39
<PAGE>

         Notwithstanding any provision of this Agreement to the contrary, the
Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, delivered by (and at the expense of)
the Person seeking such Amendment, to the effect that such amendment will not
result in the imposition of a tax on any REMIC constituting part of the Trust
Fund pursuant to the REMIC Provisions or cause any REMIC constituting part of
the Trust to fail to qualify as a REMIC at any time that any Certificates are
outstanding and that the amendment is being made in accordance with the terms
hereof.

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

         It shall not be necessary for the consent of Certificateholders under
this Section 7.01 to approve the particular form of any proposed amendment;
instead it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.

Section 7.02      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
Servicer at the expense of the Trust, but only upon direction of
Certificateholders, accompanied by an Opinion of Counsel to the effect that such
recordation materially and beneficially affects the interests of the
Certificateholders.

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

Section 7.03      Governing Law; Jurisdiction.

         THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES
HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. WITH RESPECT TO ANY
CLAIM ARISING OUT OF THIS AGREEMENT, EACH PARTY IRREVOCABLY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN THE CITY OF NEW
YORK, AND EACH PARTY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY HAVE AT ANY
TIME TO THE LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING HERETO BROUGHT IN ANY SUCH COURTS, IRREVOCABLY WAIVES ANY CLAIM THAT
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT
IN ANY INCONVENIENT FORUM AND FURTHER IRREVOCABLY WAIVES THE RIGHT TO OBJECT,
WITH RESPECT TO SUCH CLAIM, SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH
COURT, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER SUCH PARTY, PROVIDED THAT
SERVICE OF PROCESS HAS BEEN MADE BY ANY LAWFUL MEANS.

                                       40
<PAGE>

Section 7.04      Notices.

         All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at, faxed or
mailed by first class mail, postage prepaid, or by express delivery service, to
(a) in the case of the Depositor, Morgan Stanley ABS Capital I Inc., 1585
Broadway, New York, New York 10036, Attention: Michelle Wilke, Esq., (telecopy
number 212-761-0260) (b) in the case of the Servicer, Bank of America, N.A., 475
Crosspoint Parkway, Getzville, New York 14068-9000, Attention: Servicing
Manager, or such other address as may be furnished to the Depositor in writing
by the Servicer, and (c) in the case of the Trustee, Deutsche Bank National
Trust Company, 1761 East St. Andrew Place, Santa Ana, California 92705
Attention: Trust Administration - MS04S2. Any notice required or permitted to be
mailed to a Certificateholder shall be given by first class mail, postage
prepaid, at the address of such Holder as shown in the Certificate Register.
Notice of any Servicer Event of Termination shall be given by telecopy and by
certified mail. Any notice so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have duly been given when mailed,
whether or not the Certificateholder receives such notice. A copy of any notice
required to be telecopied hereunder shall also be mailed to the appropriate
party in the manner set forth above.

Section 7.05      Severability of Provisions.

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

         Any part, provision, representation or warranty of this Agreement which
is prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall be ineffective, as to such jurisdiction, to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction.

Section 7.06      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 7.07      Notice to the Rating Agencies.

         (a) Each of the Trustee and the Servicer shall be obligated to use its
best reasonable efforts promptly to provide notice to the Rating Agencies with
respect to each of the following of which a Responsible Officer of the Trustee
or the Servicer, as the case may be, has actual knowledge:

                  (i)      any material change or amendment to this Agreement;

                  (ii)     the occurrence of any Servicer Event of Termination
                           that has not been cured or waived;

                  (iii)    the resignation or termination of the Servicer;

                  (iv)     any change in the location of any Account; and

                  (v) if the Trustee is acting as successor Servicer pursuant to
         Section 5.02 hereof, any event that would result in the inability of
         the Trustee to make Advances.

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

                  (A)      each annual statement as to compliance described in
                           Section 2.19 hereof;
                  (B)      each annual independent public accountants' servicing
                           report described in Section 2.20 hereof; and
                  (C)      each notice delivered pursuant to Section 5.01(a)
                           hereof which relates to the fact that the Servicer
                           has not made an Advance.

                                       41
<PAGE>

         Any such notice pursuant to this Section 7.07 shall be in writing and
shall be deemed to have been duly given if personally delivered, faxed or mailed
by first class mail, postage prepaid, or by express delivery service to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Managing Director, Residential Mortgage-Backed Securities; Fitch Ratings, One
State Street Plaza, New York, New York 10004, Attention: Managing Director,
Residential Mortgage-Backed Securities; and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041,
Attention: Mortgage Surveillance Group.

Section 7.08      Further Assurances.

         Notwithstanding any other provision of this Agreement, neither the
Certificateholders nor the Trustee shall have any obligation to consent to any
amendment or modification of this Agreement unless they have been provided
reasonable security or indemnity against their out-of-pocket expenses (including
reasonable attorneys' fees) to be incurred in connection therewith.

Section 7.09      Benefits of Agreement.

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

Section 7.10      Acts of Certificateholders.

         (a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Agreement to be given or taken by the
Certificateholders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Certificateholders in person or by
agent duly appointed in writing; and such action shall become effective when
such instrument or instruments are delivered to the Servicer. Such instrument or
instruments (and the action embodied therein and evidenced thereby) are herein
sometimes referred to as the "act" of the Certificateholders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Agreement and conclusive in favor of the Trustee and the Trust, if made in the
manner provided in this Section 7.10.

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

Section 7.11      Exhibits and Schedules

         The exhibits and schedules to this Agreement are hereby incorporated
and made an integral part of this Agreement.

                                       42
<PAGE>

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

                        MORGAN STANLEY ABS CAPITAL I INC., as Depositor

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

                        BANK OF AMERICA, N.A., as Servicer

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

                        DEUTSCHE BANK NATIONAL TRUST COMPANY, not in
                             its individual capacity but solely as Trustee

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

<PAGE>

                                    EXHIBIT A

                             MORTGAGE LOAN SCHEDULE

                        [On File at Dewey Ballantine LLP]

                                     EX A-1

<PAGE>

                                    EXHIBIT B

                    FORM OF REQUEST FOR RELEASE OF DOCUMENTS

To:      Deutsche Bank National Trust Company
         1761 East St. Andrew Place
         Santa Ana, California  92705
         Attention:  Corporate Trust Services--MS04S2

         Re:   Servicing Agreement, dated as of June 1, 2004, among Morgan
               Stanley ABS Capital I Inc., as depositor (the "Depositor"), Bank
               of America, N.A., as servicer (the "Servicer") and Deutsche
               Bank National Trust Company, as trustee (the
               "Trustee").

         All capitalized terms used herein shall have the means ascribed to them
in the Servicing Agreement (the "Agreement") referenced above.

         In connection with the administration of the Mortgage Loans held by
Deutsche Bank National Trust Company as Custodian pursuant to the Pooling
Agreement, we request the release, and hereby acknowledge receipt, of the
Trustee's Mortgage File for the Mortgage Loan described below, for the reason
indicated.

Mortgage Loan Number:

Mortgagor Name, Address & Zip Code:

Reason for Requesting Documents (check one):

____________1.    Mortgage Paid in Full
____________2.    Foreclosure
____________3.    Substitution
____________4.    Other Liquidation (Repurchases, etc.)
____________5.    Nonliquidation
                                    Reason:

                                    By:
                                       -----------------------------------
                                    (authorized signer)

                                    Issuer:

                                    Address:

                                    Date:

         Please acknowledge the execution of the above request by your signature
and date below, if requested:

Signature

Date

                                     EX B-1
<PAGE>

                                    EXHIBIT C

                    MONTHLY INFORMATION DELIVERED BY SERVICER

1.       With respect to the Mortgage Pool, the number and Principal Balances of
         all Mortgage Loans which were the subject of Principal Prepayments
         during the related Collection Period.

2.       With respect to the Mortgage Pool, the amount of all curtailments which
         were received during the related Collection Period.

3.       With respect to the Mortgage Pool, the aggregate amount of principal
         portion of all Monthly Payments received during the related Collection
         Period.

4.       With respect to the Mortgage Pool, the amount of interest received on
         the Mortgage Loans during the related Collection Period.

5.       With respect to the Mortgage Pool, the aggregate amount of the Advances
         made and recovered with respect to such Distribution Date.

6.       With respect to the Mortgage Pool, the delinquency, bankruptcy and
         foreclosure information and the amount of Mortgage Loan Losses as of
         the close of business on the last day of the calendar month preceding
         the related Distribution Date (including the Principal Balance of all
         30-59 Day Delinquent Loans, 60-89 Day Delinquent Loans, 90-119 Day
         Delinquent Loans, 120-149 Day Delinquent Loans, 150 to 179 Day
         Delinquent Loans and 180+ Day Delinquent Loans and the book value of
         any REO Property) and whether such Mortgage Loan is a Re-Performing 60+
         Day Delinquent Loan.

7.       With respect to the Mortgage Pool, the weighted average maturity, the
         weighted average Mortgage Interest Rate and the weighted average Net
         Mortgage Interest Rate as of the last day of the Collection Period
         preceding of the related Accrual Period.

8.       The Servicing Fees paid and Servicing Fees accrued during the related
         Collection Period.

9.       The amount of all payments or reimbursements to the Servicer paid or to
         be paid since the prior Distribution Date (or in the case of the first
         Distribution Date, since the Closing Date).

10.      The Pool Balance.

11.      With respect to the Mortgage Pool, the number of Mortgage Loans
         outstanding at the beginning and at the end of the related Collection
         Period.

12.      The aggregate interest accrued on the Mortgage Loans at their
         respective Mortgage Interest Rates for the related Collection Period.

13.      The amount deposited in the Collection Account which may not be
         withdrawn therefrom pursuant to an Order of a United States Bankruptcy
         Court of competent jurisdiction imposing a stay pursuant to Section 362
         of U.S. Bankruptcy Code.

14.      The aggregate Realized Losses since the Cut-off Date as of the end of
         the related Collection Period.

15.      Default Interest.

16.      Any other information requested by the Trustee to enable it to
         calculate distributions on the Certificates and prepare the reports
         required by the Pooling Agreement.

                                     EX C-1
<PAGE>

                                    EXHIBIT D

                              ANNUAL CERTIFICATIONS

Re:    Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, Mortgage Pass-Through
       Certificates, Series 2004-SD2, issued pursuant to the Pooling Agreement,
       dated as of June 1, 2004, among Morgan Stanley ABS Capital I Inc., as
       depositor (the "Depositor"), Morgan Stanley Mortgage Capital Inc., as
       seller (the "Seller"), Deutsche Bank National Trust Company, as custodian
       and as trustee (in such capacity, the "Trustee").

I, [identify the certifying individual], certify to the Depositor and the
Trustee and its officers, directors and affiliates, and with the knowledge and
intent that they will rely upon this certification, that:

         1.       [To be certified by the Trustee] I have reviewed the annual
                  report on Form 10-K for the fiscal year [___], and all reports
                  on Form 8-K containing distribution reports in respect of
                  periods included in the year covered by that annual report, of
                  the Depositor relating to the above-referenced trust;

         2.       [To be certified by the Trustee] Based on my knowledge, the
                  information in these distribution reports prepared by the
                  Trustee, taken as a whole, does not contain any untrue
                  statement of a material fact or omit to state a material fact
                  necessary to make the statements made, in light of the
                  circumstances under which such statements were made, not
                  misleading as of the last day of the period covered by that
                  annual report;

         3.       [To be certified by the Trustee] Based on my knowledge, the
                  distribution information required to be provided by the
                  Trustee under the Pooling Agreement is included in these
                  reports;

         4.       [To be certified by the Servicer] I am responsible for
                  reviewing the activities performed by the Servicer under the
                  Servicing Agreement during the calendar year immediately
                  preceding the date of this certificate (the "Relevant Year").
                  Based upon the review required by the Servicing Agreement and
                  except as disclosed in the annual compliance statement or the
                  accountant's statement provided pursuant to section 2.19 of
                  the Servicing Agreement, to the best of my knowledge, the
                  Servicer has fulfilled its obligations under the Servicing
                  Agreement throughout the Relevant Year; and

         5.       [To be certified by the Servicer] All significant deficiencies
                  relating to the Servicer's compliance with the minimum
                  servicing standards for purposes of the report provided by an
                  independent public accountant, after conducting a review
                  conducted in compliance with the Uniform Single Attestation
                  Program for Mortgage Bankers or similar procedure, as set
                  forth in the Servicing Agreement, have been disclosed to such
                  accountant.

Date:

[Name of Institution]

By: _________________________

[Name]

[Title]

                                     EX D-1
<PAGE>

                                    EXHIBIT E

         DATA AND FORMAT TO BE PROVIDED BY THE SERVICER TO THE DEPOSITOR

<TABLE>
<CAPTION>
FIELD                                                                                   FORMAT
-----                                                                                   ------
<S>                                                                                     <C>
Name*                                                                                   Text
Lien Position*                                                                          Text/Number
FICO Score*                                                                             Number
Original Occupancy*                                                                     Text
Documentation*                                                                          Text
Purpose*                                                                                Text
Original Loan Amount*                                                                   Number
Original Appraisal Value*                                                               Number
Original LTV*                                                                           Number
Original P&I*                                                                           Number
Original Interest Rate*                                                                 Number
First Payment Date*                                                                     MM/DD/YY
Origination Date*                                                                       MM/DD/YY
Originator*                                                                             Text
Loan Term*                                                                              Number
Product Type (adjustable rate or fixed rate)*                                           Text
Property Type*                                                                          Text
Street Address*                                                                         Text
City*                                                                                   Text
Zip Code*                                                                               Text
State*                                                                                  Text
MI Certificate Number*                                                                  Number
Prepayment Flag                                                                         Text
Prepayment Expiration Date                                                              MM/DD/YY
Loan Number                                                                             Text
Deal Identifier by Loan                                                                 Text
Current Loan Amount                                                                     Number
Current LTV                                                                             Number
Current Interest Rate                                                                   Number
Last Interest Payment Date                                                              MM/DD/YY
Actual payment received (a dollar amount indicating what amount of funds
   the servicer received from the borrower during the month)                            Number
Current P&I Payment Amount                                                              Number
Paid Off Code                                                                           Text
Scheduled Balance                                                                       Number
Calculation of Retained Yield by Loan Number (if applicable to the transaction)         Number
Reporting of Delinquency Status on Defaulted Mortgage Loans                             Text
Current Market Value                                                                    Number
Date of Market Value                                                                    MM/DD/YY
As-is Value                                                                             Number
Repaired Value                                                                          Number
Type of Valuation                                                                       Text
Foreclosure Flag                                                                        Text
Bankruptcy Flag                                                                         Text
Date NOD sent to MI company                                                             MM/DD/YY
Foreclosure Start Date (Referral Date)                                                  MM/DD/YY
Scheduled Foreclosure Sale Date                                                         MM/DD/YY
Foreclosure Actual Sale Date                                                            MM/DD/YY
Actual Notice of Intent Date                                                            MM/DD/YY
Actual First Legal Date                                                                 MM/DD/YY
Bankruptcy Chapter                                                                      Number
</TABLE>

                                     EX E-1
<PAGE>

<TABLE>
<CAPTION>
FIELD                                                                                   FORMAT
-----                                                                                   ------
<S>                                                                                     <C>
Actual Bankruptcy Start Date                                                            MM/DD/YY
Bankruptcy plan payment due date (either next due or last paid date)                    MM/DD/YY
Required payment amount under bankruptcy plan                                           Number
Bankruptcy discharge date                                                               MM/DD/YY
Loan on Formal Payment Plan Flag                                                        Text
Loan on Informal Payment Plan Flag                                                      Text
Actual Payment Plan Start and End Dates                                                 MM/DD/YY
Payment/forbearance plan payment due date (either next due or last paid date)           MM/DD/YY
Required payment amount under payment/forbearance plan                                  Number
List Date                                                                               MM/DD/YY
List Price                                                                              Number
Vacancy/Occupancy Status                                                                Text
Actual Eviction Start Date                                                              MM/DD/YY
Actual Eviction Completion Date                                                         MM/DD/YY
Actual REO Start Date                                                                   MM/DD/YY
Sales Price                                                                             Number
Actual Closing Date                                                                     MM/DD/YY
Net Sales Proceeds                                                                      Number
Mortgage Insurance Claim Filing Date                                                    MM/DD/YY
Mortgage Insurance Proceeds Received                                                    Number
Date Mortgage Insurance Proceeds Received                                               MM/DD/YY
Hazard Insurance Claim Flag (a data field indicating that a hazard insurance
   issue has become known)                                                              Text
</TABLE>

*This information needs to be provided only on the first delivery of data.
 -------------------------------------------------------------------------

                                     EX E-2<PAGE>

                                                                     EXHIBIT 4.3

<PAGE>

                                                                  EXECUTION COPY

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

                               SERVICING AGREEMENT

                                  BY AND AMONG

                           WASHINGTON MUTUAL BANK, FA
                                   (SERVICER)

                      DEUTSCHE BANK NATIONAL TRUST COMPANY
                                    (TRUSTEE)

                                       AND

                        MORGAN STANLEY ABS CAPITAL I INC.

                                   (DEPOSITOR)

                            DATED AS OF JUNE 1, 2004

                MORGAN STANLEY ABS CAPITAL I INC. TRUST 2004-SD2

                       MORTGAGE PASS-THROUGH CERTIFICATES,
                                 SERIES 2004-SD2

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>

ARTICLE 1 DEFINITIONS.............................................................................................1

ARTICLE 2 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS..........................................................9

     Section 2.1         Identification of Mortgage Loans; Servicer to Act as Servicer............................9
     Section 2.2         Liquidation of Mortgage Loans...........................................................11
     Section 2.3         Collection of Mortgage Loan Payments....................................................12
     Section 2.4         Establishment of Collection Account; Deposits in Collection Account.....................13
     Section 2.5         Permitted Withdrawals from the Collection Account.......................................15
     Section 2.6         Establishment of Escrow Account; Deposits in Escrow Account; Escrow Analysis............15
     Section 2.7         Permitted Withdrawals from the Escrow Account...........................................16
     Section 2.8         Payment of Taxes, Insurance and Other Charges...........................................16
     Section 2.9         Transfer of Accounts....................................................................17
     Section 2.10        Maintenance of Hazard Insurance.........................................................17
     Section 2.11        Fidelity Bond; Errors and Omissions Insurance...........................................18
     Section 2.12        Title, Management and Disposition of Real Estate Owned..................................19
     Section 2.13        Application of Proceeds of Insurance to Repair or Restoration...........................20
     Section 2.14        Inspections.............................................................................20
     Section 2.15        Maintenance of Primary Mortgage Insurance Policies; Collections Thereunder..............21
     Section 2.16        Monthly Advances by the Servicer........................................................21
     Section 2.17        Compliance With REMIC Provisions........................................................22
     Section 2.18        Trustee to Cooperate; Release of Mortgage Files.........................................22
     Section 2.19        Optional Purchases of Mortgage Loans by Servicer........................................23
     Section 2.20        Gramm-Leach-Bliley......................................................................24

ARTICLE 3 DISTRIBUTIONS AND REPORTS..............................................................................24

     Section 3.1         Distributions...........................................................................24
     Section 3.2         Reports.................................................................................25
     Section 3.3         Delinquency and Foreclosure Statements..................................................26

ARTICLE 4 GENERAL SERVICING PROCEDURE; COVENANTS; REPRESENTATIONS AND WARRANTIES.................................26

     Section 4.1         Assumption Agreements...................................................................26
     Section 4.2         Satisfaction of Mortgages and Release of Mortgage Files.................................27
     Section 4.3         Servicing Compensation..................................................................28
     Section 4.4         Statements as to Compliance.............................................................29
     Section 4.5         Annual Independent Public Accountants' Servicing Report.................................29
     Section 4.6         Trustee's Right to Examine Servicer Records, etc........................................30
     Section 4.7         Cooperation.............................................................................30
     Section 4.8         Consents and Approvals..................................................................30
</TABLE>

                                       i
<PAGE>

<TABLE>
<CAPTION>
                                                                                                               Page
                                                                                                               ----
<S>                                                                                                            <C>

ARTICLE 5 THE SERVICER...........................................................................................31

     Section 5.1         Indemnification; Third Party Claims.....................................................31
     Section 5.2         Servicer Covenants; Merger or Consolidation of the Servicer.............................32
     Section 5.3         Limitation on Liability of the Servicer and Others......................................33
     Section 5.4         Servicer Not to Resign..................................................................33
     Section 5.5         Transfer of Servicing...................................................................34
     Section 5.6         [Reserved]..............................................................................34
     Section 5.7         Representations and Warranties of the Servicer..........................................34
     Section 5.8         Servicer May Own Certificates...........................................................35

ARTICLE 6 DEFAULT................................................................................................35

     Section 6.1         Events of Default.......................................................................35
     Section 6.2         Waiver of Defaults......................................................................37
     Section 6.3         Notification to Certificateholders......................................................37
     Section 6.4         Survival of Certain Obligations and Liabilities of the Defaulted Servicer...............38

ARTICLE 7 TERMINATION............................................................................................38

     Section 7.1         Termination of Agreement................................................................38
     Section 7.2         Termination of the Servicer Upon Unremedied Event of Default............................38

ARTICLE 8 MISCELLANEOUS PROVISIONS...............................................................................39

     Section 8.1         Successor to the Servicer...............................................................39
     Section 8.2         Amendment...............................................................................40
     Section 8.3         Recordation of Agreement; Perfection of Security Interest; Further Assurances...........41
     Section 8.4         Duration of Agreement...................................................................41
     Section 8.5         Governing Law...........................................................................42
     Section 8.6         General Interpretive Principles.........................................................42
     Section 8.7         Reproduction of Documents...............................................................42
     Section 8.8         Notices.................................................................................43
     Section 8.9         Severability of Provisions..............................................................43
     Section 8.10        Exhibits and Schedules..................................................................43
     Section 8.11        Counterparts; Successors and Assigns....................................................44
     Section 8.12        Effect of Headings......................................................................44
     Section 8.13        Other Agreements Superseded; Entire Agreement...........................................44
     Section 8.14        Notice to the Rating Agencies and the Depositor.........................................44
</TABLE>

                                       ii
<PAGE>

                           DESCRIPTION OF ATTACHMENTS

Exhibit A         FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT

Exhibit B         ACCOUNT LETTER AGREEMENT

Exhibit C         ESCROW ACCOUNT LETTER AGREEMENT

Exhibit D         MORTGAGE LOAN SCHEDULE

Exhibit E         FORM OF OFFICER'S CERTIFICATE

                                      iii

<PAGE>

                               SERVICING AGREEMENT

         This SERVICING AGREEMENT (this "Agreement") dated as of June 1, 2004,
is among Washington Mutual Bank, FA, a savings association organized under the
laws of the United States, in its capacity as servicer (the "Servicer"),
Deutsche Bank National Trust Company, a national banking association, in its
capacity as trustee (the "Trustee") and Morgan Stanley ABS Capital I Inc., a
Delaware corporation, and its successors and assigns, in its capacity as
depositor (the "Depositor").

                              PRELIMINARY STATEMENT

         WHEREAS, the Depositor intends to sell pass-through certificates
(collectively, the "Certificates"), which are to be issued pursuant to a pooling
agreement, dated as of June 1, 2004 (as amended from time to time, in accordance
with the terms thereof, the "Pooling Agreement"), among the Depositor, Morgan
Stanley Mortgage Capital Inc. (the "Seller") and Deutsche Bank National Trust
Company, as trustee (in such capacity, the "Trustee") and custodian (in such
capacity, the "Custodian").

         WHEREAS, the Certificates will be backed by certain Mortgage Loans.

         WHEREAS, the Servicer, the Trustee and the Depositor have agreed that
the Servicer shall service certain of such Mortgage Loans on behalf of the Trust
and the parties hereto desire to provide the mechanics of such servicing by the
Servicer.

         NOW, THEREFORE, in consideration of the mutual agreements and covenants
herein contained, and other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

                                   ARTICLE 1

                                   DEFINITIONS

         Capitalized terms used in this Agreement shall have the meanings
specified in the Mortgage Loan Purchase and Sale Agreement, dated as of
September 1, 2003 (the "Purchase Agreement"), between Washington Mutual Bank,
Washington Mutual Bank, FA and Morgan Stanley Mortgage Capital Inc., as the
owner, or in the Pooling Agreement (as defined herein), as applicable, except
that, whenever used herein, the following words and phrases shall have the
following meanings, unless the context otherwise requires:

         "Acceptable Servicing Procedures": The procedures, including prudent
collection and loan administration procedures, and the standard of care employed
by prudent mortgage servicers that service mortgage loans of the same type as
the Mortgage Loans in the jurisdictions in which the related Mortgaged
Properties are located. Such standard of care shall not be lower than that the
Servicer customarily employs and exercises in servicing and administering
similar mortgage loans for its own account and shall be in full compliance with
all federal, state and local laws, ordinances, rules and regulations.

<PAGE>

         "Agreement": This Servicing Agreement, including all exhibits and
schedules hereto, and all amendments hereof and supplements hereto.

         "Applicable Requirements": With respect to each Mortgage Loan, (i) the
terms of the related Mortgage and Mortgage Note, (ii) the federal, state, local
and foreign laws, statutes, rules, regulations, ordinances, standards,
requirements, administrative rulings, orders and processes pertaining to such
Mortgage Loan, including but not limited to those pertaining to the processing,
origination and servicing of the Mortgage Loan, (iii) the requirements of the
Depositor as set forth in this Agreement and (iv) Acceptable Servicing
Procedures.

         "Bank of America": Bank of America, N.A., a national banking
association, or any successor servicer thereto, in its capacity as servicer
under the Bank of America Servicing Agreement.

         "Bank of America Servicing Agreement": The servicing agreement dated as
of June 1, 2004 by and among the Depositor, the Trustee and Bank of America, as
servicer.

         "Bankruptcy Code":  Title 11 of the United States Code, as amended.

         "BIF":  The Bank Insurance Fund.

         "Business Day": A day other than (i) a Saturday or Sunday, or (ii) a
day on which banking or savings and loan institutions in the States of
Washington, California, Illinois, Delaware or New York or in the city of Santa
Ana, California are authorized or obligated by law or executive order to be
closed.

         "Certificates":  As defined in the Preliminary Statement hereto.

         "Closing Date":  June 4, 2004.

         "Code": The Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereto.

         "Collection Account": The account or accounts created and maintained
pursuant to Section 2.4 of this Agreement.

         "Collection Period": With respect to any Distribution Date or Monthly
Remittance Date, the calendar month preceding the month in which such
Distribution Date or Monthly Remittance Date occurs.

         "Compensating Interest":  As defined in Section 2.4(b)(ix).

         "Compensating Interest Cap": With respect to any Mortgage Loan, an
amount equal to 1/12 of the Pool Balance multiplied by the applicable Servicing
Fee Rate for such Mortgage Loan, or as the parties shall otherwise agree in
writing.

         "Condemnation Proceeds": All awards or settlements in respect of a
taking of all or part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation.

                                       2
<PAGE>

         "Credit File":  As defined in the Purchase Agreement.

         "Custodian": Deutsche Bank National Trust Company, a national banking
association, or any successor in interest.

         "Customer Information": All personal, nonpublic information about the
mortgagors that is supplied on behalf of the mortgagors and is maintained by the
Servicer.

         "Cut-off Date":  May 1, 2004.

         "Defaulted Servicer":  As defined in Section 6.1.

         "Depositor": Morgan Stanley ABS Capital I Inc., a Delaware corporation,
or any successor in interest.

         "Determination Date": With respect to any Distribution Date, the 10th
day of the calendar month in which such Distribution Date occurs or, if such
10th day is not a Business Day, the Business Day immediately preceding such 10th
day.

         "Distribution Account": The trust account or accounts by such name
created and maintained by the Trustee pursuant to the Pooling Agreement.

         "Distribution Date": The 25th day of any calendar month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day, commencing in June 2004.

         "Due Date": With respect to any Mortgage Loan, the day of the month on
which Monthly Payments on such Mortgage Loan are due, exclusive of any days of
grace, which day shall be the first day of the month unless otherwise specified
on the Mortgage Loan Schedule.

         "Due Period": With respect to any Mortgage Loan, the period beginning
on the first day of any month and ending on the last day of such month.

         "Eligible Account": An account or accounts maintained with a Qualified
Depository.

         "Escrow Account": The separate account or accounts created and
maintained pursuant to Section 2.6.

         "Escrow Holdback Mortgage Loan":  As defined in the Purchase Agreement.

         "Escrow Payments": The amounts constituting ground rents, taxes,
assessments, water rates, sewer rents, municipal charges, Primary Mortgage
Insurance Policy premiums, if any, fire and hazard insurance premiums,
condominium charges and other payments required to be escrowed by the Mortgagor
with the mortgagee pursuant to any Mortgage Loan or this Agreement.

         "Event of Default": Any one of the conditions or circumstances
enumerated in Section 6.1.

                                       3
<PAGE>

         "Fannie Mae": Fannie Mae (formerly known as the Federal National
Mortgage Association) and any successor thereto.

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

         "Fidelity Bond": A fidelity bond to be obtained by the Servicer
pursuant to Section 2.11.

         "Final Recovery Determination": With respect to any defaulted Mortgage
Loan or any REO Property, a determination made by the Servicer that all related
Condemnation Proceeds, Insurance Proceeds, Liquidation Proceeds and other
payments or recoveries that the Servicer, in its reasonable good faith judgment,
expects to be finally recoverable have been so recovered. The Servicer shall
maintain records, prepared by a servicing officer of the Servicer, of each Final
Recovery Determination.

         "Fitch":  Fitch, Inc. or any successor thereto.

         "GAAP": Generally Accepted Accounting Principles, as promulgated by the
Financial Accounting Standards Board from time to time.

         "Indemnitees":  As defined in Section 4.4(c).

         "Insurance Proceeds": Proceeds of any Primary Mortgage Insurance
Policy, title policy, hazard insurance policy or any other insurance policy
covering a Mortgage Loan or the related Mortgaged Property, including any
amounts required to be deposited in the Collection Account pursuant to Section
2.10, 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
Applicable Requirements.

         "Late Collections": With respect to any Mortgage Loan, all amounts
received during any Due Period, whether as late payments of Monthly Payments, or
as Insurance Proceeds, Liquidation Proceeds, Condemnation Proceeds or otherwise,
which amounts represent late payments or collections of Monthly Payments due but
delinquent for a previous Due Period and not previously recovered.

         "Liquidation Proceeds": Cash received in connection with (i) the
liquidation of a defaulted Mortgage Loan (whether through the sale or assignment
of the Mortgage Loan, trustee's sale, foreclosure sale or otherwise) or (ii) the
sale of the Mortgaged Property, if the Mortgaged Property is acquired in
satisfaction of the Mortgage.

         "Majority Certificateholders": The Holders of Certificates evidencing
at least 51% of the Voting Rights.

         "Monthly Advance": The aggregate of the advances made by the Servicer
on any Monthly Remittance Date pursuant to Section 2.16(a).

         "Monthly Payment":  As defined in the Pooling Agreement.

                                       4
<PAGE>

         "Monthly Remittance Date": With respect to any Distribution Date, three
(3) Business Days prior to such Distribution Date.

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

         "Mortgage File":  As defined in the Purchase Agreement.

         "Mortgage Interest Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan.

         "Mortgage Loan": Each mortgage loan sold under the Purchase Agreement
and ultimately transferred and assigned to the Trustee pursuant to the Pooling
Agreement as from time to time held as a part of the Trust Fund, the Mortgage
Loans so held being identified in the Mortgage Loan Schedule. The term "Mortgage
Loan" includes a Cooperative Loan.

         "Mortgage Loan Schedule": As of any date with respect to the Mortgage
Loans, the list of such Mortgage Loans included in the Trust Fund, prepared by
the Servicer, setting forth the information required under the Purchase
Agreement and attached hereto as Exhibit D.

         "Net Interest Margin Securities":  As defined in Section 2.19 hereof.

         "Net Rate": With respect to each Mortgage Loan, the annual rate at
which interest thereon shall be remitted to the Trustee (in each case computed
on the basis of a 360-day year consisting of twelve 30-day months), which annual
rate shall be equal to the Mortgage Interest Rate less the Servicing Fee Rate
and the Trustee Fee Rate.

         "Nonrecoverable Advance": Any portion of any Servicing Advance or
Monthly Advance previously made or proposed to be made in respect of a Mortgage
Loan by the Servicer hereunder that the Servicer determines in its good faith
judgment will not be ultimately recoverable from Late Collections.

         "Officer's Certificate": A certificate signed by a Vice President or
other authorized officer and delivered to the Trustee and the Depositor, as
required by this Agreement.

         "Opinion of Counsel": A written opinion of counsel, who may be counsel
for the Depositor or the Servicer or an employee of the Servicer, reasonably
acceptable to the Depositor, the Trustee or the Servicer, as the case may be.

         "Optional Termination":  As defined in Section 2.19.

         "OTS":  The Office of Thrift Supervision, or any successor thereto.

         "Permitted Investments": Any one or more of the following obligations
or securities:

                  (i) direct obligations of, or obligations fully guaranteed as
         to 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;

                                       5
<PAGE>

                  (ii) repurchase obligations with respect to any security
         described in clause (i) above, provided that the unsecured long-term
         obligations of the party agreeing to repurchase such obligations are at
         the time rated by S&P or Moody's in one of its two highest rating
         categories;

                  (iii) federal funds, certificates of deposit, time deposits,
         and bankers' acceptances of any bank or trust company incorporated
         under the laws of the United States or any state, provided that the
         long-term debt obligations of such bank or trust company (or, in the
         case of the principal bank in a bank holding company system, the
         long-term debt obligations of the bank holding company) at the date of
         acquisition thereof have been rated by S&P or Moody's in one of its two
         highest rating categories;

                  (iv) commercial paper of any corporation incorporated under
         the laws of the United States or any state thereof which on the date of
         acquisition has been rated by S&P or Moody's in its highest short-term
         rating category; and

                  (v) 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.

         "Pool Balance": As of any date of determination, the aggregate Unpaid
Principal Balance of the Mortgage Loans.

         "Pooling Agreement":  As defined in the Preliminary Statement hereto.

         "Prepayment Charge": With respect to any Mortgage Loan, the prepayment
premium or charge, if any, required under the terms of the related Mortgage Note
to be paid in connection with a Principal Prepayment in Full or a Principal
Prepayment in Part, to the extent permitted by applicable law.

         "Primary Mortgage Insurance Policy": With respect to each Mortgage
Loan, the policy of primary mortgage insurance (including all endorsements
thereto) issued with respect to such Mortgage Loan, if any, or any replacement
policy.

         "Prime": As of any date of determination, the annual interest rate,
adjusted daily, published from time to time in The Wall Street Journal (Western
Edition) as the "PRIME RATE" in the "MONEY RATES" section. In the event that
more than one such rate is specified, "Prime" shall mean the greatest of such
rates.

         "Principal Prepayment": Any payment or other recovery of principal in
full ( a "Principal Prepayment in Full") or in part (a "Principal Prepayment in
Part") of the then-outstanding principal on a Mortgage Loan (other than
Condemnation Proceeds, Insurance Proceeds, and Liquidation Proceeds) that is
received in advance of its scheduled Due Date and not accompanied by an amount
of interest representing scheduled interest due on any date or dates in any
month or months subsequent to the month of prepayment. The term "Principal
Prepayment" shall not refer to any related Prepayment Charge.

         "Purchase Agreement": That certain Mortgage Loan Purchase and Sale
Agreement dated as of September 1, 2003 among Washington Mutual Bank, FA,
Washington Mutual Bank fsb and Washington Mutual Bank as the sellers and Morgan
Stanley Mortgage Capital Inc. as the purchaser.

                                       6
<PAGE>

         "Qualified Depository": Any of the following: (i) a depository, the
long-term unsecured debt obligations of which are rated by Moody's or S&P (or a
comparable rating agency) in one of its three highest rating categories, (ii)
the corporate trust department of a national bank, (iii) a depository that fully
insures the Collection Account and the Escrow Account with insurance provided by
the FDIC, or (iv) the Servicer.

         "Rating Agency" or "Rating Agencies": Fitch, Moody's and S&P, or their
respective successors. If such agencies or their successors are no longer in
existence, "Rating Agencies" shall be such nationally recognized statistical
rating organization as set forth on the most current list of such organizations
released by the SEC and designated by the Depositor, notice of which designation
shall be given to the Trustee and the Servicer.

         "Remainder Amount":  As defined in Section 2.19.

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

         "REMIC Provisions": Provisions of the federal income tax law relating
to REMICs, which appear at Section 860G of Subchapter M of Chapter 1 of the Code
and related provisions, and regulations promulgated thereunder, as in effect
from time to time.

         "REO Management Fee": With respect to each REO Property, an amount
equal to $1,500.

         "REO Property": A Mortgaged Property acquired in foreclosure or by deed
in lieu of foreclosure, as described in Section 2.12.

         "Responsible Officer": With respect to the Trustee, any vice president,
assistant vice president, associate or any other officer of the Trustee
customarily performing functions similar to those performed by any of the above
designated officers who at such time shall be an officer to whom, with respect
to a particular matter, such matter is referred because of such officer's
knowledge of and familiarity with the particular subject and who shall have
direct responsibility for the administration of this Agreement.

         "SAIF":  The Savings Association Insurance Fund.

         "S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.

         "SEC":   The Securities and Exchange Commission.

         "Seller": Morgan Stanley Mortgage Capital Inc., a Delaware corporation,
and any successor in interest.

                                       7
<PAGE>

         "Servicer": Washington Mutual Bank, FA, a savings association organized
under the laws of the United States, or its permitted successor in interest, or
any successor to the Servicer under this Agreement appointed as herein provided.

         "Servicer Employees":  As defined in Section 2.11.

         "Servicer Report Date": With respect to any Distribution Date, the 10th
Business Day of the calendar month in which such Distribution Date occurs.

         "Servicing Advances": All customary, reasonable, and necessary "out of
pocket" costs and expenses, including reasonable attorneys' fees and
disbursements, incurred by the Servicer in the performance of its servicing
obligations hereunder, including, without limitation, costs related to (i) the
preservation, restoration, and protection of the Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of the Mortgaged Property if the Mortgaged Property
is acquired in satisfaction of the Mortgage and (iv) Servicer's compliance with
the obligations set forth in Sections 2.2, 2.3, 2.8, 2.10, 2.12 and 2.15 of this
Agreement.

         "Servicing Fee": With respect to each Mortgage Loan, the amount of the
annual fee payable to the Servicer pursuant to Section 4.3 as compensation for
servicing and administering such Mortgage Loan. Such fee shall, for a period of
one full month, be equal to one-twelfth of the product of (i) the related
Servicing Fee Rate, multiplied by (ii) the outstanding Unpaid Principal Balance
of such Mortgage Loan. Such fee shall be payable monthly and shall be computed
on the basis of the same principal amount and period respecting which any
related interest payment on such Mortgage Loan is computed.

         "Servicing Officer": Any Vice-President or Assistant Vice-President or
any officer of the Servicer customarily performing functions similar to those
performed by a Vice-President or Assistant Vice-President and in each case
having direct responsibility for the administration of this Agreement.

         "Stayed Funds": Any payment required to be made under the terms of the
Certificates and this Agreement but which is not remitted by the Servicer
because the Servicer is the subject of a proceeding under the Bankruptcy Code
and the making of such remittance is prohibited by Section 362 of the Bankruptcy
Code.

         "Terminating Entity":  As defined in Section 2.19.

         "Termination Price":  As defined in the Pooling Agreement.

         "Termination Notice":  As defined in Section 2.19

         "Trust": Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, the trust
created pursuant to the Pooling Agreement.

         "Trust Fund": The segregated pool of assets subject to the Pooling
Agreement, constituting the primary trust created pursuant to the Pooling
Agreement and to be administered pursuant to the Pooling Agreement.

                                       8
<PAGE>

         "Trustee": Deutsche Bank National Trust Company, a national banking
association, or any successor trustee appointed pursuant to the Pooling
Agreement.

         "Unpaid Principal Balance": As to any Mortgage Loan and any day, other
than a Liquidated Mortgage Loan, the related scheduled principal balance thereof
as of the Cut-off Date, minus all collections credited against the principal
balance of any such Mortgage Loan. For purposes of this definition, a Liquidated
Mortgage Loan shall be deemed to have an Unpaid Principal Balance equal to the
Unpaid Principal Balance of the related Mortgage Loan as of the final recovery
of related Liquidation Proceeds and an Unpaid Principal Balance of zero
thereafter. As to any REO Property and any day, the Unpaid Principal Balance of
the related Mortgage Loan immediately prior to such Mortgage Loan becoming REO
Property minus any REO Principal Amortization received with respect thereto on
or prior to such day.

         "USAP":  As defined in Section 4.5.

         "Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate in accordance with the
Pooling Agreement.

         "Wilshire": Wilshire Credit Corporation, a Nevada corporation, or any
successor servicer thereto, in its capacity as servicer under the Wilshire
Servicing Agreement.

         "Wilshire Servicing Agreement": The servicing agreement dated as of
June 1, 2004 by and among the Depositor, the Trustee and Wilshire, as servicer.

                                   ARTICLE 2

                 ADMINISTRATION AND SERVICING OF MORTGAGE LOANS

     Section 2.1 Identification of Mortgage Loans; Servicer to Act as Servicer

         (a) The Servicer, as independent contract servicer, shall service and
administer the Mortgage Loans in accordance with this Agreement and Acceptable
Servicing Procedures, and, except as otherwise expressly provided in this
Agreement, the Servicer shall have full power and authority, acting alone, to do
any and all things in connection with such servicing and administration that the
Servicer may deem necessary or desirable and consistent with the terms of this
Agreement, including, without limitation, all action permitted or required to be
taken under any related Primary Mortgage Insurance Policy. In servicing and
administering the Mortgage Loans, the Servicer shall employ Acceptable Servicing
Procedures, except that the Servicer shall employ the procedures set forth in
this Agreement whenever the Acceptable Servicing Procedures conflict with the
requirements under this Agreement. The Servicer shall at all times act in the
best interests of the Trust and the Certificateholders in performing hereunder.

         (b) The documents comprising the Mortgage File and the Credit File with
respect to each Mortgage Loan serviced hereunder and that are delivered to the
Servicer, together with all other documents with respect to each such Mortgage
Loan that are prepared by or which come into the possession of the Servicer,
shall immediately vest in the Trustee on behalf of the Certificateholders and
shall be held and maintained in trust by the Servicer at the will of the Trustee
on behalf of the Certificateholders and in a custodial capacity only for the
sole purpose of servicing or supervising the servicing of the related Mortgage
Loans. The documents comprising each Mortgage File and each Credit File and all
related documents that come into the possession of the Servicer and are so held
by the Servicer shall be appropriately marked to clearly reflect the ownership
interest of the Trustee on behalf of the Certificateholders in such Mortgage
File and Credit File and related documents. The Servicer shall release its
custody of any such documents only in accordance with written instructions from
the Depositor or if such release is required as incidental to the Servicer's
servicing of the Mortgage Loans or is in connection with a repurchase of any
Mortgage Loan pursuant to Section 3.3 of the Purchase Agreement.

                                       9
<PAGE>

         (c) Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Mortgage Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Mortgagor if, in the Servicer's reasonable and prudent
determination, such waiver, modification, variation, postponement or indulgence
is in the best interests of the Trust and the Certificateholders; provided,
however, that the Servicer shall not permit any modification with respect to any
Mortgage Loan that would (i) change the Mortgage Interest Rate, defer or forgive
the payment of any principal or interest payments, reduce the outstanding
principal amount (except for actual payments of principal) or extend the related
Maturity Date (unless the Mortgagor is in default with respect to the Mortgage
Loan or such default is, in the judgment of the Servicer, imminent and in the
Servicer's reasonable and prudent determination such waiver, modification,
variation, postponement or indulgence is not materially adverse to the
Certificateholders), (ii) affect adversely the status of any REMIC as a REMIC or
(iii) cause any REMIC to be subject to a tax on "prohibited transactions" or
"contributions" pursuant to the REMIC Provisions. Notwithstanding the foregoing,
the Servicer shall not permit any modification with respect to any Mortgage Loan
that would both (x) effect an exchange or reissuance of such Mortgage Loan under
Section 1.860G-2(b) of the Treasury Regulations and (y) cause any REMIC
constituting part of the Trust Fund to fail to qualify as a REMIC under the Code
or the imposition of any tax on "prohibited transactions" or "contributions"
after the Startup Day under the REMIC Provisions. Without limiting the
generality of the foregoing, the Servicer is hereby authorized and empowered to
execute and deliver on behalf of itself and the Trustee all instruments of
satisfaction, cancellation, full release, or partial release or discharge, and
all other comparable instruments with respect to the Mortgage Loans and the
Mortgaged Properties. If reasonably required by the Servicer, the Trustee shall
furnish the Servicer with any powers of attorney and other documents necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties under this Agreement.

         (d) As to each ARM Loan, the Servicer shall make periodic Mortgage
Interest Rate and Monthly Payment adjustments, as applicable, and execute and
deliver all appropriate notices regarding the same, in strict compliance with
the Applicable Requirements. The Servicer shall establish procedures to monitor
the Index in order to ensure that it uses the appropriate value for the Index in
determining an interest rate change. If the Servicer fails to make a timely and
correct Mortgage Interest Rate adjustment or Monthly Payment adjustment, the
Servicer shall use its own funds to satisfy any shortage in the Mortgagor's
Monthly Payment for so long as such shortage continues. In the event the Index,
as specified in the related Mortgage Note, becomes unavailable for any reason,
the Servicer shall select an alternative index based on comparable information,
in accordance with the terms of the Mortgage Note, and such alternative index
shall thereafter be the Index for such Mortgage Loan. In such event, the
Servicer shall also determine a new Gross Margin. The new Gross Margin shall be
the difference between (x) the average of the original Index for the most recent
three-year period that ends on the last date the original Index was available
plus the Gross Margin on the last date the original Index was available and (y)
the average of the new Index for the most recent three-year period that ends on
that date (or if not available for such three-year period, for such time as it
is available), rounded as provided in the Mortgage Note.

                                       10
<PAGE>

         (e) In connection with the servicing and administration of the Mortgage
Loans and consistent with Acceptable Servicing Procedures and this Agreement,
the Servicer shall have full power and authority to execute and deliver or cause
to be executed and delivered on behalf of the Trustee, on behalf of the
Certificateholders, such instruments of assignment or other comparable
instruments as the Servicer shall deem appropriate in order to register any
Mortgage Loan on the MERS(R) System or cause the removal of any Mortgage Loan
from registration on the MERS(R) System.

         (f) The Servicer shall give prompt notice to the Trustee of any action,
of which a Servicing Officer of the Servicer has actual knowledge, to assert a
claim against the Trust Fund. For purposes of this provision, the term "actual
knowledge" means that an authorized Servicing Officer has received written
notice specifying that an action or claim is being asserted against the Trust
Fund and in no event shall this standard require a Servicing Officer to conduct
an investigation or an inquiry into whether any action or claim asserts a claim
against the Trust Fund or asserts jurisdiction over the Trust Fund.

     Section 2.2 Liquidation of Mortgage Loans

         (a) In the event that any payment due under any Mortgage Loan is not
paid when the same becomes due and payable, or in the event the Mortgagor fails
to perform any other covenant or obligation under the Mortgage Loan and such
failure continues beyond any applicable grace period, the Servicer shall proceed
diligently to collect all payments due and shall take such action, including
commencing foreclosure, as it shall reasonably deem to be in the best interests
of the Certificateholders.

         (b) Notwithstanding the foregoing provisions of this Section 2.2, with
respect to any Mortgage Loan as to which the Servicer has received actual notice
of, or has actual knowledge of, the presence of any toxic or hazardous substance
on the related Mortgaged Property, the Servicer shall not (i) obtain title to
such Mortgaged Property as a result of or in lieu of foreclosure or otherwise,
(ii) acquire possession of, or (iii) take any other action with respect to, such
Mortgaged Property if, as a result of any such action, the Trust would be
considered to hold title to, to be a mortgagee-in-possession of, or to be an
owner or operator of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Servicer has
previously determined, based on its reasonable judgment and a prudent report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:

                                       11
<PAGE>

                  (i) such Mortgaged Property is in compliance with applicable
         environmental laws or, if not, that it would be in the best economic
         interest of the Certificateholders to take such actions as are
         necessary to bring the Mortgaged Property into compliance therewith;
         and

                  (ii) there are no circumstances present at such Mortgaged
         Property relating to the use, management or disposal of any hazardous
         substances, hazardous materials, hazardous wastes, or petroleum-based
         materials for which investigation, testing, monitoring, containment,
         clean-up or remediation could be required under any federal, state or
         local law or regulation, or that if any such materials are present for
         which such action could be required, that it would be in the best
         economic interest of the Certificateholders to take such actions with
         respect to the affected Mortgaged Property.

The cost of the environmental audit report contemplated by this Section 2.2(b)
shall be advanced by the Servicer as a Servicing Advance, subject to the
Servicer's right to be reimbursed therefor from the Collection Account and the
Servicer's right to make a judgment about whether any such advance would be a
Nonrecoverable Advance.

         (c) If the Servicer has determined that it is in the best economic
interest of the Certificateholders to take such actions as are necessary to
bring any such Mortgaged Property into compliance with applicable environmental
laws, or to take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials affecting any such Mortgaged Property, then the
Servicer shall take such action as it deems to be in the best economic interest
of the Certificateholders. The cost of any such compliance, containment,
clean-up or remediation shall be advanced by the Servicer as a Servicing
Advance, subject to the Servicer's right to be reimbursed therefor from the
Collection Account and the Servicer's right to make a judgment about whether any
such advance would be a Nonrecoverable Advance.

     Section 2.3 Collection of Mortgage Loan Payments

         Continuously from the date hereof until the principal and interest on
all of the Mortgage Loans are paid in full, the Servicer shall proceed
diligently to collect all payments due under each of the Mortgage Loans when the
same shall become due and payable. With respect to those Mortgage Loans, if any,
as to which the Servicer collects Escrow Payments, the Servicer shall ascertain
or estimate annual ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, fire and hazard insurance premiums, condominium charges,
Primary Mortgage Insurance Policy premiums and all other charges that, as
provided in any Mortgage, shall become due and payable, to the end that the
Escrow Payments payable by the Mortgagors shall be sufficient to pay such
charges as and when they become due and payable. The Servicer shall not be
required to institute or join in litigation with respect to the collection of
any payment (whether under a Mortgage, Mortgage Note, Primary Mortgage Insurance
Policy or otherwise or against any public or governmental authority with respect
to a taking or condemnation) if in the Servicer's reasonable judgment the
Servicer believes that the costs and expenses relating thereto would be
Nonrecoverable Advances. The Servicer shall be entitled to be reimbursed from
the Collection Account for any costs, expenses or other liabilities incurred by
the Servicer in connection with any such litigation solely from the proceeds of
the related Mortgage Loan. The Servicer's right to such reimbursement shall be
prior to the Certificateholders' rights to such proceeds.

                                       12
<PAGE>

     Section 2.4 Establishment of Collection Account; Deposits in Collection
                 Account

         (a) The Servicer shall establish and maintain one or more Accounts
(collectively, the "Collection Account") entitled "Collection Account,
Washington Mutual Bank, FA, as Servicer for the Trust under the Servicing
Agreement dated as of June 1, 2004 between Morgan Stanley ABS Capital I Inc., as
Depositor, Deutsche Bank National Trust Company, as Trustee and Washington
Mutual Bank, FA, as Servicer, in trust for registered Holders of Morgan Stanley
ABS Capital I Inc. Trust 2004-SD2, Mortgage Pass-Through Certificates, Series
2004-SD2", and which must be an Eligible Account. If the Collection Account is
established with an institution other than the Servicer, (i) the Collection
Account shall be evidenced by a letter agreement substantially in the form of
Exhibit B attached hereto and (ii) the Servicer shall deliver a copy of such
letter agreement to the Trustee on or prior to the Closing Date.

         (b) The Servicer shall, upon receipt (and in any event, no later than
the end of the second Business Day following receipt thereof (except as
otherwise provided below)), deposit in the Collection Account and retain
therein, the following payments and collections received or made by the Servicer
subsequent to the Cut-off Date :

                  (i) the principal portion of all Monthly Payments on the
         Mortgage Loans;

                  (ii) the interest portion of all Monthly Payments on the
         Mortgage Loans less the Servicing Fee;

                  (iii) all Principal Prepayments in Part and Principal
         Prepayments in Full;

                  (iv) all Liquidation Proceeds;

                  (v) all Insurance Proceeds, other than Insurance Proceeds to
         be held in the Escrow Account and applied to the restoration and repair
         of the Mortgaged Property or released to the Mortgagor in accordance
         with Applicable Requirements;

                  (vi) all Condemnation Proceeds which are not released to the
         Mortgagor in accordance with the Applicable Requirements;

                  (vii) any amount required to be deposited in the Collection
         Account pursuant to Sections 2.4(d), 2.10, 2.12(c), 2.12(e) or 4.2(b);

                  (viii) any amounts payable in connection with the repurchase
         of any Mortgage Loan pursuant to Section 3.3 of the Purchase Agreement;
         and

                  (ix) with respect to each Principal Prepayment in Full, an
         amount (to be paid by the Servicer out of its own funds without
         reimbursement therefor) which, when added to all amounts allocable to
         interest received in connection with such Principal Prepayment in Full,
         equals one month's interest on the amount of principal so prepaid at
         the applicable Net Rate, provided, however, that the aggregate of
         deposits made by the Servicer pursuant to this clause (ix) in respect
         of any Monthly Remittance Date shall not exceed the Compensating
         Interest Cap ("Compensating Interest").

                                       13
<PAGE>

         (c) The Servicer shall, no later than 24 hours prior to the next
Monthly Remittance Date, deposit in the Collection Account all Monthly Advances.

         (d) The Servicer may cause the funds on deposit from time to time in
the Collection Account to be invested in Permitted Investments, which Permitted
Investments shall mature not later than the Business Day immediately preceding
the next Monthly Remittance Date following the date such funds are invested. All
Permitted Investments shall be made in the name of the Servicer or the Trustee
or its nominee. All income and gain realized from any Permitted Investment shall
be for the benefit of the Servicer and shall be subject to its withdrawal or
order from time to time. The Servicer shall indemnify the Trust Fund for any
loss incurred in respect of any Permitted Investment by such Servicer, and the
amount of such loss shall be remitted to the Trustee for deposit in the
Distribution Account by the Servicer, out if its own funds, without
reimbursement therefor, no later than 24 hours prior to the next Monthly
Remittance Date following the date of such loss.

         (e) The Servicer shall deliver to the Trustee from time to time for
deposit, and the Trustee shall so deposit, in the Distribution Account:

                  (i) any Monthly Advances, as required pursuant to Section
         2.16;

                  (ii) any Stayed Funds, as soon as permitted by the federal
         bankruptcy court having jurisdiction in such matters;

                  (iii) [Reserved];

                  (iv) any amounts required to be deposited in the Distribution
         Account pursuant to Sections 2.4 or 2.19; and

                  (v) any amounts required to be deposited by the Servicer
         pursuant to Section 2.10 in connection with the deductible clause in
         any blanket hazard insurance policy, such deposit being made from the
         Servicer's own funds, without reimbursement therefor.

         (f) Promptly upon receipt of any Stayed Funds, whether from the
Servicer, a trustee in bankruptcy, or federal bankruptcy court or other source,
the Trustee shall notify the Servicer of such receipt and deposit such funds in
the Distribution Account, subject to withdrawal thereof as permitted hereunder.

         (g) Notwithstanding any provision herein or in the Pooling Agreement to
the contrary, in the event that the Servicer shall remit to the Trustee any
amount not required to be remitted, the Servicer may at any time direct the
Trustee to withdraw such amount from the Distribution Account. Such direction
may be accomplished by delivering an Officer's Certificate to the Trustee which
describes the amounts deposited in error in the Distribution Account. The
Trustee shall give notice to the Servicer of any proposed change of the location
of the Distribution Account prior to any change thereof.

                                       14
<PAGE>

     Section 2.5 Permitted Withdrawals from the Collection Account

The Servicer may, from time to time, withdraw funds from the Collection Account
for the following purposes:

                  (i) to remit to the Trustee for deposit in the Distribution
         Account the amounts required to be so remitted pursuant to Section
         2.4(e);

                  (ii) to pay itself any unpaid Servicing Fees, unpaid REO
         Management Fees and other servicing compensation in accordance with
         Section 4.3;

                  (iii) to reimburse itself for any unreimbursed Servicing
         Advance or Monthly Advances made with respect to any Mortgage Loan;
         provided that the Servicer's right to reimburse itself pursuant to this
         clause (ii) is limited to any amounts collected or received by the
         Servicer with respect to such Mortgage Loan;

                  (iv) to pay to itself any interest earned on funds deposited
         in the Collection Account;

                  (v) to make any payment or reimburse itself for any amount
         pursuant to Sections 2.12(c), 2.12(e), 5.1(b) or 5.3;

                  (vi) to reimburse itself for any Servicing Advance or Monthly
         Advance previously made that it has determined to be a Nonrecoverable
         Advance;

                  (vii) if there shall be amounts deposited in error or there
         shall be amounts deposited in the Collection Account not required to be
         deposited therein, including the Servicing Fee and other servicing
         compensation, to withdraw such amount from the Collection Account any
         provision herein to the contrary notwithstanding;

                  (viii) to transfer funds to another Qualified Depository in
         accordance with Section 2.9; and

                  (ix) to clear and terminate the Collection Account upon the
         termination of this Agreement in accordance with Article 7.

     Section 2.6 Establishment of Escrow Account; Deposits in Escrow Account;
                 Escrow Analysis

         (a) The Servicer shall segregate and hold separate and apart from any
of its own funds and general assets all Escrow Payments collected and received
pursuant to the Mortgage Loans and shall establish and maintain one or more
Escrow Accounts (collectively, the "Escrow Account"), in the form of time
deposit or demand accounts, which may be interest bearing, entitled "Washington
Mutual Bank, FA, in trust for registered Holders of Morgan Stanley ABS Capital I
Inc. Trust 2004-SD2, Mortgage Pass-Through Certificates, Series 2004-SD2, and
certain Mortgagors." The Escrow Account shall be an Eligible Account established
with a Qualified Depository. If the Escrow Account is established with an
institution other than the Servicer, (i) the Escrow Account shall be evidenced
by a letter agreement substantially in the form of Exhibit C attached hereto and
(ii) the Servicer shall deliver a copy of such letter agreement to the Trustee
on or prior to the Closing Date.

                                       15
<PAGE>

         (b) The Servicer shall, upon receipt (and in any event, no later than
the end of the second Business Day following receipt thereof, or sooner if
required by applicable law), deposit in the Escrow Account and retain therein:
(i) all Escrow Payments collected on account of the Mortgage Loans for the
purpose of effecting timely payment of escrow items as required under the terms
of this Agreement and (ii) all amounts representing proceeds of any hazard
insurance policy that are to be applied to the restoration or repair of the
related Mortgaged Property. The Servicer shall make withdrawals from the Escrow
Account only in accordance with Section 2.7. The Servicer shall be entitled to
retain any interest earned on funds deposited in the Escrow Account other than
interest on escrowed funds required by law to be paid to the Mortgagor and, to
the extent required by law, the Servicer shall pay interest on escrowed funds to
the Mortgagor without right of reimbursement therefor notwithstanding that the
Escrow Account maintained by the Servicer may not bear interest or that the
interest earned on such escrowed funds is insufficient for such purpose.

     Section 2.7 Permitted Withdrawals from the Escrow Account

         Withdrawals from the Escrow Account maintained by the Servicer may be
made by the Servicer only (i) to effect timely payments of ground rents, taxes,
assessments, sewer rents, municipal charges, water rates, insurance premiums,
condominium charges, fire and hazard insurance premiums or other items
constituting Escrow Payments for the related Mortgage, (ii) to reimburse the
Servicer for any Servicing Advance made by the Servicer pursuant to Sections 2.8
and 2.10 with respect to a related Mortgage Loan, (iii) to refund to any
Mortgagor any funds found to be in excess of the amounts required under the
terms of the related Mortgage Loan, (iv) for transfer to the Collection Account
in accordance with the terms of this Agreement, (v) for restoration or repair of
a Mortgaged Property, provided the provisions of Section 2.13 have been complied
with, (vi) to pay to the Mortgagor, to the extent required by Applicable
Requirements, interest on the funds deposited in the Escrow Account, (vii) to
pay to itself any interest earned on funds deposited in the Escrow Account (and
not required to be paid to the Mortgagor), (viii) to remove funds inadvertently
placed in the Escrow Account by the Servicer, or (ix) to clear and terminate the
Escrow Account upon the termination of this Agreement, in accordance with
Article 7. With respect to any Escrow Holdback Mortgage Loan, no final
disbursement of any escrow funds therefore shall be made by the Servicer to the
Mortgagor unless the Servicer shall have received the related certificate of
completion with respect thereto.

     Section 2.8 Payment of Taxes, Insurance and Other Charges

         With respect to each Mortgage Loan, the Servicer shall maintain
accurate records reflecting the status of property taxes, assessments and other
charges that are or may become a lien upon the related Mortgaged Property, the
status of Primary Mortgage Insurance premiums, if any, and the status of fire
and hazard insurance coverage and flood insurance, all as required hereunder. If
a Mortgage Loan requires Escrow Payments, the Servicer shall obtain, from time
to time, all bills for the payment of such charges (including renewal premiums)
and shall effect payment thereof prior to the applicable penalty or termination
date in a manner consistent with Acceptable Servicing Procedures, employing for
such purpose deposits of the Mortgagor in the Escrow Account that shall have
been estimated and accumulated by the Servicer in amounts sufficient for such
purposes, as allowed under the terms of the Mortgage. If a Mortgage Loan does
not require Escrow Payments, or if there are insufficient funds in the related
Escrow Account, the Servicer shall cause all such bills to be paid on a timely
basis and shall from its own funds (if necessary) make a Servicing Advance for
timely payment of all such bills. The Servicer shall monitor the payment status
of such charges (including renewal premiums) by the related Mortgagor. The
Servicer shall effect payment of such charges in a manner consistent with
Acceptable Servicing Procedures and, in all events, prior to the foreclosure of
any lien against the Mortgaged Property resulting from non-payment of such
property taxes, assessments and other charges and prior to the termination of
any such insurance coverage.

                                       16
<PAGE>

     Section 2.9 Transfer of Accounts

         The Servicer may, from time to time, transfer the Collection Account or
the Escrow Account to a different Qualified Depository. The Servicer shall
notify the Trustee of any such transfer within ten (10) Business Days of
transfer.

     Section 2.10 Maintenance of Hazard Insurance

         (a) The Servicer shall cause to be maintained for each Mortgage Loan
serviced by it fire and hazard insurance with extended coverage customary in the
area where the related Mortgaged Property is located, in an amount which is at
least equal to the lesser of (i) 100% of the replacement value of the
improvements securing the Mortgage Loan, or (ii) the Unpaid Principal Balance of
the Mortgage Loan (so long as it equals 80% of the insurable value of the
improvements); provided that in any case such amount shall be sufficient to
prevent the Mortgagor and/or Mortgagee from becoming a co-insurer. If the
Mortgaged Property is in an area that, at the time of origination of the related
Mortgage Loan, is identified on a flood hazard boundary map or flood insurance
rate map issued by the Federal Emergency Management Agency as having special
flood hazards (and such flood insurance was then available), the Servicer shall
cause to be maintained a flood insurance policy meeting the requirements of the
current guidelines of the Federal Insurance Administration with a generally
acceptable insurance carrier, if such insurance is available. Such flood
insurance shall be in an amount representing coverage not less than the least of
(i) the Unpaid Principal Balance of the Mortgage Loan, (ii) the full insurable
value of the improvements securing such Mortgage Loan and (iii) the maximum
amount of insurance available under the National Flood Insurance Act of 1968 and
the Flood Disaster Protection Act of 1973, each as amended. The Servicer shall
also maintain on REO Property (x) fire and hazard insurance with extended
coverage in an amount that is at least equal to the maximum insurable value of
the improvements that are a part of such property, (y) liability insurance and
(z) to the extent required and available under the National Flood Insurance Act
of 1968 and the Flood Disaster Protection Act of 1973, each as amended, flood
insurance in an amount as provided above. Any amounts collected by the Servicer
under any such policies shall be paid over or applied by the Servicer in
accordance with Applicable Requirements whether (i) for the restoration or
repair of the Mortgaged Property, subject to the related Mortgage, (ii) for
release to the Mortgagor, or (iii) for application in reduction of the Mortgage
Loan, in which event such amounts shall be deposited in the Collection Account,
as provided in Section 2.4. It is understood and agreed that no earthquake or
other additional insurance need be maintained by the Servicer on any Mortgage
Loan or property acquired in respect of a Mortgage Loan, other than as required
under applicable laws and regulations as shall at any time be in force. All
policies required hereunder shall be endorsed with standard mortgagee clauses
with loss payable to the Servicer and shall provide for at least 30 days prior
written notice to the Servicer of any cancellation, reduction in amount, or
material change in coverage. The Servicer shall not interfere with the
Mortgagor's freedom of choice in selecting either the Mortgagor's insurance
carrier or agent upon any policy renewal; provided, however, that upon any such
policy renewal, the Servicer shall accept such insurance policies only from
insurance companies that (A) have a rating of B:III or better in Best's Key
Rating Guide or a financial performance index rating of 6 or better in Best's
Insurance Reports and (B) are licensed to do business in the jurisdiction in
which the related Mortgaged Property is located.

                                       17
<PAGE>

         (b) If the Servicer, as servicer for the benefit of the Trustee, on
behalf of the Certificateholders, shall obtain and maintain a blanket policy
that would meet the requirements of Fannie Mae if Fannie Mae were the purchaser
of the Mortgage Loans, insuring against loss to the Trustee, on behalf of the
Certificateholders, as mortgagee from damage to any or all of the Mortgaged
Properties, then, to the extent such blanket policy (i) provides coverage,
without coinsurance, in an amount equal to the Pool Balance, (ii) otherwise
complies with the requirements of Section 2.10(a) and (iii) contains a
deductible not greater than $10,000, the Servicer shall be deemed conclusively
to have satisfied its obligations under Section 2.10(a); provided, however, that
if there shall have been one or more of such losses the Servicer shall deposit
in the Collection Account, as provided in Section 2.4, out of the Servicer's own
funds and without reimbursement therefor, the difference, if any, between the
amount that would have been payable under a policy complying with Section
2.10(a) and the amount paid under the blanket policy permitted under this
Section 2.10(b). At the request of the Trustee, the Servicer shall cause to be
delivered to the Trustee a certified true copy of such policy and a statement
from the insurer thereunder that such policy shall not be terminated or
materially modified without 30 days' prior written notice to the Trustee.

     Section 2.11 Fidelity Bond; Errors and Omissions Insurance

         The Servicer shall maintain, at its own expense, with companies that
meet the requirements of Fannie Mae or Freddie Mac, a blanket fidelity bond and
an errors and omissions insurance policy, with broad coverage on all officers,
employees, agents and other persons acting in any capacity that would require
such persons to handle funds, money, documents or papers relating to the
Mortgage Loans (collectively, the "Servicer Employees"). Any such fidelity bond
and errors and omissions insurance shall be in the form of the Mortgage Banker's
Blanket Bond and shall protect and insure the Servicer against losses relating
to forgery, theft, embezzlement, fraud, errors and omissions, failure to
maintain any insurance policies required under this Agreement and negligent acts
of Servicer Employees. Such fidelity bond shall also protect and insure the
Servicer against losses relating to the release or satisfaction of a Mortgage
without having obtained payment in full of the indebtedness secured thereby. No
provision of this Section 2.11 requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The terms of any such fidelity bond
and errors and omissions insurance policy shall be at least equal to the
corresponding amounts required by Fannie Mae in the Fannie Mae MBS Selling and
Servicing Guide or by Freddie Mac in the Freddie Mac Seller's and Servicer's
Guide, as amended or restated from time to time. At the request of the Trustee,
the Servicer shall cause to be delivered to the Trustee a certified true copy of
such fidelity bond and errors and omissions insurance policy and a statement
from the surety and the insurer that such fidelity bond and errors and omissions
insurance policy shall not be terminated or materially modified without 30 days'
prior written notice to the Trustee.

                                       18
<PAGE>

     Section 2.12 Title, Management and Disposition of Real Estate Owned

         (a) If title to any Mortgaged Property is acquired in foreclosure or by
deed in lieu of foreclosure ("REO Property"), the deed or certificate of sale
shall be taken in the name of the Trustee, on behalf of the Certificateholders,
or in the name of such Person or Persons designated by the Trustee; provided,
however, that (i) the Trustee shall not designate the Servicer as holder without
the Servicer's prior written consent and (ii) such designated Person or Persons
shall acknowledge in writing that such title is to be held as nominee for the
Trustee. The Servicer shall provide written notice to the Trustee after any REO
Property is acquired in foreclosure or by deed in lieu of foreclosure.

         (b) The Servicer, shall manage, conserve, protect, and operate each REO
Property solely for the purpose of its prompt disposition and sale. The Servicer
shall either itself, or through an agent selected by the Servicer, manage,
conserve, protect and operate the REO Property in accordance with Acceptable
Servicing Procedures. The Servicer shall attempt to sell the same (and may
temporarily rent the same) on such terms and conditions as the Servicer deems to
be in the best interests of the Trust Fund and the Certificateholders. The
Servicer shall use its best efforts to dispose of the REO Property as soon as
practicable and shall sell such REO Property, in any event, within three (3)
years after title has been taken to such REO Property (unless the Servicer
determines, and gives the Trustee appropriate notice that a longer period is
necessary for the orderly liquidation of such REO Property).

         (c) The Servicer shall collect all revenues arising from the operation
of REO Property. The Servicer shall deposit, or cause to be deposited, all such
revenues in the Collection Account in accordance with Section 2.4. The Servicer
may use all such revenues and, if any thereof have been deposited in the
Collection Account, withdraw such revenues therefrom as is necessary for the
proper operation, management and maintenance of any REO Property, including, but
not limited to, the cost of maintaining any hazard insurance pursuant to Section
2.10 and the fees of any managing agent acting on behalf of the Servicer.

         (d) The Servicer shall also maintain on each REO Property fire and
hazard insurance with extended coverage, liability insurance, and flood
insurance in accordance with the provisions of Section 2.10.

         (e) The proceeds of sale of an REO Property shall be deposited in the
Collection Account in accordance with Section 2.4. The Servicer shall apply the
sale proceeds of any REO Property (i) first to pay the expenses of such sale,
(ii) second to reimburse itself for any related unpaid Servicing Fees, unpaid
REO Management Fees and unreimbursed Servicing Advances or Monthly Advances and
(iii) the balance to be remitted to the Trustee for deposit in the Distribution
Account. If the sale proceeds have been deposited in the Collection Account, the
Servicer may withdraw from the Collection Account the amounts necessary to make
such payments and reimbursements.

                                       19
<PAGE>

         (f) Upon request, with respect to any REO Property, the Servicer shall
furnish to the Trustee a statement covering the Servicer's efforts in connection
with the sale of that REO Property and any rental of the REO Property incidental
to the sale thereof for the previous month (together with an operating statement
for such REO Property). Such statement shall be accompanied by such other
information as the Trustee shall reasonably request. The Servicer shall maintain
separate accounting for each REO Property.

         (g) The Trustee hereby constitutes and appoints the Servicer as its
true and lawful attorney-in-fact, with full power and authority to sign,
execute, acknowledge, deliver, file for record and record any instrument on its
behalf and to perform such other act or acts as may be customarily and
reasonably necessary and appropriate to effectuate the transactions contemplated
by this Section 2.12, in each case as fully as the Trustee might or could do.
The Trustee ratifies and confirms each action that the Servicer, as such
attorney-in-fact, shall lawfully take or cause to be taken by authority hereof
and in accordance with this Agreement. Third parties without actual notice may
rely upon the exercise of the power granted under this power of attorney, and
may be satisfied that this power of attorney shall continue in full force and
effect and has not been revoked unless this Agreement is terminated as provided
herein. If requested by the Servicer, the Trustee shall furnish the Servicer
with any instrument or document necessary or appropriate to evidence or confirm
the power of attorney granted in this Section 2.12(g), including one or more
separate instruments or documents in recordable form for recordation in any
jurisdiction in which any Mortgaged Property is located.

         (h) Notwithstanding anything to the contrary contained in this
Agreement, the Trustee may, with the consent of the Depositor, terminate the
Servicer as servicer of any such REO Property without payment of any termination
fee, provided that the Servicer shall on the date said termination takes effect
be reimbursed for any unreimbursed Servicing Advances and any unreimbursed
Monthly Advances and Servicing Fees in each case relating to the Mortgage Loan
underlying such REO Property. In the event of any such termination, the
provisions of Section 8.1 shall apply to said termination and the transfer of
servicing responsibilities with respect to such REO Property to the successor
Servicer.

     Section 2.13 Application of Proceeds of Insurance to Repair or Restoration

         The Servicer shall collect the proceeds from all policies of insurance
required to be maintained pursuant to Section 2.10 with respect to all losses
that may occur. The Servicer may remit such proceeds to the Mortgagor for the
restoration or repair of the related property and shall otherwise take such
actions in connection with such restoration and repair in a manner consistent
with Acceptable Servicing Procedures.

     Section 2.14 Inspections

         The Servicer shall conduct inspections of the Mortgaged Properties at
such times and in a manner consistent with Acceptable Servicing Procedures and
shall maintain a written report of all such inspections.

                                       20
<PAGE>

     Section 2.15 Maintenance of Primary Mortgage Insurance Policies;
                  Collections Thereunder

         The parties acknowledge that, as of the Closing Date, not all Mortgage
Loans purchased on such Closing Date are covered by Primary Mortgage Insurance.
In the event that any Mortgage Loans are covered by a Primary Mortgage Insurance
Policy on the Closing Date or subsequently become covered by a Primary Mortgage
Insurance Policy, the provisions set forth below shall apply.

         (a) The Servicer shall maintain in full force and effect any Primary
Mortgage Insurance Policy covering a Mortgage Loan serviced by the Servicer. The
Servicer shall cause the premium for any such Primary Mortgage Insurance Policy
to be paid on a timely basis and shall from its own funds, if necessary, make a
Servicing Advance to pay the premium on a timely basis. The Servicer shall not
cancel or refuse to renew any such Primary Mortgage Insurance Policy in effect
on the Closing Date, unless cancellation or non-renewal is required by
applicable law or regulation. The Servicer shall not take any action or fail to
take any action which would result in non-coverage under any applicable Primary
Mortgage Insurance Policy of any loss which, but for the actions of the
Servicer, would have been covered thereunder. In connection with any assumption
or substitution agreement entered into or to be entered into pursuant to Section
4.1, the Servicer shall promptly notify the insurer under the related Primary
Mortgage Insurance Policy, if any, of such assumption or substitution of
liability in accordance with the terms of such policy and shall take all actions
which may be required by such insurer as a condition to the continuation of
coverage under such Primary Mortgage Insurance Policy. If such Primary Mortgage
Insurance Policy is terminated as a result of such assumption or substitution of
liability, the Servicer shall obtain a replacement Primary Mortgage Insurance
Policy as provided above.

         (b) As part of its activities as servicer of the Mortgage Loans, the
Servicer agrees to prepare and present, on behalf of itself and the Trustee,
claims under any Primary Mortgage Insurance Policy in a timely fashion in
accordance with the terms thereof and, in this regard, to take such reasonable
action as shall be necessary to permit recovery under any Primary Mortgage
Insurance Policy respecting a defaulted Mortgage Loan.

     Section 2.16 Monthly Advances by the Servicer

         (a) Not later than the close of business on the Business Day preceding
each Monthly Remittance Date, the Servicer shall deposit in the Collection
Account an amount equal to all payments not previously advanced by the Servicer
of principal and interest at the Net Rate that were (i) due on any Mortgage Loan
during the Due Period that commences in the same month in which such Monthly
Remittance Date occurs, (ii) not received as of the close of business on the
related Determination Date (whether or not deferred) and (iii) not due on or
prior to the Cut-off Date (the aggregate of all such amounts, the "Monthly
Advance"). In lieu of making all or a portion of any Monthly Advance, the
Servicer may cause to be made an appropriate entry in its records relating to
the Collection Account that funds in such account, including but not limited to
any amounts received in respect of scheduled principal and interest on any
Mortgage Loan due after the related Due Period for the related Monthly
Remittance Date, have been used by the Servicer in discharge of its obligation
to make any such Monthly Advance. Any funds so applied shall be replaced by the
Servicer by deposit, in the manner set forth above, in the Collection Account no
later than the close of business on the Business Day immediately preceding the
next Monthly Remittance Date to the extent that funds in the Collection Account
on such date are less than the amounts required to be distributed on such
Monthly Remittance Date. The Servicer shall be entitled to be reimbursed from
the Collection Account for all Monthly Advances of its own funds made pursuant
to this Section as provided in Section 2.5.

                                       21
<PAGE>

         (b) The obligation of the Servicer to make such Monthly Advances is
mandatory, and, with respect to any Mortgage Loan or REO Property, shall
continue through the earlier of (i) the date on which a Final Recovery
Determination in connection with such Mortgage Loan is made and (ii) the due
date of the last Monthly Payment due prior to the payment in full of such
Mortgage Loan.

         (c) Notwithstanding anything herein to the contrary, no Monthly Advance
shall be required to be made hereunder by the Servicer if such Monthly Advance
would, if made, constitute a Nonrecoverable Advance."

     Section 2.17 Compliance With REMIC Provisions

         The Servicer shall not take any action, cause the REMIC to take any
action or fail to take (or fail to cause to be taken) any action that, under the
REMIC Provisions, if taken or not taken, as the case may be, could (i) endanger
the status of the REMIC as a REMIC, or (ii) result in the imposition of a tax
upon the REMIC (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
Servicer has received an Opinion of Counsel (at the expense of the party seeking
to take such action) to the effect that the contemplated action will not
endanger such REMIC status or result in the imposition of any such tax.

     Section 2.18 Trustee to Cooperate; Release of Mortgage Files

         If, at any time prior to termination of this Agreement, the Servicer
shall require the use of any Mortgage File (or any portion thereof) to perform
its servicing activities as set forth in this Agreement, the Trustee, within
five (5) Business Days of the written request of the Servicer in the form of
Exhibit A hereto, (or within such shorter period as may be necessary for the
Servicer to perform its obligations hereunder in compliance with all Acceptable
Servicing Procedures), shall release or shall cause the Custodian to release
such Mortgage File, or portion thereof, to the Servicer. Within five (5)
Business Days of the Servicer's request therefor (or, within such shorter period
as may be necessary for the Servicer to perform its obligations hereunder in
compliance with all Acceptable Servicing Procedures), the Trustee shall execute
and deliver to the Servicer, in the form supplied to the Trustee by the
Servicer, any court pleadings, requests for trustee's sale or other documents
reasonably necessary to perform the servicing activities with respect to any
Mortgage Loan, including the foreclosure or sale in respect of any Mortgaged
Property, the commencement and prosecution of any legal action to enforce the
related Mortgage Note and Mortgage and the defense of any legal action or
counterclaim filed against the Trustee or the Servicer. The Servicer may execute
and deliver any or all of such pleadings or documents on behalf of the Trustee
pursuant to the power of attorney granted pursuant to Section 2.12(g).

                                       22
<PAGE>

     Section 2.19 Optional Purchases of Mortgage Loans by Servicer

         The Servicer, together with Wilshire, as servicer under the Wilshire
Servicing Agreement and Bank of America, as servicer under the Bank of America
Servicing Agreement, may, if each of the Servicer, Wilshire and Bank of America
agree to do so in a written notice provided to the Trustee at least five
Business Days prior to the related Distribution Date (the "Termination Notice"),
terminate the Trust Fund and retire the Offered Certificates on the next
succeeding Distribution Date as of which the aggregate current Pool Balance is
less than 10% of the aggregate Pool Balance of the Mortgage Loans as of the
Cut-off Date by purchasing all of the outstanding Mortgage Loans in the Trust
Fund at a price equal to the Termination Price and by reimbursing all Servicers
for outstanding Monthly Advances or Servicing Advances; provided, however, that
if the Terminating Entity includes the Servicer, the Servicer may exercise or
participate in this Optional Termination only if the Termination Price is equal
to or less than the aggregate fair market value of all of the assets in the
Trust Fund (as determined by the Servicer as of the close of business on the
third Business Day preceding the date on which the Certificates are to be
retired pursuant to this Optional Termination) (an "Optional Termination"). The
Termination Price and reimbursement amounts shall be allocated among and paid by
the Servicer, Wilshire or Bank of America and the purchased Mortgage Loans shall
be distributed among the Servicer, Wilshire and Bank of America in the manner
set forth in the Termination Notice. If the Servicer, Wilshire and Bank of
America elect not to purchase all of the outstanding Mortgage Loans in the Trust
Fund on the Optional Termination Date, then the non-electing party's option to
purchase such Mortgage Loans may be exercised by the Servicer, Wilshire and/or
Bank of America, as the case may be (the "Terminating Entity"), as agreed to by
such electing parties, provided that all and not part of the Mortgage Loans are
purchased at the Termination Price. If the option is not exercised on such
Distribution Date then on the next succeeding Distribution Date, and on each
Distribution Date thereafter until such time, if any, as the Mortgage Loans are
repurchased, any of the Servicer, Wilshire and/or Bank of America (or any
combination thereof) may, at their option, purchase all of the outstanding
Mortgage Loans in the Trust Fund, in the manner described above, for the
Termination Price as of such Distribution Date and reimbursement to all
Servicers for outstanding Monthly Advances or Servicing Advances (as such term
is defined in the applicable Servicing Agreement).

         Upon receipt by the Trustee of the Termination Price, the Trustee
shall, upon request of the Terminating Entity, execute and deliver all such
instruments of transfer or assignment, in each case without recourse, as shall
be reasonably requested by the Terminating Entity to vest title in the
Terminating Entity in the Mortgage Loans so purchased and shall transfer or
deliver to the Terminating Entity the purchased Mortgage Loans. Any
distributions on the Mortgage Loans which have been subject to an Optional
Termination received by the Trustee subsequent to (or with respect to any period
subsequent to) the Optional Termination Date shall be promptly remitted by it to
the Terminating Entity.

         Notwithstanding anything to the contrary herein, the occurrence of an
Optional Termination shall be subject to, and shall in no way adversely affect
the right of the Servicer to continue servicing and collecting its Servicing Fee
and any other servicing compensation provided for in this Agreement for any
Mortgage Loan that remains outstanding at the time of such Optional Termination.

                                       23
<PAGE>

         Notwithstanding the foregoing, if S&P has rated a class of debt
securities ("Net Interest Margin Securities") that are backed by the Class X
Certificates and Class P Certificates and that are outstanding on any date on
which the Servicer, Wilshire and/or Bank of America, as applicable, intend to
exercise their option to purchase the Mortgage Loans, the Servicer, Wilshire
and/or Bank of America, as applicable, will be permitted to exercise such option
only if one of the following conditions is met: (i) after distribution of the
Termination Price to the Certificateholders (other than the Holders of the Class
X Certificates, Class P Certificates and Class R Certificates) to redeem the
related Certificates, the remainder of the Termination Price (the "Remainder
Amount") is distributed to the Holders of the Class X Certificates and Class P
Certificates and is sufficient to pay the outstanding principal amount of and
accrued and unpaid interest on the Net Interest Margin Securities; or (ii) (A)
at the same time that the Servicer, Wilshire and/or Bank of America, as
applicable, remit the Termination Price to the Trustee, they also remit to the
Trustee an additional amount which, in combination with the Remainder Amount, is
sufficient to pay the outstanding principal amount of and accrued and unpaid
interest on the Net Interest Margin Securities, and (B) the Trustee remits the
Remainder Amount to the Holders of the Class X Certificates and Class P
Certificates and remits that additional amount directly to the indenture trustee
(plus any outstanding expenses due and owing to the indenture trustee) under the
indenture creating the Net Interest Margin Securities.

     Section 2.20 Gramm-Leach-Bliley.

         The Servicer shall comply with all applicable laws and regulations
regarding the privacy or security of any Customer Information. The Servicer has
implemented and shall maintain security measures designed to meet the objectives
of the Gramm-Leach-Bliley Act of 1999 and all applicable regulations promulgated
thereunder.

                                   ARTICLE 3

                            DISTRIBUTIONS AND REPORTS

     Section 3.1 Distributions

         (a) On each Monthly Remittance Date, the Servicer shall remit to the
Trustee for deposit in the Distribution Account all amounts credited to the
Collection Account as of the close of business on the preceding Determination
Date, net of charges against or withdrawals from the Collection Account pursuant
to Section 2.5, plus all Monthly Advances, deposited in the Collection Account
prior to such Monthly Remittance Date pursuant to Section 2.4, minus (i) any
amounts attributable to Principal Prepayments received after the last day of the
Due Period immediately preceding the related Monthly Remittance Date and (ii)
any amounts attributable to Monthly Payments collected but due on a Due Date(s)
subsequent to the preceding Determination Date.

                                       24
<PAGE>

         (b) With respect to any remittance received by the Trustee on or after
the second Business Day following the Business Day on which such payment was
due, the Trustee shall send written notice thereof to the Servicer. The Servicer
shall pay to the Trustee interest on any such late payment at an annual rate
equal to Prime plus one percentage point, but in no event greater than the
maximum amount permitted by applicable law. Such interest shall be paid by the
Servicer to the Trustee on the date such late payment is made and shall cover
the period commencing with the second day following such Business Day and ending
with the Business Day on which such payment is made, both inclusive. The payment
by the Servicer of any such interest, or the failure of the Trustee to notify
the Servicer of such interest, shall not be deemed an extension of time for
payment or a waiver of any Event of Default by the Servicer.

     Section 3.2 Reports

         (a) On or before each Servicer Report Date, the Servicer shall provide
to the Trustee or its designee by means of an electronic or other agreed upon
medium, with respect to the Due Period immediately preceding such Servicer
Report Date, the data set forth below on an individual loan basis and such other
information with respect to the Mortgage Loans as the Trustee may reasonably
request to the extent that such information is reasonably available to the
Servicer; and provided, that, the Servicer shall not be required to collect,
collate, create or otherwise generate any information that it does not generate
in its usual course of business:

                  (i)       mortgage loan number;

                  (ii)      interest rate;

                  (iii)     pending rate;

                  (iv)      scheduled principal and interest payment;

                  (v)       scheduled principal;

                  (vi)      gross interest;

                  (vii)     curtailment collected;

                  (viii)    curtailment adjustment;

                  (ix)      PIF principal;

                  (x)       PIF interest difference;

                  (xi)      ARM Index;

                  (xii)     pending Index;

                  (xiii)    ending scheduled balance;

                  (xiv)     investor loan number;

                                       25
<PAGE>

                  (xv)      Servicing Fee Rate;

                  (xvi)     due date;

                  (xvii)    yield rate;

                  (xviii)   beginning balance;

                  (xix)     ending balance;

                  (xx)      beginning scheduled balance;

                  (xxi)     principal collected;

                  (xxii)    scheduled net interest;

                  (xxiii)   scheduled buydown;

                  (xxiv)    Servicing Fee collected; and

                  (xxv)     remittance amount.

The Servicer may submit the foregoing information in more than one (1) report.
Requests for additional data regarding the Mortgage Loans or alternative means
for delivering such reports shall be accommodated at the discretion of the
Servicer and at the Trust's expense.

         (b) The Servicer shall prepare and file any and all information
statements or other filings required to be delivered to any governmental taxing
authority or to the Trustee pursuant to any applicable law with respect to the
Mortgage Loans and the transactions contemplated hereby. In addition, the
Servicer shall provide the Trustee with such information concerning the Mortgage
Loans as is necessary for the Trust to prepare its federal income tax return as
the as the Trustee may reasonably request from time to time.

     Section 3.3 Delinquency and Foreclosure Statements

         The Servicer shall provide to the Trustee a monthly statement of
delinquents and a delinquency report on all Mortgage Loans more than 60 days
delinquent. The Servicer shall also provide to the Trustee a monthly statement
regarding foreclosure status.

                                   ARTICLE 4

                     GENERAL SERVICING PROCEDURE; COVENANTS;
                         REPRESENTATIONS AND WARRANTIES

     Section 4.1 Assumption Agreements

         (a) The Servicer shall use its best efforts to enforce any
"due-on-sale" provision contained in any Mortgage or Mortgage Note and to deny
assumption by the person to whom the Mortgaged Property has been or is about to
be sold, whether by absolute conveyance or by contract of sale and whether or
not the Mortgagor remains liable on the Mortgage and the Mortgage Note, provided
that in accordance with the terms of the Mortgage Note, the Servicer may permit
an assumption (i) if the Servicer reasonably believes it is unable under
Applicable Requirements to enforce such "due-on-sale" clause, or (ii) if the
enforcement of such rights would impair or threaten to impair any recovery under
the related Primary Mortgage Insurance Policy, if any. In connection with any
such assumption, the related Mortgage Interest Rate, the Unpaid Principal
Balance and the term of the Mortgage Loan may not be changed. If an assumption
is allowed pursuant to this Section 4.1(a), the Servicer is authorized, at the
Servicer's discretion, to prepare a substitution of liability agreement to be
entered into with the purchaser of the Mortgaged Property pursuant to which the
original Mortgagor is released from liability and the purchaser of the Mortgaged
Property is substituted as Mortgagor and becomes liable under the Mortgage Note.
Any such substitution of liability agreement shall be in lieu of an assumption
agreement. If an assumption fee is collected by the Servicer for entering into
an assumption agreement the entire amount of such fee may be retained by the
Servicer as additional servicing compensation.

                                       26
<PAGE>

         (b) The Servicer shall follow Acceptable Servicing Procedures with
respect to any such assumption or substitution of liability (taking into account
the applicable Seller's then current underwriting guidelines applicable to
mortgage loans of the same type as the related Mortgage Loan). The Servicer
shall notify the Trustee that any such substitution of liability or assumption
agreement has been completed by forwarding to the Trustee a copy of any such
substitution of liability or assumption agreement, which document shall be added
to the related Mortgage File and shall for all purposes be considered a part of
such Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.

         (c) For purposes of this Section 4.1, the term "assumption" is deemed
to also include a sale of the Mortgaged Property subject to the Mortgage that is
not accompanied by an assumption or substitution of liability agreement.

     Section 4.2 Satisfaction of Mortgages and Release of Mortgage Files

         (a) Upon the payment in full of any Mortgage Loan or the receipt by the
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Servicer shall prepare the appropriate
documents and instruments required to satisfy or release the lien of the
Mortgage in accordance with applicable state law requirements. The Servicer,
promptly and within the applicable legal deadlines appropriate to process the
satisfaction or release, shall notify the Trustee or the Custodian, on its
behalf of such event.

         (b) The Servicer shall not grant a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage. In the event the Servicer grants a satisfaction or release of a
Mortgage without having obtained payment in full of the indebtedness secured by
the Mortgage, the Servicer, upon becoming aware of the foregoing, shall deposit
the Unpaid Principal Balance of the related Mortgage Loan plus accrued and
unpaid interest by deposit thereof in the Collection Account pursuant to Section
2.4. The Trustee shall assign the related Mortgage and endorse the related
Mortgage Note to the Servicer and shall do all things necessary to transfer
ownership of the Mortgage Loan to the Servicer. The Servicer shall maintain the
Fidelity Bond as provided for in Section 2.11 protecting and insuring the
Servicer against, losses sustained with respect to any Mortgage Loan satisfied
or released other than in accordance with the procedures set forth herein.

                                       27
<PAGE>

         (c) The Trustee, or the Custodian, on its behalf, shall, within five
(5) Business Days following receipt of any request from the Servicer (or within
such shorter period as is necessary for the Servicer to perform its obligations
hereunder in compliance with all Applicable Servicing Procedures) deliver or
cause to be delivered to the Servicer the Mortgage File (or any portion thereof)
required by the Servicer to process any satisfaction or release of any Mortgage
pursuant to this Section 4.2. In addition, if any Mortgage Loan has been paid in
full and the Trustee has recorded the related Assignment of Mortgage designating
the Trustee as the holder of record of the Mortgage, the Servicer shall prepare
and deliver to the Trustee, together with a request for execution, the documents
and instruments necessary to satisfy or release the lien of the Mortgage. The
Trustee, or the Custodian, on its behalf, shall, within five (5) Business Days
following its receipt of any such request, send to the Servicer the
fully-executed documents that were prepared and requested by the Servicer. In
the event that applicable state law requires that a satisfaction or release be
recorded within a shorter time period than the foregoing procedure permits, the
Servicer shall advise the Trustee accordingly and shall use its best efforts to
ensure that the lien of the Mortgage is released or satisfied in accordance with
applicable state law requirements, and the Trustee, or the Custodian, on its
behalf, shall assist therewith by, to the extent reasonably practicable,
returning to the Servicer the required portion of the Mortgage File and, if
applicable, the executed satisfaction and release documents and instruments
within the time periods reasonably specified by the Servicer.

         (d) If a Mortgage Loan that has been paid in full is a MERS Loan, the
Servicer may cause the removal of such Mortgage Loan from registration on the
MERS(R) System and execute and deliver, on behalf of the Trustee, any and all
related instruments of satisfaction or release. No expense incurred in
connection with the delivery of any instrument of satisfaction or deed or
reconveyance shall be chargeable to the Collection Account or the Trust Fund.

     Section 4.3 Servicing Compensation

         The Servicer shall be entitled to pay itself a Servicing Fee for each
Mortgage Loan serviced hereunder. Such Servicing Fee is limited to, and payable
solely from, the interest portion of the Monthly Payments and Late Collections
collected by the Servicer with respect to the related Mortgage Loan. Additional
servicing compensation in the form of non-sufficient funds check fees,
assumption fees, conversion fees, other related administrative fees, late
payment charges, Prepayment Charges and other similar types of ancillary fees
and charges that are actually received by the Servicer may be retained by the
Servicer to the extent not required to be deposited into the Collection Account
pursuant to the terms of this Agreement. In addition to the Servicing Fee
payable hereunder, the Servicer shall be entitled to pay itself an REO
Management Fee for each REO Property managed by the Servicer or its agent. The
Servicer shall be required to pay all expenses incurred by it in connection with
its servicing activities hereunder and shall not be entitled to reimbursement
therefor except as specifically provided for in this Agreement. Any Late
Collections shall be applied by the Servicer in the following order of priority:
(i) first to pay the expenses incurred in connection with collection of such
Late Collections, (ii) second to reimburse itself for any related unpaid
Servicing Fees, unpaid REO Management Fees and unreimbursed Servicing Advances
and Monthly Advances and (iii) the balance to be remitted to the Trustee for
deposit in the Distribution Account.

                                       28
<PAGE>

     Section 4.4 Statements as to Compliance

         (a) Not later than March 15 of each year (or if such day is not a
Business Day, the next succeeding Business Day), the Servicer will deliver to
the Trustee and the Depositor an Officer's Certificate for the prior calendar
year, beginning with the calendar year ending December 31, 2004, stating (i) a
review of the activities of the Servicer during the preceding year and of
performance under this Agreement has been made under such officer's supervision,
and (ii) to the best of such officer's knowledge, based on such review, the
Servicer has fulfilled all of its obligations under this Agreement throughout
such year or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof.

         (b) Not later that March 15 of each year (or if such day is not a
Business Day, the next succeeding Business Day), the Servicer will deliver to
the Trustee and the Depositor an Officer's Certificate for the prior calendar
year, beginning with the calendar year ending December 31, 2004, in
substantially the form of Exhibit E to this Agreement.

         (c) The Servicer agrees to indemnify and hold harmless each of the
Trustee and the Depositor, each Person, if any, who "controls" the Trustee or
the Depositor, as applicable, within the meaning of the Securities Act of 1933,
as amended, and their respective officers and, directors (collectively, the
"Indemnitees") against any and all losses, damages, penalties, fines,
forfeitures, legal fees and related costs, judgments and any other costs, fees
and expenses that the Indemnitees may sustain arising out of third party claims
based on (i) the failure of the Servicer to deliver or cause to be delivered
when required any Officer's Certificate required pursuant to Section 4.4(a) or
Section 4.4(b), or the accountants' statement required pursuant to Section 4.5,
or (ii) any material misstatement or omission in any certification pursuant to
Section 302(a) of the Sarbanes-Oxley Act of 2002 and Rules 13a-14 and 15d-14
promulgated by the Securities and Exchange Commission thereunder made in
reliance on any material misstatement or omission contained in any Officer's
Certificate provided pursuant to Section 4.4(a) or Section 4.4(b). If the
indemnification provided for in this Section 4.4 is unavailable or insufficient
to hold harmless any Indemnitee, then the Servicer agrees that it shall
contribute to the amount paid or payable by the Indemnitee as a result of the
losses, claims, damages or liabilities of the Indemnitee arising out of clause
(i) or (ii) of the preceding sentence, in such proportion as is appropriate to
reflect the relative fault of the Indemnitee on the one hand and the Servicer on
the other.

     Section 4.5 Annual Independent Public Accountants' Servicing Report

         Not later than March 15 of each year (or if such day is not a Business
Day, the next succeeding Business Day), the Servicer will, at its expense, cause
a firm of independent public accountants that is a member of the American
Institute of Certified Public Accountants to furnish to the Depositor and the
Trustee, a statement to the effect that based on an examination conducted by
such firm in compliance with the Uniform Single Attestation Program for Mortgage
Bankers ("USAP") the assertion of management of the Servicer that it has
complied with the minimum servicing standards identified in the USAP is fairly
stated in all material respects, except for (i) such exceptions as such firm
shall believe to be immaterial, and (ii) such other exceptions as shall be set
forth in such statement.

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<PAGE>

     Section 4.6 Trustee's Right to Examine Servicer Records, etc.

         (a) The Trustee shall have the right, at its expense, to (i) examine
and audit the Servicer's books of account, records, reports and other papers
relating to (x) the performance by the Servicer of its obligations and duties
under this Agreement, or (y) the Mortgage Loans, (ii) make copies and extracts
therefrom and (iii) discuss the affairs, finances, and accounts of the Servicer
relating to such performance with the Servicer's officers and employees, all at
such times and places, and with such frequency, as may be reasonably requested.

         (b) The Servicer shall provide to the Trustee, any Certificateholder
that is a federally insured savings and loan association and any supervisory
agents or examiners representing a state or federal governmental agency having
jurisdiction over the Trustee, including without limitation the OTS, the FDIC
and other similar entities, access to any documentation regarding the Mortgage
Loans in the possession of the Servicer that is required by any applicable
regulations. Such access shall be afforded without charge, upon reasonable
request, during normal business hours, at the offices of the Servicer and in
accordance with any applicable regulations.

         (c) Nothing in this Section 4.6 shall limit the obligation of the
Servicer to observe any applicable law prohibiting disclosure of information
regarding the mortgagors and the failure of such Servicer to provide access as
provided in this Section 4.6 as a result of such obligation shall not constitute
a breach of this Section 4.6. Nothing in this Section 4.6 shall require the
Servicer to collect, create, collate or otherwise generate any information that
it does not generate in its usual course of business.

     Section 4.7 Cooperation

         The Servicer, the Depositor and the Trustee shall cooperate fully with
one another and their respective counsel and other representatives and advisors
in connection with the steps required to be taken as part of their respective
obligations under this Agreement.

     Section 4.8 Consents and Approvals

         The Servicer shall timely obtain, at its sole cost and expense, the
consents and approvals required by law or pursuant to contract to consummate the
transactions contemplated hereby. All such consents shall be obtained without
any cost or expense to the Trustee and will be obtained without any adverse
modification in the terms of any of the agreements relating to the Mortgage
Loans or the imposition of any burdensome provisions or conditions on the
Trustee.

                                       30
<PAGE>

                                   ARTICLE 5

                                  THE SERVICER

     Section 5.1 Indemnification; Third Party Claims

         (a) [Reserved]

         (b) The Servicer agrees to indemnify and hold harmless the Trustee, the
Depositor and the Trust against any and all third-party claims, losses,
penalties, fines, forfeitures, legal fees and related costs, judgments and any
other costs, fees and expenses that the Trustee (on behalf of the Trust and the
Certificateholders), the Depositor or the Trust may sustain in any way related
to the failure of the Servicer to service the Mortgage Loans in compliance with
the terms of this Agreement; provided, however, the Servicer shall not be liable
hereunder with respect to (i) any action or inaction resulting from the written
direction or written consent of the Trustee, the Depositor or the Majority
Certificateholders, as applicable, (ii) any action or inaction resulting from
the Trustee's or the Custodian's failure to cause any Mortgage File (or portion
thereof) to be released to the Servicer pursuant to Sections 2.18 or 4.2(c), or
(iii) any action or inaction resulting from the Trustee's or the Depositor's
failure to comply with Section 5.1(c). The Servicer shall notify the Trustee and
the Depositor if a claim is made by a third party with respect to this Agreement
or the Mortgage Loans that the Servicer determines in its good faith judgment
will materially affect the Trustee's, the Depositor's or the Trust's interest in
such Mortgage Loans. The Servicer shall assume (with the written consent of the
Depositor) the defense of any such claim and, subject to the last sentence of
this paragraph, pay all reasonable expenses in connection therewith, including
counsel fees, and promptly pay, discharge and satisfy any judgment or decree
which may be entered against the Servicer or the Trustee, the Depositor or the
Trust in respect of such claim. The Servicer shall follow any written
instructions received from the Trustee in connection with any such claim. The
Servicer shall have the right to reimburse itself from the Collection Account
for all expenses, advances and liabilities incurred by the Servicer in respect
of any such claim (whether or not the Servicer has assumed the defense thereof),
except when the claim (x) is related to the Servicer's obligations to indemnify
the Depositor, the Trustee (on behalf of the Trust and the Certificateholders)
and the Trust pursuant hereto, (y) results from the failure of the Servicer to
service the Mortgage Loans in compliance with the terms of this Agreement, or
(z) results from the Servicer's willful misconduct, bad faith or negligence in
performing its duties under this Agreement.

         (c) With respect to any Mortgage Loan, if the Depositor or the Trustee
records or causes to be recorded the related Assignment of Mortgage designating
the Depositor or the Trustee, as applicable, as the holder of record of the
Mortgage in the appropriate public recording office of the jurisdiction in which
the related Mortgaged Property is located, and the Depositor or the Trustee, as
applicable, in its capacity as the holder of record, receives written notice of
any action with respect to the related Mortgage or Mortgaged Property, the
Depositor or the Trustee, as applicable, shall promptly send a copy of such
notice to the Servicer in accordance with Section 8.8. The Servicer shall have
no liability to the Depositor, the Trustee or the Certificateholders for claims,
losses, penalties, fines, forfeitures, legal fees and related costs, judgments,
or any other costs or expenses, that result from the Depositor's or the
Trustee's failure to comply with the provisions set forth in this paragraph.

                                       31
<PAGE>

         (d) None of the Depositor or any of the directors, officers, employees
or agents of the Depositor shall be under any liability to the Trust 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 or any
such Person against any breach of warranties or representations made herein or
against any liability which would otherwise be imposed by reason of its
respective willful misfeasance, bad faith or negligence in the performance of
its duties or by reasons of reckless disregard of its respective obligations or
duties hereunder.

         (e) The Depositor and any director, officer, employee or agent of the
Depositor may rely in good faith on any document of any kind which, prima facie,
is properly executed and submitted by any appropriate Person with respect to any
matters arising hereunder. The Depositor and any director, officer, employee or
agent of the Depositor shall be indemnified and held harmless by the Trust
against any loss, liability or expense incurred in connection with any legal
action relating to this Agreement or the Certificates, other than any loss,
liability or expense incurred in connection with any legal action incurred by
reason of its respective willful misfeasance, bad faith or negligence, a breach
of a representation or warranty hereunder or by reason of reckless disregard of
its respective obligations or duties hereunder. The Depositor shall not be under
any obligation to appear in, prosecute or defend any legal action unless such
action is related to its duties under this Agreement and which in its opinion
may expose it to any expense or liability; provided, however, that the Depositor
may in its discretion undertake any action related to its obligations hereunder
that 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 parties
hereunder.

     Section 5.2 Servicer Covenants; Merger or Consolidation of the Servicer

         (a) The Servicer covenants that, subject to Section 5.2(b), it shall
keep in full force and effect its existence, rights and franchises as a
corporation and its status as a Fannie Mae or Freddie Mac approved servicer in
good standing and shall obtain and preserve its qualification to do business as
a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this Agreement
or any of the Mortgage Loans and to perform its duties under this Agreement.

         (b) Any Person into which the Servicer may be merged or consolidated,
or any Person resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to all, or substantially
all, of the business or assets of the Servicer (whether or not related to loan
servicing), shall be the successor of the Servicer hereunder, without the
execution or filing of any paper, or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the Servicer shall not be a party to any such merger,
consolidation or conversion, or sell or otherwise dispose of all, or
substantially all, of its business or assets, unless the successor or surviving
Person shall be an institution that is a Fannie Mae or Freddie Mac approved
servicer in good standing and a member of MERS in good standing. In addition,
the successor or surviving Person shall be an institution (i) having a GAAP net
worth of not less than $25,000,000 and (ii) the deposits of which are insured by
the FDIC, SAIF and/or BIF, or which is a HUD-approved mortgagee whose primary
business is in origination and servicing of first lien mortgage loans.

                                       32
<PAGE>

     Section 5.3 Limitation on Liability of the Servicer and Others

         The Servicer and the directors, officers, employees or agents of the
Servicer shall not be under any liability to the Trustee, the Depositor or any
Certificateholder (i) for any action taken, or for refraining from the taking of
any action, in good faith pursuant to this Agreement, (ii) for errors in
judgment made in good faith, (iii) for any action or inaction in accordance with
the written direction or written consent of the Trustee, the Depositor or the
Majority Certificateholders, as applicable, (iv) for any action or inaction
resulting from the Trustee's or Custodian's failure to cause any Mortgage File
(or portion thereof) to be released to the Servicer pursuant to Sections 2.18 or
4.2(c), or (v) for any action or inaction resulting from the Trustee's or the
Depositor's failure to comply with Section 5.1(c); provided, however, this
provision shall not protect the Servicer against any breach of warranties or
representations made herein, any failure to perform its obligations in
accordance with any standard of care set forth in this Agreement (unless in
accordance with the written direction or written consent of the Trustee or the
Depositor, as applicable) or any liability that would otherwise be imposed by
reason of willful misconduct, bad faith or negligence in the performance of
duties or by reason of reckless disregard of its respective obligations or
duties hereunder. The Servicer and any director, officer, employee or agent of
the Servicer may rely in good faith on any document of any kind that appears, on
its face, to be properly executed and submitted by any Person respecting any
matters arising hereunder. Subject to Section 5.1(b), the Servicer shall not be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its duties under this Agreement and which, in its opinion, may
result in any expense or liability to the Servicer; provided, however, that the
Servicer may undertake any such action which it may deem necessary or desirable
with respect to this Agreement and the rights, duties, and the interests of the
parties hereto. In such event, the legal expenses and costs of such action and
any liability resulting therefrom shall be expenses, costs, and liabilities for
which the Trust shall be liable and the Servicer shall be entitled to be
reimbursed therefor from the Collection Account, unless any such costs or
liabilities shall result from the negligence, bad faith or willful misfeasance
of the Servicer in performing such action. The Servicer and any director,
officer, employee or agent of the Servicer shall be indemnified and held
harmless by the Trust against any loss, liability or expense incurred in
connection with any legal action relating to this Agreement or the Certificates,
other than any loss, liability or expense incurred in connection with any legal
action incurred by reason of its willful misfeasance, bad faith or negligence,
or a breach of warranties or representations made herein by the Servicer or any
failure by the Servicer to perform its obligations in accordance with the
standard of care set forth in this Agreement (unless in accordance with the
written direction of the Trustee, the Depositor or the Majority
Certificateholders). Anything in this Agreement to the contrary notwithstanding,
in no event shall the Servicer be liable for special, indirect, or consequential
loss or damage of any kind whatsoever (including but not limited to lost
profits), even if the Servicer has been advised of the likelihood of such loss
or damage and regardless of the form of action. The Trustee has no obligation to
give direction or consent to the Servicer and is not responsible for monitoring
or supervising the Servicer's activity.

     Section 5.4 Servicer Not to Resign

         The Servicer shall not resign from the obligations and duties hereby
imposed on it except upon the determination that such Servicer's duties
hereunder are no longer permissible under Applicable Requirements and such
incapacity cannot be cured by such Servicer. Any such determination permitting
the resignation of the Servicer shall be evidenced by an Opinion of Counsel to
such effect delivered to the Trustee. No such resignation shall become effective
until (i) a successor that satisfies the requirements set forth in Section 8.1
has assumed the Servicer's responsibilities and obligations hereunder in
accordance with such Section and (ii) each Rating Agency has delivered a letter
to the Trustee stating that the appointment of such successor as Servicer
hereunder will not result in the reduction or the withdrawal of the then current
ratings of the Certificates.

                                       33
<PAGE>

     Section 5.5 Transfer of Servicing

         The Servicer acknowledges that each of the Trustee and the Depositor
has entered into this Agreement in reliance upon the adequacy of the Servicer's
servicing facilities, plan, personnel, records and procedures, its integrity,
reputation and financial standing and the continuance thereof. Without in any
way limiting the generality of this Section 5.5, the Servicer shall not either
assign this Agreement or any of the servicing rights or obligations hereunder
except (i) in connection with a merger or consolidation permitted under Section
5.2(b), or (ii) with the prior written consent of the Depositor, which consent
shall not be unreasonably withheld or delayed.

     Section 5.6 [Reserved]

     Section 5.7 Representations and Warranties of the Servicer

         The Servicer hereby represents and warrants to the Trustee and the
Depositor as of the Closing Date as follows:

         (a) The Servicer is a federally chartered savings association, duly
organized, validly existing and in good standing under the laws of the United
States, has all licenses necessary to carry on its business as now being
conducted and is licensed, qualified and in good standing in the states where
the Mortgaged Properties are located, if the laws of such states require
licensing or qualification in order to conduct business of the type conducted by
the Servicer and to the extent necessary to ensure the servicing of each
Mortgage Loan in accordance with this Agreement. The Servicer has the corporate
power and authority to enter into, execute and deliver this Agreement and all
documents and instruments executed and delivered pursuant hereto and to perform
its obligations in accordance therewith. The execution, delivery and performance
of this Agreement by the Servicer and the consummation of the transactions
contemplated hereby have been duly and validly authorized. This Agreement
evidences the valid, binding and enforceable obligations of the Servicer,
subject as to enforcement, (i) to bankruptcy, insolvency, receivership,
conservatorship, reorganization, arrangement, moratorium and other laws of
general applicability relating to or affecting creditors' rights and (ii) to
general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law. All requisite corporate action has been taken by
the Servicer to make this Agreement valid and binding upon the Servicer in
accordance with its terms.

                                       34
<PAGE>

         (b) No consent, approval, authorization, or order of any court or
governmental agency or body relating to the transactions contemplated by this
Agreement is required as to the Servicer or, if required, such consent,
approval, authorization, or order has been obtained.

         (c) The consummation of the transactions contemplated by this
Agreement, including without limitation the fulfillment of, or compliance with,
the terms and conditions of this Agreement, are in the ordinary course of
business of the Servicer and shall not (i) result in the breach of any term or
provision of the charter or by-laws of the Servicer, (ii) result in the breach
of any term or provision of, or conflict with or constitute a default under, or
result in the acceleration of any obligation under, any material agreement,
indenture, loan or credit agreement, or other instrument to which the Servicer
or its property is subject, or (iii) result in the violation of any law, rule,
regulation, order, judgment, or decree to which the Servicer or its property is
subject.

         (d) There is no action, suit, proceeding or investigation pending or,
to the best of the Servicer's knowledge, threatened against the Servicer that,
either in any one instance or in the aggregate, is likely (in the Servicer's
judgment), to result in any material impairment of the right or ability of the
Servicer to carry on its business substantially as now conducted, or that would
adversely affect the validity of this Agreement, or of any action taken or to be
taken in connection with the obligations of the Servicer contemplated herein, or
that would be likely to materially impair the ability of the Servicer to perform
its obligations hereunder.

         (e) The Servicer is an approved servicer of mortgage loans for Fannie
Mae and Freddie Mac, in good standing. No event has occurred, including but not
limited to a change in insurance coverage, that would make the Servicer unable
to comply with Fannie Mae and Freddie Mac eligibility requirements or that would
require notification to Fannie Mae or Freddie Mac.

         (f) The Servicer is a member of MERS in good standing. The Servicer
shall comply in all material respects with the rules and procedures of MERS in
connection with the servicing of each MERS Loan for as long as each such
Mortgage Loan is registered on the MERS(R) System.

     Section 5.8 Servicer May Own Certificates

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

                                    ARTICLE 6

                                     DEFAULT

     Section 6.1 Events of Default

         In case one or more of the following Events of Default by the Servicer
shall occur and be continuing:

                                       35
<PAGE>

                  (i) any failure by the Servicer to remit to the Trustee when
         due any payment required to be made under the terms of this Agreement,
         which failure continues unremedied for a period of three (3) Business
         Days after the date on which written notice of such failure requiring
         the same to be remedied, shall have been received by the Servicer, from
         the Trustee, or

                  (ii) any failure by the Servicer to duly observe or perform,
         in any material respect, any other covenant, obligation or agreement of
         the Servicer as set forth in this Agreement, which failure continues
         unremedied for a period of sixty (60) (or, in the case of any failure
         to pay the premium for any insurance policy which is required to be
         maintained hereunder, thirty (30) days after the date on which written
         notice of such failure, requiring the same to be remedied, shall have
         been received by the Servicer, from the Trustee; or

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

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

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

                  (vi) the Servicer shall fail to be an approved servicer of
         mortgage loans for Fannie Mae and Freddie Mac, in good standing; or

                  (vii) the Servicer shall fail to be in compliance with the
         "doing business" or licensing laws of any jurisdiction where a
         Mortgaged Property is located; or

                  (viii) the Servicer shall attempt to assign this Agreement or
         the servicing responsibilities hereunder in contravention of this
         Agreement;

then, and in each and every such case, so long as such Event of Default shall
not have been remedied, the Trustee, by notice in writing to the Servicer (in
each such instance, the "Defaulted Servicer"), may, and, at the direction of the
Majority Certificateholders, shall, in addition to whatever rights the Trustee
may have at law or equity, including injunctive relief and specific performance,
commence termination of all of the rights and obligations of the Defaulted
Servicer under this Agreement (other than the rights to reimbursement for
Monthly Advances and Servicing Advances previously made) pursuant to Section
7.2, and may exercise any and all other remedies available at law or at equity.

                                       36
<PAGE>

Upon receipt by the Defaulted Servicer of such written notice from the Trustee
stating the intent to terminate the Defaulted Servicer as servicer under this
Agreement as a result of such Event of Default, all authority and power of the
Defaulted Servicer under this Agreement, whether with respect to the Mortgage
Loans or otherwise, shall pass to and be vested in the successor appointed
pursuant to Section 8.1. Upon written request from the Trustee, the Defaulted
Servicer shall, at its sole expense, prepare, execute, and place in such
successor's possession or control all Mortgage Files and Credit Files, and do or
cause to be done all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, all of which shall be undertaken
immediately and shall be completed as soon as possible and in all events by not
later than forty-five (45) Business Days following the Trustee's request
therefor. The Defaulted Servicer agrees to cooperate with the Trustee and such
successor in effecting the termination of the Defaulted Servicer's
responsibilities and rights hereunder, including, without limitation, the
transfer to such successor of all cash amounts that have been credited by the
Defaulted Servicer to the Collection Account or the Escrow Account at the time
of transfer, and all other amounts that may thereafter be received with respect
to the Mortgage Loans and to which the Defaulted Servicer is not entitled
pursuant to the terms of this Agreement.

     Section 6.2 Waiver of Defaults

         The Trustee, at the direction of the Majority Certificateholders, on
behalf of all Certificateholders, may waive any default or Event of Default by
the Defaulted Servicer in the performance of its obligations hereunder and its
consequences, provided, however, that the Majority Certificateholders may not
waive a default in making a required distribution on a Certificate without the
consent of the Holder of such Certificate. Any such waiver must be in writing to
be effective. Upon any waiver of a past default, such default shall cease to
exist, and any Event of Default arising therefrom shall, unless otherwise
specified in such waiver, be deemed to have been remedied for every purpose of
this Agreement unless the Defaulted Servicer fails to comply with the terms of
such waiver. No such waiver shall extend to any subsequent or other default or
impair any right consequent thereto except to the extent expressly so waived.
Notice of any such waiver shall be given by the Trustee to the Rating Agencies.

     Section 6.3 Notification to Certificateholders

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

         (b) No later than 60 days after the occurrence of any event which
constitutes or which, with notice or a lapse of time or both, would constitute a
Event of Default, after a Responsible Officer of the Trustee obtains actual
knowledge or receives written notice of the occurrence of such an event, the
Trustee shall transmit by mail to all Certificateholders notice of such
occurrence unless such Event of Default shall have been waived or cured. Such
notice shall be given to the Rating Agencies promptly after any such occurrence.

                                       37
<PAGE>

     Section 6.4 Survival of Certain Obligations and Liabilities of the
                 Defaulted Servicer

         The representations, warranties, covenants, indemnities and agreements
of the parties provided in this Agreement and the parties' obligations hereunder
shall survive the execution and delivery and the termination or expiration of
this Agreement. Notwithstanding any termination of the rights and obligations of
the Servicer pursuant to this Article 6, the Defaulted Servicer shall remain
liable for any actions of the Defaulted Servicer taken prior to the effective
time of such termination.

                                    ARTICLE 7

                                   TERMINATION

     Section 7.1 Termination of Agreement

         The respective obligations and responsibilities of the Servicer, the
Depositor and the Trustee hereunder shall terminate upon termination of the
Trust in accordance with Section 7.01 of the Pooling Agreement.

     Section 7.2 Termination of the Servicer Upon Unremedied Event of Default

         The Trustee may, and at the direction of the Majority
Certificateholders shall, following an unremedied Event of Default and in
accordance with Section 6.1, terminate any rights the Servicer may have
hereunder. The Trustee, with full cooperation of the Servicer, shall arrange for
the transfer of servicing, at the Trustee's option, to the Trustee or a third
party successor servicer pursuant to Section 8.1; provided, that the transfer to
such successor will not result in the qualification, withdrawal or reduction of
the then current ratings on the Certificates, as evidenced by a letter to such
effect from each Rating Agency to the Trustee, and the Servicer shall continue
servicing the Mortgage Loans under this Agreement, for the Servicing Fee
provided herein, until the Trustee gives the Servicer notice of such transfer.

         Notwithstanding any termination of the Servicer hereunder, the Servicer
shall be entitled to receive prior to transfer of its servicing obligations
hereunder, payment of all accrued and unpaid Servicing Fees and reimbursement
for all outstanding Monthly Advances and Servicing Advances.

                                       38
<PAGE>

                                   ARTICLE 8

                            MISCELLANEOUS PROVISIONS

     Section 8.1 Successor to the Servicer

         (a) Prior to termination of the Servicer's responsibilities and duties
under this Agreement pursuant to Sections 5.4, 6.1, 7.1, or 7.2, the Trustee
shall either (i) succeed to and assume all of the Servicer's responsibilities,
rights, duties, and obligations under this Agreement from and after the date of
such succession, or (ii) appoint or petition a court of competent jurisdiction
to appoint, any established housing and home finance institution, bank or other
mortgage loan or home equity loan servicer having a net worth of not less than
$50,000,000 as the successor to the Servicer hereunder in the assumption of all
or any part of the responsibilities, duties or liabilities of the Servicer
hereunder; provided, that the appointment of any such successor Servicer will
not result in the qualification, reduction or withdrawal of the ratings assigned
to the Certificates or the ratings that are in effect by the Rating Agencies as
evidenced by a letter to such effect from the Rating Agencies. Pending
appointment of a successor to the Servicer hereunder, unless the Trustee is
prohibited by law from so acting, the Trustee shall act in such capacity as
hereinabove provided. If the Servicer's duties, responsibilities, and
liabilities under this Agreement shall be terminated pursuant to any of the
foregoing Sections, the Servicer shall discharge such duties and
responsibilities with the same degree of diligence and prudence that it is
obligated to exercise under this Agreement, from the date it acquires knowledge
of such termination until the effective date thereof.

         (b) The Servicer shall promptly deliver to its successor (i) the funds
in the Collection Account and the Escrow Account to which the Trust is entitled
pursuant to the terms of this Agreement and all other amounts which may
thereafter be received with respect to the Mortgage Loans and to which the
Servicer is not entitled pursuant to the terms of this Agreement and (ii) all
Mortgage Files and Credit Files and related documents and statements held by it
hereunder. The Servicer shall account for all funds and shall execute and
deliver such instruments and do such other things as may reasonably be required
to more fully and definitively vest in the successor all such rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer.

         (c) Upon a successor's acceptance of appointment as such, the Trustee
shall notify the Servicer, the Depositor, each Certificateholder and each Rating
Agency of such appointment.

         (d) Notwithstanding any termination pursuant to this Agreement, the
Servicer shall continue to be entitled to receive all amounts accrued or owing
to it under this Agreement on or prior to the effective date of such
termination, whether in respect of (i) unreimbursed Servicing Advances or
Monthly Advances, (ii) unpaid Servicing Fees or REO Management Fees, or (iii)
other servicing compensation, and shall continue to be entitled to the benefits
of Section 5.3 notwithstanding any such termination, with respect to events
occurring prior to such termination.

                                       39
<PAGE>

         (e) Any successor, including the Trustee, to the Servicer as servicer
shall, during the term of its service as servicer continue to service and
administer the Mortgage Loans for the benefit of Certificateholders, and
maintain in force a policy or policies of insurance covering errors and
omissions in the performance of its obligations as Servicer hereunder and a
Fidelity Bond in respect of its officers, employees and agents to the same
extent as the Servicer is so required pursuant to Section 2.11.

     Section 8.2 Amendment

         (a) This Agreement may be amended from time to time by the Depositor,
the Servicer and the Trustee without the consent of the Certificateholders, (i)
to cure any error or ambiguity, (ii) to correct or supplement any provisions
herein which may be defective or inconsistent with any other provisions herein
or in the Prospectus Supplement or (iii) to make any other provisions with
respect to matters or questions arising under this Agreement, which shall not be
materially inconsistent with the provisions of this Agreement; provided,
however, that any such action listed in clause (i) through (iii) above shall not
adversely affect in any material respect the interests of any Certificateholder,
as evidenced by (i) notice in writing to the Depositor, the Servicer and the
Trustee from the Rating Agencies that such action will not result in the
reduction or withdrawal of the rating of any outstanding Class of Certificates
with respect to which it is a Rating Agency, or (ii) an Opinion of Counsel
delivered to the Depositor, the Servicer and the Trustee to such effect.

         (b) In addition, this Agreement may be amended from time to time by the
Depositor, the Servicer and the Trustee with the consent of the Majority
Certificateholders for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Agreement or of
modifying in any manner the rights of the Holders of Certificates; provided,
however, that no such amendment or waiver shall (x) reduce in any manner the
amount of, or delay the timing of, payments on the Certificates which are
required to be made on any Certificate without the consent of the Holder of such
Certificate, (y) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in
clause (x) above, without the consent of the Holders of Certificates of such
Class evidencing at least a 66% of the Voting Rights of such Class, or (z)
reduce the percentage of Voting Rights required by clause (y) above without the
consent of the Holders of all Certificates of such Class then outstanding. Upon
approval of an amendment, a copy of such amendment shall be sent to the Rating
Agencies. Prior to the execution of any amendment to this Agreement, the Trustee
shall be entitled to receive and rely upon an Opinion of Counsel (at the expense
of the Person seeking such amendment) stating that the execution of such
amendment is authorized or permitted by this Agreement. The Trustee may, but
shall not be obligated to, enter into any such amendment which affects the
Trustee's own rights, duties or immunities under this Agreement.

         (c) Notwithstanding any provision of this Agreement to the contrary,
the Trustee shall not consent to any amendment to this Agreement unless it shall
have first received an Opinion of Counsel, delivered by (and at the expense of)
the Person seeking such Amendment, to the effect that such amendment will not
result in the imposition of a tax on any REMIC constituting part of the Trust
Fund pursuant to the REMIC Provisions or cause any REMIC constituting part of
the Trust to fail to qualify as a REMIC at any time that any Certificates are
outstanding and that the amendment is being made in accordance with the terms
hereof.

                                       40
<PAGE>

         (d) Promptly after the execution of any such amendment the Trustee
shall furnish (but in no event at the expense of the Trustee), at the expense of
the Trust, a copy of such amendment and the Opinions of Counsel referred to in
Sections 8.2(b) and (c) to the Servicer and each Rating Agency.

         (e) It shall not be necessary for the consent of Certificateholders
under this Section 8.2 to approve the particular form of any proposed amendment;
instead it shall be sufficient if such consent shall approve the substance
thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Certificateholders shall be subject to
such reasonable regulations as the Trustee may prescribe.

         (f) Notwithstanding any other provision of this Agreement, neither the
Certificateholders nor the Trustee shall have any obligation to consent to any
amendment or modification of this Agreement unless they have been provided
reasonable security or indemnity against their out-of-pocket expenses (including
reasonable attorneys' fees) to be incurred in connection therewith.

         (g) Promptly after the execution of any amendment, modification or
waiver of the Pooling Agreement, the Trustee shall furnish a copy of such
amendment, modification or waiver to the Servicer.

     Section 8.3 Recordation of Agreement; Perfection of Security Interest;
                 Further Assurances

         (a) To the extent necessary under applicable law to protect the
interests of the Certificateholders, this Agreement, or a memorandum thereof, 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 Mortgaged Properties are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer at the Trust's expense.

         (b) The Servicer agrees to execute or cause to be executed such
documents and take or cause to be taken such actions as may be necessary to
effect the intent of this Agreement, including, without limitation, the
execution and delivery of instruments of further assurance and the execution and
delivery of such other documents, and the taking of such other actions, as may
be reasonably requested by the Trustee or the Depositor.

     Section 8.4 Duration of Agreement

         This Agreement shall continue in existence and effect until terminated
as herein provided.

                                       41
<PAGE>

     Section 8.5 Governing Law

         This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (including Section 5-1401 of the New York
General Obligations Law) and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws without giving effect
to conflict of laws principles other than Section 5-1401 of the New York General
Obligations Law.

     Section 8.6 General Interpretive Principles

         For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:

                  (i) the terms defined in this Agreement have the meanings
         assigned to them in this Agreement and include the plural as well as
         the singular, and the use of any gender herein shall be deemed to
         include the other gender;

                  (ii) accounting terms not otherwise defined herein have the
         meanings assigned to them in accordance with generally accepted
         accounting principles;

                  (iii) references herein to "Articles," "Sections,"
         "Subsections," "Paragraphs," and other subdivisions without reference
         to a document are to designated Articles, Sections, Subsections,
         Paragraphs, and other subdivisions of this Agreement;

                  (iv) a reference to a Subsection without further reference to
         a Section is a reference to such Subsection as contained in the same
         Section in which the reference appears, and this rule shall also apply
         to Paragraphs and other subdivisions;

                  (v) the words "herein," "hereof," "hereunder," and other words
         of similar import refer to this Agreement as a whole and not to any
         particular provision; and

                  (vi) the term "include" or "including" shall mean without
         limitation by reason of enumeration.

     Section 8.7 Reproduction of Documents

         This Agreement and all documents relating hereto, including, without
limitation, (i) consents, waivers, and modifications that may hereafter be
executed, (ii) documents received by any party on the Closing Date, and (iii)
financial statements, certificates, and other information previously or
hereafter furnished, may be reproduced by any photographic, photostatic,
microfilm, microcard, miniature photographic, or other similar process. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business. Any enlargement, facsimile or further reproduction
of such reproduction shall likewise be admissible in evidence.

                                       42
<PAGE>

     Section 8.8 Notices

         All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at, faxed or
mailed by first class mail, postage prepaid, or by express delivery service, to
(a) in the case of the Depositor, Morgan Stanley ABS Capital I Inc., 1585
Broadway, New York, New York 10036, Attention: Michelle Wilke, Esq., (telecopy
number 212-761-0260) (b) in the case of the Servicer, Washington Mutual Bank,
FA, 1950 Plummer St, (mail stop N070205), Chatsworth, California, 91311,
Attention: Vice President, Investor Reporting, with a copy to Washington Mutual
Bank, FA, 1201 Third Avenue, WMT0511, Seattle, Washington 98101, Telephone:
(206) 554-8541, Fax: (206) 461-5739, Attention: Salvatore Russo, or such other
address as may be furnished to the Depositor and the Trustee in writing by the
Servicer, and (c) in the case of the Trustee, Deutsche Bank National Trust
Company, 1761 East St. Andrew Place, Santa Ana, California 92705, Attention:
Trust Administration --MS04S2. Any notice required or permitted to be mailed to
a Certificateholder shall be given by first class mail, postage prepaid, at the
address of such Holder as shown in the Certificate Register. Notice of any
Servicer Event of Termination shall be given by telecopy and by certified mail.
Any notice so mailed within the time prescribed in this Agreement shall be
conclusively presumed to have duly been given when mailed, whether or not the
Certificateholder receives such notice. A copy of any notice required to be
telecopied hereunder shall also be mailed to the appropriate party in the manner
set forth above.

         The Trustee acknowledges and agrees that all reports and notices
required to be delivered by the Trustee to the Servicer pursuant to the Pooling
Agreement shall be delivered to the Servicer at the addresses of the Servicer
specified in this Section 8.8 and the Servicer shall be entitled to enforce its
right to receive such reports and notices to the same extent as if it were a
party to such Pooling Agreement.

     Section 8.9 Severability of Provisions

         If any one or more of the covenants, agreements, provisions or terms of
this Agreement shall be held invalid for any reason, 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 covenants, agreements,
provisions or terms of this Agreement, the rights of the parties hereto, the
Certificates or the rights of the Certificateholders thereof. If the invalidity
of any part, provision, representation or warranty of this Agreement shall
deprive any party of the economic benefit intended to be conferred by this
Agreement, the parties shall negotiate in good faith to develop a new structure,
the economic effect of which is nearly as possible the same as the economic
effect of this Agreement without regard to such invalidity.

     Section 8.10 Exhibits and Schedules

         The exhibits and schedules to this Agreement are hereby incorporated
and made an integral part of this Agreement.

                                       43
<PAGE>

     Section 8.11 Counterparts; Successors and Assigns

         This Agreement may be executed in one or more counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same agreement. Subject to Sections 5.4, 5.5, 6.1 and
7.1, this Agreement shall inure to the benefit of and be binding upon the
Servicer, the Trustee, the Depositor and their respective successors and
assigns.

     Section 8.12 Effect of Headings

         The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof.

     Section 8.13 Other Agreements Superseded; Entire Agreement

         This Agreement supersedes all prior agreements and understandings
relating to the subject matter hereof. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof.

     Section 8.14 Notice to the Rating Agencies and the Depositor

         (a) The Trustee shall be obligated to use its best reasonable efforts
promptly to provide notice to the Rating Agencies and the Depositor with respect
to each of the following of which a Responsible Officer of the Trustee, as the
case may be, has actual knowledge:

                  (i) any material change or amendment to this Agreement;

                  (ii) the occurrence of any Event of Default hereunder that has
         not been cured or waived;

                  (iii) the resignation or termination of the Servicer;

                  (iv) any change in the location of the Collection Account, the
         Escrow Account or the Distribution Account; and

                  (v) if the Trustee is acting as successor Servicer, any event
         that would result in the inability of the Trustee to make Monthly
         Advances.

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

                  (i) with respect to the Depositor only, each report delivered
         pursuant to Section 3.2 or 3.3 hereof;

                  (ii) each annual statement as to compliance described in
         Section 4.4 hereof;

                  (iii) each annual independent public accountants' servicing
         report described in Section 4.5 hereof; and

                                       44
<PAGE>

                  (iv) each notice delivered pursuant to Section 6.1 hereof
         which relates to the fact that the Servicer has not made a Monthly
         Advance.

         Any such notice pursuant to this Section 8.14 shall be in writing and
shall be deemed to have been duly given if personally delivered, faxed or mailed
by first class mail, postage prepaid, or by express delivery service to Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Managing Director, Residential Mortgage-Backed Securities; Fitch Ratings, One
State Street Plaza, New York, New York 10004, Attention: Managing Director,
Residential Mortgage-Backed Securities; and Standard & Poor's, a division of The
McGraw-Hill Companies, Inc., 55 Water Street, New York, New York 10041,
Attention: Mortgage Surveillance Group.

                               [signatures follow]

                                       45
<PAGE>

         TO WITNESS THIS, the Servicer, the Trustee and the Depositor have
caused their names to be signed to this Servicing Agreement by their respective
officers duly authorized as of the day and year first written above.

         SERVICER:

                                  WASHINGTON MUTUAL BANK, FA
                                  a federally chartered savings association

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

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

         DEPOSITOR:

                                  MORGAN STANLEY ABS CAPITAL I INC.
                                  a Delaware corporation

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

         TRUSTEE:

                                  DEUTSCHE BANK NATIONAL TRUST COMPANY
                                  a national banking association, as Trustee

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

<PAGE>

                                    EXHIBIT A

              FORM OF REQUEST FOR RELEASE OF DOCUMENTS AND RECEIPT

To:      [Name/Address of Custodian]
         Attention:
                        --------------------------------------
                        Telephone:
                                      ------------------------
                        Facsimile:
                                      ------------------------

                  Re:   Servicing Agreement dated as of June 1, 2004 (the
                        "Servicing Agreement") between Morgan Stanley ABS
                        Capital I Inc. (the "Depositor"), Deutsche Bank National
                        Trust Company, as trustee (the "Trustee") and Washington
                        Mutual Bank, FA (the "Servicer")

         In connection with the administration of the Mortgage Loans that we
service on your behalf pursuant to the Servicing Agreement, we request the
release, and acknowledge receipt of the Mortgage File/[specify documents]) for
the Mortgage Loan described below, for the reason indicated.

Mortgagor's Name, Address and Zip Code:

Mortgage Loan Number:

Reason for Requesting Documents:  (check one)

         _____    1.  Mortgage Loan paid in full. (The Servicer hereby
                      certifies that all amounts received in connection
                      therewith have been credited to the Collection Account as
                      provided in the Servicing Agreement.)

         _____    2.  Mortgage Loan in foreclosure.

         _____    3.  Repurchase pursuant to the Servicing Agreement or the
                      Purchase Agreement. (The Servicer hereby certifies that
                      the repurchase price has been credited to the Collection
                      Account.)

         _____    4.  Mortgage Loan liquidated by _______________________.
                      (The Servicer hereby certifies that all proceeds of the
                      foreclosure, insurance, condemnation or other liquidation
                      have been finally received and credited to the Collection
                      Account pursuant to the Servicing Agreement.)

         _____    5.  Other (Explain):
                                       ----------------------------------------

                                      A-1
<PAGE>

         If box 1, 2 or 3 above is checked, and if all or part of the Mortgage
File was previously released to us, please release to us our previous request
and receipt on file with you, as well as any additional documents in your
possession relating to the specified Mortgage Loan.

         If box 4 or 5 above is checked, upon our return of all of the above
documents to you, please acknowledge your acceptance by signing in the space
indicated below and returning this form.

                                 WASHINGTON MUTUAL BANK, FA

                                 By:
                                        ----------------------------------------

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

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

Acknowledgment of Documents returned to the Custodian:

DEUTSCHE BANK NATIONAL TRUST COMPANY,
as Custodian

By:
   -----------------------------------------

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

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

Date:
     ---------------------------------------

                                      A-2
<PAGE>

                                    EXHIBIT B

                            ACCOUNT LETTER AGREEMENT

                                                      --------------, ------

To:
   ---------------------------------

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

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

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

         (the "Depository")

         As the "Servicer" under the Servicing Agreement dated as of June 1,
2004, between the Servicer, the Depositor and the Trustee named therein (the
"Agreement"), we hereby authorize and request you to establish an account, as a
Collection Account pursuant to Section 2.4 of the Agreement, to be designated as
"Collection Account, Washington Mutual Bank, FA, as Servicer for the Trust under
the Servicing Agreement dated as of June 1, 2004 between Morgan Stanley ABS
Capital I Inc., as Depositor, Deutsche Bank National Trust Company, as Trustee
and Washington Mutual Bank, FA, as Servicer, in trust for registered Holders of
Morgan Stanley ABS Capital I Inc. Trust 2004-SD2, Mortgage Pass-Through
Certificates, Series 2004-SD2." All deposits in the account shall be subject to
withdrawal therefrom by order signed by the Servicer. You may refuse any deposit
which would result in violation of the requirement that the account be fully
insured as described below. This letter is submitted to you in duplicate. Please
execute and return one original to us.

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

                                   By:
                                         ------------------------------------

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

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

         The undersigned, as the "Depository," hereby certifies that the
above-described account has been established under Account Number
_________________, at the office of the Depository indicated above, and agrees
to honor withdrawals on such account as provided above. The full amount
deposited at any time in the account will be insured by the Federal Deposit
Insurance Corporation.

                                   ------------------------------------------
                                   (Name of Depository)

                                   By:
                                         ------------------------------------

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

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

                                      B-1
<PAGE>

                                    EXHIBIT C

                         ESCROW ACCOUNT LETTER AGREEMENT

                                                       --------------------, ---

To:
   ---------------------------------

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

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

   ---------------------------------
         (the "Depository")

         As the "Servicer" under the Servicing Agreement dated as of June 1,
2004, between the Servicer, the Trustee and the Depositor (the "Agreement"), we
hereby authorize and request you to establish an account, as an Escrow Account
pursuant to Section 2.6 of the Agreement, to be designated as "Washington Mutual
Bank, FA, in trust for registered Holders of Morgan Stanley ABS Capital I Inc.
Trust 2004-SD2, Mortgage Pass-Through Certificates, Series 2004-SD2, and certain
Mortgagors." All deposits in the account pursuant to the Agreement shall be
subject to withdrawal therefrom by order signed by the Servicer. You may refuse
any deposit which would result in violation of the requirement that the account
by fully insured as described below. This letter is submitted to you in
duplicate. Please execute and return one original to us.

                                   ------------------------------------------
                                   By:
                                         ------------------------------------

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

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

         The undersigned, as the "Depository," hereby certifies that the
above-described account has been established under Account Number
_________________, at the office of the Depository indicated above, and agrees
to honor withdrawals on such account as provided above. The full amount
deposited at any time in the account will be insured by the Federal Deposit
Insurance Corporation.

                                   ------------------------------------------
                                   (Name of Depository)

                                   By:
                                         ------------------------------------

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

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

                                      C-1
<PAGE>

                                    EXHIBIT D

                             MORTGAGE LOAN SCHEDULE

                        [On File at Dewey Ballantine LLP]

                                      D-1
<PAGE>

                                    EXHIBIT E

                          FORM OF OFFICER'S CERTIFICATE

         I, [name of certifying individual], a duly elected and acting officer
of Washington Mutual Bank, FA (the "Servicer"), certify pursuant to Section
4.4(b) of the Servicing Agreement dated as of June 1, 2004 (as from time to time
amended or replaced by a reconstituted servicing or other successor servicing
agreement, the "Servicing Agreement") between the Servicer, Deutsche Bank
National Trust Company (the "Trustee") and Morgan Stanley ABS Capital I Inc.
(the "Depositor") to the Trustee, the Depositor, each Person, if any, who
"controls" the Trustee or the Depositor within the meaning of the Securities Act
of 1933, as amended, and their respective officers and directors, with respect
to the calendar year immediately preceding the date of this Certificate (the
"Relevant Year"), as follows:

         1. For purposes of this Certificate, "Relevant Information" means the
information in the certificate provided pursuant to Section 4.4(a) of the
Servicing Agreement (the "Annual Compliance Certificate") and Section 4.5 for
the Relevant Year and the information in all servicing reports provided by the
Servicer (the "Servicing Reports") during the Relevant Year. Based on my
knowledge, the Relevant Information, taken as a whole, does not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein which is necessary to make the statements made therein, in
light of the circumstances under which such statements were made, not misleading
as of the last day of the Relevant Year.

         2. The Relevant Information has been provided to those Persons entitled
to receive it.

         3. I am responsible for reviewing the activities performed by the
Servicer under the Servicing Agreement during the Relevant Year. Based upon the
review required by the Servicing Agreement and except as disclosed in the Annual
Compliance Certificate or the accountants' statement provided pursuant to
Section 4.5, to the best of my knowledge, the Servicer has fulfilled its
obligations under the Servicing Agreement throughout the Relevant Year.

DATED as of ________ __. 200_.

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

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

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

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