Document:

<PAGE>

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

                     NOVASTAR MORTGAGE FUNDING CORPORATION,
                                   as Company

                            NOVASTAR MORTGAGE, INC.,
                            as Servicer and as Seller

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                          as Certificate Administrator

                                       and

                              JPMORGAN CHASE BANK,
                                   as Trustee

                         POOLING AND SERVICING AGREEMENT

                          Dated as of September 1, 2002

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

                 NovaStar Mortgage Funding Trust, Series 2002-3

       NovaStar Home Equity Loan Asset-Backed Certificates, Series 2002-3

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

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                          Page
                                                                                                          ----
<S>                                                                                                       <C>
ARTICLE I DEFINITIONS ....................................................................................  1

    Section 1.01   Defined Terms .........................................................................  1
                   -------------
    Section 1.02   Accounting ............................................................................  1
                   ----------
    Section 1.03   Allocation of Certain Interest Shortfalls .............................................  2
                   -----------------------------------------
    Section 1.04   Calculation of Interest on Certificates ...............................................  2
                   ---------------------------------------

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

    Section 2.01   Conveyance of Mortgage Loans and Other Trust Assets ...................................  2
                   ---------------------------------------------------
    Section 2.02   Acceptance of Mortgage Loans by Certificate Administrator, on Behalf of the Trustee ...  5
                   -----------------------------------------------------------------------------------
    Section 2.03   Repurchase or Substitution of Mortgage Loans by the Seller ............................  7
                   ----------------------------------------------------------
    Section 2.04   Acknowledgement of Trustee ............................................................  9
                   --------------------------
    Section 2.05   Representations, Warranties and Covenants of the Servicer .............................  9
                   ---------------------------------------------------------
    Section 2.06   Representations and Warranties of the Company ........................................  10
                   ---------------------------------------------
    Section 2.07   Issuance of Certificates .............................................................  11
                   ------------------------
    Section 2.08   Conveyance of the Subsequent Mortgage Loans ..........................................  11
                   -------------------------------------------
    Section 2.09   Designation Under Remic Provisions ...................................................  12
                   ----------------------------------

ARTICLE III ADMINISTRATION AND SERVICING OF THE MORTGAGE LOANS ..........................................  20

    Section 3.01   Servicer to Assure Servicing .........................................................  20
                   ----------------------------
    Section 3.02   Subservicing Agreements Between Servicer and Subservicers ............................  22
                   ---------------------------------------------------------
    Section 3.03   Successor Subservicers ...............................................................  22
                   ----------------------
    Section 3.04   Liability of the Servicer ............................................................  23
                   -------------------------
    Section 3.05   Assumption or Termination of Subservicing Agreements by the Trustee ..................  23
                   -------------------------------------------------------------------
    Section 3.06   Collection of Mortgage Loan Payments .................................................  24
                   ------------------------------------
    Section 3.07   Withdrawals from the Collection Account ..............................................  26
                   ---------------------------------------
    Section 3.08   Collection of Taxes, Assessments and Similar Items; Servicing Accounts ...............  28
                   ----------------------------------------------------------------------
    Section 3.09   Access to Certain Documentation and Information Regarding the Mortgage Loans .........  28
                   ----------------------------------------------------------------------------
    Section 3.10   [Reserved]............................................................................  29
                   ----------
    Section 3.11   Maintenance of Hazard Insurance and Fidelity Coverage ................................  29
                   -----------------------------------------------------
    Section 3.12   Due-on-Sale Clauses; Assumption Agreements ...........................................  30
                   ------------------------------------------
    Section 3.13   Realization Upon Defaulted Mortgage Loans ............................................  31
                   -----------------------------------------
    Section 3.14   Certificate Administrator to Cooperate; Release of Mortgage Files ....................  33
                   -----------------------------------------------------------------
</TABLE>

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<TABLE>
<S>                                                                                                          <C>
    Section 3.15    Servicing Compensation ...............................................................   34
                    ----------------------
    Section 3.16    Annual Statements of Compliance ......................................................   34
                    -------------------------------
    Section 3.17    Annual Independent Public Accountants' Servicing Report ..............................   35
                    -------------------------------------------------------
    Section 3.18    Optional Purchase of Defaulted Mortgage Loans ........................................   35
                    ---------------------------------------------
    Section 3.19    Information Required by the Internal Revenue Service Generally and Reports of
                    -----------------------------------------------------------------------------
                    Foreclosures and Abandonments of Mortgaged Property ..................................   35
                    ---------------------------------------------------
    Section 3.20    Purchase of Converted Mortgage Loans .................................................   36
                    ------------------------------------
    Section 3.21    [Reserved] ...........................................................................   36
                     --------
    Section 3.22    Servicing and Administrating of the MI Policies ......................................   36
                    -----------------------------------------------
    Section 3.23    Determination Date Reports ...........................................................   37
                    --------------------------
    Section 3.24    Advances .............................................................................   38
                    --------
    Section 3.25    Compensating Interest Payments .......................................................   38
                    ------------------------------

ARTICLE IV FLOW OF FUNDS .................................................................................   39

    Section 4.01    Distributions ........................................................................   39
                    -------------
    Section 4.02    Distribution Account .................................................................   44
                    --------------------
    Section 4.03    Statements ...........................................................................   45
                    ----------
    Section 4.04    Supplemental Interest Trust ..........................................................   47
                    ---------------------------
    Section 4.05    Pre-funding Account ..................................................................   49
                    -------------------
    Section 4.06    Interest Coverage Account ............................................................   50
                    -------------------------
    Section 4.07    Allocation of Realized Losses ........................................................   51
                    -----------------------------

ARTICLE V THE CERTIFICATES ...............................................................................   52

    Section 5.01    The Certificates .....................................................................   52
                    ----------------
    Section 5.02    Registration of Transfer and Exchange of Certificates ................................   52
                    -----------------------------------------------------
    Section 5.03    Mutilated, Destroyed, Lost or Stolen Certificates ....................................   57
                    -------------------------------------------------
    Section 5.04    Persons Deemed Owners ................................................................   57
                    ---------------------
    Section 5.05    Appointment of Paying Agent ..........................................................   57
                    ---------------------------

ARTICLE VI THE SERVICER AND THE COMPANY ..................................................................   58

    Section 6.01    Liability of the Servicer and the Company ............................................   58
                    -----------------------------------------
    Section 6.02    Merger or Consolidation of, or Assumption of the Obligations of, the Servicer or the
                    -------------------------------------------------------------------------------------
                    Company ..............................................................................   58
                    -------
    Section 6.03    Limitation on Liability of the Servicer and Others ...................................   58
                    --------------------------------------------------
    Section 6.04    Servicer Not to Resign ...............................................................   59
                    ----------------------
    Section 6.05    Delegation of Duties .................................................................   60
                    --------------------
    Section 6.06    Servicer to Pay Trustee's, and Certificate Administrator's Fees and Expenses;
                    -----------------------------------------------------------------------------
                    Indemnification ......................................................................   60
                    ---------------

ARTICLE VII DEFAULT ......................................................................................   61

    Section 7.01    Servicing Default ....................................................................   61
                    -----------------
    Section 7.02    Trustee to Act; Appointment of Successor .............................................   63
                    ----------------------------------------
    Section 7.03    Waiver of Defaults ...................................................................   65
                    ------------------
    Section 7.04    Notification to Certificateholders ...................................................   65
                    ----------------------------------
    Section 7.05    Survivability of Servicer Liabilities ................................................   65
                    -------------------------------------
</TABLE>

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<TABLE>
<S>                                                                                                  <C>
ARTICLE VIII THE TRUSTEE AND THE CERTIFICATE ADMINISTRATOR .......................................   65

    Section 8.01    Duties of the Trustee and the Certificate Administrator ......................   65
                    -------------------------------------------------------
    Section 8.02    Rights of Trustee and Certificate Administrator ..............................   67
                    -----------------------------------------------
    Section 8.03    Individual Rights of Trustee and Certificate Administrator ...................   69
                    ----------------------------------------------------------
    Section 8.04    Trustee's and Certificate Administrator's Disclaimer .........................   69
                    ----------------------------------------------------
    Section 8.05    Notice of Servicing Default ..................................................   69
                    ---------------------------
    Section 8.06    [Reserved] ...................................................................   70
                    ----------
    Section 8.07    Compensation and Indemnity ...................................................   70
                    --------------------------
    Section 8.08    Replacement of Trustee or Certificate Administrator ..........................   70
                    ---------------------------------------------------
    Section 8.09    Successor Trustee or Certificate Administrator by Merger .....................   71
                    --------------------------------------------------------
    Section 8.10    Appointment of Co-trustee or Separate Trustee ................................   71
                    ---------------------------------------------
    Section 8.11    Eligibility; Disqualification ................................................   73
                    -----------------------------
    Section 8.12    [Reserved] ...................................................................   73
                    ----------
    Section 8.13    Representations and Warranties ...............................................   73
                    ------------------------------
    Section 8.14    Directions to Trustee and Certificate Administrator ..........................   74
                    ---------------------------------------------------
    Section 8.15    The Agents ...................................................................   74
                    ----------
    Section 8.16    Reports by the Certificate Administrator; Trust Fiscal Year ..................   74
                    -----------------------------------------------------------

ARTICLE IX [RESERVED] ............................................................................   75

ARTICLE X REMIC ADMINISTRATION ...................................................................   75

    Section 10.01   Remic Administration .........................................................   75
                    --------------------
    Section 10.02   Prohibited Transactions and Activities .......................................   77
                    --------------------------------------

ARTICLE XI TERMINATION ...........................................................................   78

    Section 11.01   Termination ..................................................................   78
                    -----------
    Section 11.02   Additional Termination Requirements ..........................................   80
                    -----------------------------------

ARTICLE XII MISCELLANEOUS PROVISIONS .............................................................   80

    Section 12.01   Amendment ....................................................................   80
                    ---------
    Section 12.02   Recordation of Agreement; Counterparts .......................................   81
                    --------------------------------------
    Section 12.03   Limitation on Rights of Certificateholders ...................................   82
                    ------------------------------------------
    Section 12.04   Governing Law; Jurisdiction ..................................................   83
                    ---------------------------
    Section 12.05   Notices ......................................................................   83
                    -------
    Section 12.06   Severability of Provisions ...................................................   84
                    --------------------------
    Section 12.07   Article and Section References ...............................................   84
                    ------------------------------
    Section 12.08   Further Assurances ...........................................................   84
                    ------------------
    Section 12.09   Benefits of Agreement ........................................................   85
                    ---------------------
    Section 12.10   Acts of Certificateholders ...................................................   85
                    --------------------------
</TABLE>

                                       iii

<PAGE>

APPENDIX A

EXHIBITS:

Exhibit A-1   Form of Class A-1 Certificates
Exhibit A-2   Form of Class A-2 Certificates
Exhibit A-3   Form of Class M-1 Certificates
Exhibit A-4   Form of Class M-2 Certificates
Exhibit A-5   Form of Class M-3 Certificates
Exhibit A-6   Form of Class B Certificates
Exhibit A-7   Form of Class I Certificates
Exhibit A-8   Form of Class AIO Certificates
Exhibit A-9   Form of Class O Certificates
Exhibit A-10  Form of Class P Certificates
Exhibit A-11  Form of Class R Certificates
Exhibit B     Mortgage Loan Schedule
Exhibit C     Form of Addition Notice
Exhibit D     Form of Subsequent Transfer Instrument
Exhibit E     Request for Release
Exhibit F-1   Form of Trustee's Initial Certification
Exhibit F-2   Form of Trustee's Final Certification
Exhibit G     Form of Investment Letter
Exhibit H     Form of Residual Certificate Transfer Affidavit
Exhibit I     [Reserved]
Exhibit J     Form of Notional Amount Test Event Notice

                                       iv

<PAGE>

          This Pooling and Servicing Agreement is dated as of September 1, 2002
(the "Agreement"), among NOVASTAR MORTGAGE FUNDING CORPORATION, as company (the
"Company"), NOVASTAR MORTGAGE, INC., as servicer (the "Servicer") and as seller
(the "Seller"), WACHOVIA BANK, NATIONAL ASSOCIATION, as certificate
administrator (the "Certificate Administrator") and JPMORGAN CHASE BANK, as
trustee (the "Trustee").

                                    ARTICLE I

                                   DEFINITIONS

          Section 1.01  Defined Terms.

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

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

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

          (c) "or" is not exclusive;

          (d) "including" means including without limitation;

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

          (f) any agreement, instrument or statute defined or referred to herein
or in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments incorporated therein; and

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

          Section 1.02  Accounting.

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

                                       1

<PAGE>

          Section 1.03  Allocation of Certain Interest Shortfalls.

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

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

          Section 1.04  Calculation of Interest on Certificates.

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

                                   ARTICLE II

                          CONVEYANCE OF MORTGAGE LOANS;
                        ORIGINAL ISSUANCE OF CERTIFICATES

          Section 2.01  Conveyance of Mortgage Loans and Other Trust Assets.

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

                                       2

<PAGE>

the foregoing. Such assignment includes all interest and principal due to the
Company or the Servicer after the related Cut-off Date with respect to the
Mortgage Loans.

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

               (i)   the original Mortgage Note endorsed to "JPMorgan Chase
     Bank, as Trustee for the NovaStar Home Equity Loan Asset-Backed
     Certificates, Series 2002-3";

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

               (iii) unless the Mortgage Loan is registered on the MERS System,
     an original assignment (which may be included in one or more blanket
     assignments if permitted by applicable law) of the Mortgage endorsed to
     "JPMorgan Chase Bank, as Trustee for the NovaStar Home Equity Loan
     Asset-Backed Certificates, Series 2002-3", and otherwise in recordable
     form;

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

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

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

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

                                        3

<PAGE>

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

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

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

          In connection with the assignment of any Mortgage Loan registered on
the MERS System, promptly after the Closing Date in the case of an Initial
Mortgage Loan or, in the case of a Subsequent Mortgage Loan, promptly after the
Subsequent Transfer Date (or after the date of transfer of any Eligible
Substitute Mortgage Loan), the Seller further agrees that it will cause, at the
Seller's own expense, the MERS System to indicate that such Mortgage Loan has
been assigned by the Seller to the Trustee in accordance with this Agreement for
the benefit of the Certificateholders by including (or deleting, in the case of
Mortgage Loans which are repurchased in accordance with this Agreement) in its
computer files (a) the applicable Trustee code in the field "Trustee" which
identifies the Trustee and (b) the code "NovaStar 2002-3" (or its equivalent) in
the field "Pool Field" which identifies the series of the Certificates issued in
connection with such Mortgage Loans. The Seller further agrees that it will not,
and will not permit the Servicer to, and the Servicer agrees that it will not,
alter the codes referenced in this paragraph with respect to any such Mortgage
Loan during the term of this Agreement unless and until such Mortgage Loan is
repurchased in accordance with the terms of this Agreement.

          Effective on the Closing Date, the Trustee, on behalf of the
Certificateholders, hereby acknowledges its acceptance of all right, title and
interest to the Initial Mortgage Loans

                                       4

<PAGE>

and other property, existing on the Closing Date and thereafter created and
conveyed to it pursuant to this Section 2.01.

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

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

          Section 2.02 Acceptance of Mortgage Loans by Certificate
Administrator, on behalf of the Trustee.

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

                                       5

<PAGE>

annexed hereto as Exhibit F-1. In conducting such review, the Certificate
Administrator, on behalf of the Trustee, will ascertain whether all required
documents described in Section 2.01 hereof have been executed and received and
whether those documents relate, determined on the basis of the Mortgagor name,
original principal balance and loan number, to the Mortgage Loans it has
received, as identified in Exhibit B to this Agreement, as supplemented
(provided, however, that with respect to those documents described in subclause
(vii) of such section, the Certificate Administrator's obligations shall extend
only to documents actually delivered pursuant to such subclause). In performing
any such review, the Certificate Administrator, on behalf of the Trustee, may
conclusively rely on the purported due execution and genuineness of any such
document and on the purported genuineness of any signature thereon. If the
Certificate Administrator, on behalf of the Trustee, finds that any document
constituting part of the Mortgage File not to have been executed or received, or
to be unrelated to the Mortgage Loans identified in Exhibit B or Attachment B to
Exhibit 2 of the Purchase Agreement or to appear to be defective on its face,
the Certificate Administrator, on behalf of the Trustee, shall promptly notify
the Seller of such finding and the Seller's obligation to cure such defect or
repurchase or substitute for the related Mortgage Loan.

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

          (c) Upon deposit of the Repurchase Price in the Collection Account and
notification of the Certificate Administrator, on behalf of the Trustee, by a
certification signed by a Servicing Officer (which certification shall include a
statement to the effect that the Repurchase Price has been deposited in the
Collection Account), the Certificate Administrator, on behalf of the Trustee,
shall cause to be released to the Seller the related Mortgage File and shall
cause to be executed and delivered all instruments of transfer or assignment,
without recourse, furnished to it by the Seller as are necessary to vest in the
Seller title to and rights under the related Mortgage Loan. Such purchase shall
be deemed to have occurred on the date on which certification of the deposit of
the Repurchase Price in the Distribution Account was received by the Trustee.
The Certificate Administrator, on behalf of the Trustee, shall amend the
applicable Mortgage Loan Schedule to reflect such repurchase and shall promptly
notify the Servicer, and the Rating Agencies of such amendment. The Trustee
agrees to provide the Certificate Administrator with such power of attorneys as
are necessary for the Certificate Administrator to fulfill its obligations under
this Section 2.03 and otherwise under the Basic Documents.

                                       6

<PAGE>

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

          (a) Upon discovery or receipt of written notice of any materially
defective document in, or that a document is missing from, a Mortgage File or of
the breach by the Seller of any representation, warranty or covenant under the
Purchase Agreement in respect of any Mortgage Loan which materially adversely
affects the value of such Mortgage Loan or the interest therein of the
Certificateholders, the Certificate Administrator shall promptly notify the
Seller and the Servicer of such defect, missing document or breach and request
that the Seller deliver such missing document or cure such defect or breach no
later than 90 days from the date of the discovery or receipt of written notice
of such missing document, defect or breach, and if the Seller does not deliver
such missing document or cure such defect or breach in all material respects
during such period, the Certificate Administrator shall enforce the Seller's
obligation under the Purchase Agreement and cause the Seller to repurchase such
Mortgage Loan from the Trust Fund at the Repurchase Price on or prior to the
Determination Date following the expiration of such 90 day period.

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

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

          (d) Any substitution of Eligible Substitute Mortgage Loans for Deleted
Mortgage Loans made pursuant to Section 2.03(a) must be effected prior to the
last Business Day that is within two years after the Closing Date. As to any
Deleted Mortgage Loan for which the Seller substitutes an Eligible Substitute
Mortgage Loan or Loans, such substitution shall be effected by the Seller
delivering to the Certificate Administrator, for such Eligible Substitute
Mortgage Loan or Loans, the Mortgage Note, the Mortgage, the Assignment to the
Trustee, and such other documents and agreements, with all necessary
endorsements thereon, as are required by Section

                                       7

<PAGE>

2.01, together with an Officers' Certificate providing that each such Eligible
Substitute Mortgage Loan satisfies the definition thereof and specifying the
Substitution Adjustment Amount (as described below), if any, in connection with
such substitution. The Certificate Administrator shall acknowledge receipt for
such Eligible Substitute Mortgage Loan or Loans and, within ten Business Days
thereafter, shall review such documents as specified in Section 2.02 and deliver
to the Servicer, with respect to such Eligible Substitute Mortgage Loan or
Loans, a certification substantially in the form attached hereto as Exhibit F-1,
with any applicable exceptions noted thereon. Within one year of the date of
substitution, the Certificate Administrator shall deliver to the Servicer a
certification substantially in the form of Exhibit F-2 hereto with respect to
such Eligible Substitute Mortgage Loan or Loans, with any applicable exceptions
noted thereon. Monthly Payments due with respect to Eligible Substitute Mortgage
Loans in the month of substitution are not part of the Trust Fund and will be
retained by the Seller. For the month of substitution, distributions to
Certificateholders will reflect the collections and recoveries in respect of
such Deleted Mortgage Loan in the Due Period preceding the month of substitution
and the Seller shall thereafter be entitled to retain all amounts subsequently
received in respect of such Deleted Mortgage Loan. The Seller shall give or
cause to be given written notice to the Certificateholders that such
substitution has taken place, shall amend the Mortgage Loan Schedule to reflect
the removal of such Deleted Mortgage Loan from the terms of this Agreement and
the substitution of the Eligible Substitute Mortgage Loan or Loans and shall
deliver a copy of such amended Mortgage Loan Schedule to the Certificate
Administrator. Upon such substitution by the Seller, such Eligible Substitute
Mortgage Loan or Loans shall constitute part of the Mortgage Pool and shall be
subject in all respects to the terms of this Agreement and the Purchase
Agreement, including all applicable representations and warranties thereof
included in the Purchase Agreement as of the date of substitution.

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

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

                                       8

<PAGE>

be delivered, then such substitution may only be effected at such time as the
required Opinion of Counsel can be given.

           (e) Upon discovery by the Seller, the Servicer, the Certificate
Administrator or the Trustee that any Mortgage Loan does not constitute a
"qualified mortgage" within the meaning of Section 860G(a)(3) of the Code, the
party discovering such fact shall within two Business Days give written notice
thereof to the other parties. In connection therewith, the Seller or the
Company, as the case may be, shall repurchase or, subject to the limitations set
forth in Section 2.03(d), substitute one or more Eligible Substitute Mortgage
Loans for the affected Mortgage Loan within 90 days of the earlier of discovery
or receipt of such notice with respect to such affected Mortgage Loan. Such
repurchase or substitution shall be made by the Seller. Any such repurchase or
substitution shall be made in the same manner as set forth in Section 2.03(a).
The Certificate Administrator, on behalf of the Trustee, shall reconvey to the
Seller, the Mortgage Loan to be released pursuant hereto in the same manner, and
on the same terms and conditions, as it would a Mortgage Loan repurchased for
breach of a representation or warranty.

           Section 2.04 Acknowledgement of Trustee.

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

           Section 2.05 Representations, Warranties and Covenants of the
Servicer.

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

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

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

                                       9

<PAGE>

      this Agreement will constitute the legal, valid and binding obligation of
      the Servicer enforceable in accordance with its terms, except as
      enforcement of such terms may be limited by bankruptcy, insolvency or
      similar laws affecting the enforcement of creditors' rights generally and
      by the availability of equitable remedies;

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

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

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

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

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

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

           Section 2.06 Representations and Warranties of the Company.

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

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

                                       10

<PAGE>

           (b) The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications and in which
the failure to so qualify would have a material adverse effect on the business,
properties, assets or condition (financial or other) of the Company and the
ability of the Company to perform hereunder.

           (c) The Company has the power and authority to execute and deliver
this Agreement and to carry out its terms; the Company has full power and
authority to purchase the property to be purchased from the Seller and the
Company has duly authorized such purchase by all necessary corporate action; and
the execution, delivery and performance of this Agreement have been duly
authorized by the Company by all necessary corporate action. When executed and
delivered, this Agreement will constitute the legal, valid and binding
obligation of the Company enforceable in accordance with its terms, except as
enforcement of such terms may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and by the
availability of equitable remedies.

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

           Section 2.07 Issuance of Certificates.

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

           Section 2.08 Conveyance of the Subsequent Mortgage Loans.

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

                                       11

<PAGE>

           Section 2.09 Designation Under REMIC Provisions.

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

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

                   (i)   REMIC I will consist of all of the assets of the Trust,
      including the Mortgage Loans, the Accounts (other than the Pre-Funding
      Account, the Interest Coverage Account and the Supplemental Interest
      Account), any REO Property and any proceeds of the foregoing. REMIC I will
      be evidenced by the Class I-A Interest, the Class I-B Interest, the Class
      I-C Interest, the Class I-D Interest, the Class I-E Interest, the Class
      I-F Interest, the Class I-G Interest, the Class I-H Interest, the Class
      I-J Interest and the Class I-P Interest (collectively, the "REMIC I
      Regular Interests") which will be uncertificated and will represent the
      "regular interests" in REMIC I. The Class R-I Interest will represent the
      sole class of residual interest in REMIC I;

                   (ii)  REMIC II will consist of the REMIC I Regular Interests
      and will be evidenced by the Class II-A1 Interest, the Class II-A2
      Interest, the Class II-A3 Interest, the Class II-B1 Interest, the Class
      II-B2 Interest, the Class II-B3 Interest, the Class II-C1 Interest, the
      Class II-C2 Interest, the Class II-C3 Interest, the Class II-D1 Interest,
      the Class II-D2 Interest, the Class II-D3 Interest, the Class II-E1
      Interest, the Class II-E2 Interest, the Class II-E3 Interest, the Class
      II-F1 Interest, the Class II-F2 Interest, the Class II-F3 Interest, the
      Class II-G1 Interest, the Class II-G2 Interest, the Class II-G3 Interest,
      the Class II-H1 Interest, the Class II-H2 Interest, the Class II-H3
      Interest the Class II-J Interest and the Class II-P Interest
      (collectively, the "REMIC II Regular Interests") which will be
      uncertificated and will represent the "regular interests" in REMIC II. The
      Class R-II Interest will represent the sole class of residual interest in
      REMIC II;

                   (iii) REMIC III will consist of the REMIC II Regular
      Interests and will be evidenced by the Class III-Accrual Interest, the
      Class III-A1 Interest, the Class III-A2 Interest, the Class III-M-1
      Interest, the Class III-M2 Interest, the Class III-M3 Interest, the Class
      III-B Interest, the Class III-O Interest, the Class III-P Interest and the
      Class III-I Interest (collectively, the "REMIC III Regular Interests")
      which will be uncertificated and will represent the "regular interests" in
      REMIC III. The Class R-III Interest will represent the sole class of
      residual interest in REMIC III; and

                   (iv)  The Master REMIC will consist of the REMIC III Regular
      Interests and will be evidenced by the Class A-1 (other than the right to
      receive Supplemental Interest Payments), the Class A-2 (other than the
      right to receive Supplemental Interest Payments), the Class M-1 (other
      than the right to receive Supplemental Interest Payments), the Class M-2
      (other than the right to receive Supplemental Interest Payments), the
      Class M-3 (other than the right to receive

                                       12

<PAGE>

      Supplemental Interest Payments), the Class B (other than the right to
      receive Supplemental Interest Payments), the Class A-IO, the Class I, the
      Class O, and the Class P Certificates which will represent the "regular
      interests" in the Master REMIC. The Class R-IV Interest will represent the
      sole class of residual interest in the Master REMIC.

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

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

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

     ---------------------------------------------------------------------------
                REMIC                 Initial            REMIC Pass-Through
              Interest           Principal Balance              Rate
     ---------------------------------------------------------------------------
                 I-A                $ 60,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-B                $150,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-C                $100,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-D                $ 35,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-E                $ 75,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-F                $ 50,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-G                $ 35,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-H                $ 25,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-J                $220,000,000               Net WAC
     ---------------------------------------------------------------------------
                 I-P                $        100                 (1)
     ---------------------------------------------------------------------------

(1)   Class I-P is entitled to distributions of all Prepayment Charges.

           On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Mortgage Loans
shall be allocated in the following order: (i) first to the Class I-J Interest,
until such Class is paid in full or eliminated by such losses; (ii) second, to
the Class I-A Interest, until such Class is paid in full or eliminated by such
losses; (iii) third, to the Class I-B Interest, until such Class is paid in full
or eliminated by such losses; (iv) fourth, to the Class I-C Interest, until such
Class is paid in full or eliminated by such losses; (v) fifth, to the Class I-D
Interest, until such Class is paid in full or eliminated by such losses; (vi)
sixth, to the Class I-E Interest, until such Class is paid in full or eliminated
by such losses; (vii) seventh, to the Class I-F Interest, until such Class is
paid in full or eliminated by such losses; (viii) eighth, to the Class I-G
Interest, until such Class is paid in full or eliminated by such losses; (ix)
ninth, to the Class I-H Interest, until such Class is paid in full or eliminated
by such losses; provided, however, that on the Class P Principal Distribution
Date, $100 shall be paid to the Class I-P Interest.

                                       13

<PAGE>

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

      ------------------------------------------------------------------------
      REMIC Interest    Initial Principal Balance   REMIC Pass-Through Rate
      ------------------------------------------------------------------------
           II-A1              $   40,000,000                  (2)
      ------------------------------------------------------------------------
           II-A2              $   20,000,000                  (3)
      ------------------------------------------------------------------------
           II-A3                   (1)                        (4)
      ------------------------------------------------------------------------
           II-B1              $  100,000,000                  (6)
      ------------------------------------------------------------------------
           II-B2              $   50,000,000                  (7)
      ------------------------------------------------------------------------
           II-B3                   (5)                        (8)
      ------------------------------------------------------------------------
           II-C1              $66,666,666.67                 (10)
      ------------------------------------------------------------------------
           II-C2              $33,333,333.33                 (11)
      ------------------------------------------------------------------------
           II-C3                   (9)                       (12)
      ------------------------------------------------------------------------
           II-D1              $23,333,333.33                 (14)
      ------------------------------------------------------------------------
           II-D2              $11,666,666.67                 (15)
      ------------------------------------------------------------------------
           II-D3                   (13)                      (16)
      ------------------------------------------------------------------------
           II-E1              $   50,000,000                 (18)
      ------------------------------------------------------------------------
           II-E2              $   25,000,000                 (19)
      ------------------------------------------------------------------------
           II-E3                   (17)                      (20)
      ------------------------------------------------------------------------
           II-F1              $33,333,333.33                 (22)
      ------------------------------------------------------------------------
           II-F2              $16,666,666.67                 (23)
      ------------------------------------------------------------------------
           II-F3                   (21)                      (24)
      ------------------------------------------------------------------------
           II-G1              $23,333,333.33                 (26)
      ------------------------------------------------------------------------
           II-G2              $11,666,666.67                 (27)
      ------------------------------------------------------------------------
           II-G3                   (25)                      (28)
      ------------------------------------------------------------------------
           II-H1              $16,666,666.67                 (30)
      ------------------------------------------------------------------------
           II-H2              $8,333,333.33                  (31)
      ------------------------------------------------------------------------
           II-H3                   (29)                      (32)
      ------------------------------------------------------------------------
           II-J               $  220,000,000                 (33)
      ------------------------------------------------------------------------
           II-P               $          100                 (34)
      ------------------------------------------------------------------------

(1)  The Class II-A3 Interest will have a notional principal balance equal to
     the following amounts: (i) commencing on the first Distribution Date
     through and including the Distribution date in December 2003, an amount
     equal to the balance of the Class I-A interest and (ii) for all
     Distribution Dates thereafter, zero.

(2)  The pass-through rate for the Class II-A1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in December 2003, 1.5 multiplied by (Net WAC minus
     3.7000%); (ii) for all Distribution Dates thereafter, Net WAC.

(3)  The pass-through rate for the Class II-A2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in December 2003, 3 multiplied by 1-month LIBOR, subject
     to a cap of 11.1000%; (ii) for all Distribution Dates thereafter, Net WAC.

                                       14

<PAGE>

(4)  The pass-through rate for the Class II-A3 Interest will be equal to 3.7000%
     minus 1-Month LIBOR, subject to a floor of zero.

(5)  The Class II-B3 Interest will have a notional principal balance equal to
     the following amounts: (i) commencing on the first Distribution Date
     through and including the Distribution date in January 2004, an amount
     equal to the balance of the Class I-B interest and (ii) for all
     Distribution Dates thereafter, zero.

(6)  The pass-through rate for the Class II-B1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in January 2004, 1.5 multiplied by (Net WAC minus
     3.4540%); (ii) for all Distribution Dates thereafter, Net WAC.

(7)  The pass-through rate for the Class II-B2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in January 2004, 3 multiplied by 1-month LIBOR, subject
     to a cap of 10.3620%; (ii) for all Distribution Dates thereafter, Net WAC.

(8)  The pass-through rate for the Class II-B3 Interest will be equal to 3.4540%
     minus 1-Month LIBOR, subject to a floor of zero.

(9)  The Class II-C3 Interest will have a notional principal balance equal to
     the following amounts: (i) commencing on the first Distribution Date
     through and including the Distribution date in March 2004, an amount equal
     to the balance of the Class I-C interest and (ii) for all Distribution
     Dates thereafter, zero.

(10) The pass-through rate for the Class II-C1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 1.5 multiplied by (Net WAC minus 3.6800%);
     (ii) for all Distribution Dates thereafter, Net WAC.

(11) The pass-through rate for the Class II-C2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 3 multiplied by 1-month LIBOR, subject to
     a cap of 11.0400%; (ii) for all Distribution Dates thereafter, Net WAC.

(12) The pass-through rate for the Class II-C3 Interest will be equal to 3.6800%
     minus 1-Month LIBOR, subject to a floor of zero.

(13) The Class II-D3 Interest will have a notional principal balance equal to
     the following amounts: (i) commencing on the first Distribution Date
     through and including the Distribution Date in March 2004, an amount equal
     to the balance of the Class I-D Interest and (ii) for all Distribution
     Dates thereafter, zero.

(14) The pass-through rate for the Class II-D1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 1.5 multiplied by (Net WAC minus 3.9875%);
     (ii) for all Distribution Dates thereafter, Net WAC.

                                       15

<PAGE>

(15) The pass-through rate for the Class II-D2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in March 2004, 3 multiplied by 1-month LIBOR, subject to
     a cap of 11.9625%; (ii) for all Distribution Dates thereafter, Net WAC.

(16) The pass-through rate for the Class II-D3 Interest will be equal to 3.9875%
     minus 1-month LIBOR, subject to a floor of zero.

(17) The Class II-E3 Interest will have notional balance equal to the following
     amounts: (i) commencing on the first Distribution Date through and
     including the Distribution Date in April 2004, an amount equal to the
     balance of the Class I-E Interest and (ii) for all Distribution Dates
     thereafter, zero.

(18) The pass-through rate for the Class II-E1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in April 2004, 1.5 multiplied by (Net WAC minus 4.1125%),
     (ii) for all Distribution Dates thereafter, Net WAC.

(19) The pass-through rate for the Class II-E2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in April 2004, 3 multiplied by 1-month LIBOR, subject to
     a cap of 12.3375%; (ii) for all Distribution Dates thereafter, Net WAC.

(20) The pass-through rate for the Class II-E3 Interest will be equal to 4.1125%
     minus 1-month LIBOR, subject to a floor of zero.

(21) The Class II-F3 Interest will have a notional balance equal to the
     following amounts: (i) commencing on the first Distribution Date through
     and including the Distribution Date in January 2005, an amount equal to the
     balance of the Class I-F Interest and (ii) for all Distribution Dates
     thereafter, zero.

(22) The pass-through rate for the Class II-F1 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in January 2005, 1.5 multiplied by (Net WAC minus
     4.2000%); (ii) for all Distribution Dates thereafter, Net WAC.

(23) The pass-through rate for the Class II-F2 Interest will be as follows: (i)
     commencing on the first Distribution Date through and including the
     Distribution Date in January 2005, 3 multiplied by 1-month LIBOR, subject
     to a cap of 12.6000%; (ii) for all Distribution Dates thereafter, Net WAC.

(24) The pass-through rate for the Class II-F3 Interest will be equal to 4.2000%
     minus 1-month LIBOR, subject a floor of zero.

(25) The Class II-G3 Interest will have a notional balance equal to the
     following amounts: (i) commencing on the first Distribution Date through
     and including the Distribution Date in March 2005, an amount equal to the
     balance of the Class I-G Interest and (ii) for all Distribution Dates
     thereafter, zero.

                                       16

<PAGE>

(26)     The pass-through rate for the Class II-G1 Interest will be as follows:
         (i) commencing on the first Distribution Date through and including the
         Distribution Date in March 2005, 1.5 multiplied by (Net WAC minus
         4.2900%); (ii) for all Distribution Dates thereafter, Net WAC.

(27)     The pass-through rate for the Class II-F2 Interest will be as follows:
         (i) commencing on the first Distribution Date through and including the
         Distribution Date in March 2005, 3 multiplied by 1-month LIBOR, subject
         to a cap of 12.8700%; (ii) for all Distribution Dates thereafter, Net
         WAC.

(28)     The pass-through rate for the Class II-F3 Interest will be equal to
         4.2900% minus 1-month LIBOR, subject a floor of zero.

(29)     The Class II-H3 Interest will have a notional balance equal to the
         following amounts: (i) commencing on the first Distribution Date
         through and including the Distribution Date in April 2005, an amount
         equal to the balance of the Class I-H Interest and (ii) for all
         Distribution Dates thereafter, zero.

(30)     The pass-through rate for the Class II-H1 Interest will be as follows:
         (i) commencing on the first Distribution Date through and including the
         Distribution Date in April 2005, 1.5 multiplied by (Net WAC minus
         4.6760%); (ii) for all Distribution Dates thereafter, Net WAC.

(31)     The pass-through rate for the Class II-H2 Interest will be as follows:
         (i) commencing on the first Distribution Date through and including the
         Distribution Date in April 2005, 3 multiplied by 1-month LIBOR, subject
         to a cap of 14.0280%; (ii) for all Distribution Dates thereafter, Net
         WAC.

(32)     The pass-through rate for the Class II-H3 Interest will be equal to
         4.6760% minus 1-month LIBOR, subject a floor of zero.

(33)     The pass-through rate for the Class II-J Interest will be Net WAC.

(34)     Class II-P is entitled to distributions of 100% of the distributions
         received from the Class I-P Interest.

         On each Distribution Date, all Realized Losses, prepayments and
payments of scheduled principal generated with respect to the Mortgage Loans
shall be allocated in the following order: (i) first to the Class II-J Interest,
until such Class is paid in full or eliminated by such losses; (ii) second, to
the Class II-A1 Interest and the Class II-A2 Interest, pro-rata, until such
Classes are paid in full or eliminated by such losses; (iii) third, to the Class
II-B1 Interest and the Class II-B2 Interest, pro-rata, until such Classes are
paid in full or eliminated by such losses; (iv) fourth, to the Class II-C1
Interest and the Class II-C2 Interest, pro-rata, until such Classes are paid in
full or eliminated by such losses; (v) fifth, to the Class II-D1 Interest and
the Class II-D2 Interest, pro-rata, until such Classes are paid in full or
eliminated by such losses; (vi) sixth, to the Class II-E1 Interest and the Class
II-E2 Interest, pro rata, until such classes are paid in full or eliminated by
such losses; (vii) seventh, to the Class II-F1 Interest and Class II-F2
Interest, until such classes are paid in full or eliminated by such losses;
(viii) eighth, to the Class II-G1 Interest

                                       17

<PAGE>

and Class II-G2 Interest, until such classes are paid in full or eliminated by
such losses; (ix) ninth, to the Class II-H1 Interest and Class II-H2 Interest,
until such classes are paid in full or eliminated by such losses.

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

<TABLE>
<CAPTION>
    ---------------------------------------------------------------------------------------
                                                       REMIC Pass-       Corresponding
          REMIC             Initial Principal            Through        Class of Master
        Interest                 Balance                   Rate       REMIC Certificates
    ---------------------------------------------------------------------------------------
     <S>               <C>                              <C>               <C>
       III-Accrual   50% of the Aggregate Principal        (1)                N/A
                     Balance of the Mortgage Loans
    ---------------------------------------------------------------------------------------
         III-A1      50% of the Corresponding Class        (1)                A-1
                     Balance
    ---------------------------------------------------------------------------------------
         III-A2      50% of the Corresponding Class        (1)                A-2
                     Balance
    ---------------------------------------------------------------------------------------
         III-M1      50% of the Corresponding Class        (1)                M-1
                     Balance
    ---------------------------------------------------------------------------------------
         III-M2      50% of the Corresponding Class        (1)                M-2
                     Balance
    ---------------------------------------------------------------------------------------
         III-M3      50% of the Corresponding Class        (1)                M-3
                     Balance
    ---------------------------------------------------------------------------------------
          III-B      50% of the Corresponding Class        (1)                 B
                     Balance
    ---------------------------------------------------------------------------------------
          III-O      50% of the Corresponding Class        (1)                 O
                     Balance
    ---------------------------------------------------------------------------------------
          III-P                    $100                    (2)                 P
    ---------------------------------------------------------------------------------------
          III-I                    (3)                     (3)                 I
    ---------------------------------------------------------------------------------------
</TABLE>

(1)      The pass-through rate for the Class III-Accrual, Class III-A1, Class
         III-A2, Class III-M1, Class III-M2, Class III-M3, Class III-B and Class
         III-O Interests will be the weighted average of the pass-through rates
         of the Class II-A1, Class II-A2, Class II-B1, Class II-B2, Class II-C1,
         Class II-C2, Class II-D1, Class II-D2, Class II-E1, Class II-E2, Class
         II-F1, Class II-F2, Class II-G1, Class II-G2, Class II-H1, Class II-H2
         and Class II-J Interests.

(2)      Class III-P is entitled to distributions on the Class II-P Interest.

(3)      The Class III-I Interest will have a notional principal amount equal to
         the sum of the notional principal amounts of the Class II-A3, Class
         II-B3, Class II-C3, Class II-D3, Class II-E3, Class II-F3, Class II-G3
         and Class II-H3 Interests and a pass-through rate equal to 100% of the
         pass-through rate on each of those classes.

              On each Distribution Date, 50% of the increase in the
Over-collateralization Amount will be payable as a reduction of the principal
balances of the Class III-A1, Class III-A2, Class III-M1, Class III-M2, Class
III-M3, Class III-B and Class III-O Interests (in the order and amount of such
reduction to the principal balance of each class' Corresponding Class) and will
be accrued and added to the principal balance of the Class III Accrual Interest.
On each

                                       18

<PAGE>

Distribution Date, the increase in principal balance of the Class III-Accrual
Interest may not exceed interest accruals for such Distribution Date for the
Class III-Accrual Interest. In the event that (i) 50% of the increase in the
Over-collateralization Amount exceeds (ii) interest accruals on the Class
III-Accrual Interest for such Distribution Date, the excess for such
Distribution Date (accumulated with all such excesses for all prior Distribution
Dates) will be added to any increase in the Over-collateralization Amount for
purposes of determining the amount of interest accrual on the Class III-Accrual
Interest payable as principal on the Class III-Accrual Interest on the next
Distribution Date pursuant to the first sentence of this paragraph.

All payments of scheduled principal and prepayments of principal with respect to
the Mortgage Loans shall be allocated 50% to the Class III-Accrual Interest and
50% as follows: (i) first, to the Class III-A1 and Class III-A2 Interests (to
each such Class in an amount equal to 1/2 of the principal paid in reduction of
the principal balance of the Corresponding Class of Master REMIC Interest) until
paid in full and (ii) second, to the Class III-M1, Class III-M2, Class III-M3,
Class III-B and Class III-O Interests (to each such Class in an amount equal to
1/2 of the principal paid in reduction of the principal balance of the
Corresponding Class of Master REMIC Interest) until paid in full.
Notwithstanding the above, principal payments allocated to the Class AIO
Certificates that result in the reduction of the Over-collateralization Amount
shall be allocated to the Class III-Accrual Interest until paid in full.
Liquidated Loan Losses shall be applied so that after all distributions have
been made on each Distribution Date the principal balances of the Class III-A1,
Class III-A2, Class III-M1, Class III-M2, Class III-M3 , Class III-B and Class
III-O are each equal to 50% of the principal balance of its Corresponding Class
and the Class III-Accrual Interest is equal to 50% of the principal balance of
the Mortgage Loans.

              (f) The following table sets forth characteristics of the
Certificates, each of which (other than the Class R Certificates and, with
respect to the Class A, Class M and Class B Certificates, other than the right
to receive Supplemental Interest Payments) is hereby designated as a "regular
interest" in the Master REMIC:

     ---------------------------------------------------------------------------
                                Initial Certificate           REMIC
                                     Principal             Pass-Through
       Class of Certificates          Balance                  Rate
     ---------------------------------------------------------------------------
     Class A-1                     $597,700,000         LIBOR + 0.295% (1)
     ---------------------------------------------------------------------------
     Class A-2                     $ 105,425,00         LIBOR + 0.380% (1)
     ---------------------------------------------------------------------------
     Class M-1                     $ 15,000,000         LIBOR + 0.800% (1)
     ---------------------------------------------------------------------------
     Class M-2                     $ 11,250,000         LIBOR + 1.530% (1)
     ---------------------------------------------------------------------------
     Class M-3                     $  7,500,000         LIBOR + 1.950% (1)
     ---------------------------------------------------------------------------
     Class AIO                          (2)                    (2)
     ---------------------------------------------------------------------------
     Class B                       $  3,750,000         LIBOR + 4.750% (1)
     ---------------------------------------------------------------------------
     Class I                            (3)                    (4)
     ---------------------------------------------------------------------------
     Class O                       $  9,375,000                (5)
     ---------------------------------------------------------------------------
     Class P                       $        100                (6)
     ---------------------------------------------------------------------------
     Class R                            (7)                    (7)
     ---------------------------------------------------------------------------

(1)      Subject to the REMIC Available Funds Cap.

(2)      The Class AIO Certificates will have a notional principal balance equal
         to the aggregate principal balance of the Mortgage Loans. The REMIC
         Pass-Through Rate for the Class

                                       19

<PAGE>

         AIO Certificate will be the excess of: (i) the weighted average of the
         pass-through rates on the REMIC III Regular Interests (other than the
         Class III-I Interest) over (ii) the product of: (A) two and (B) the
         weighted average pass-through rate of the REMIC III Regular Interests
         (other than the Class III-I Interest) where the Class III-Accrual
         Interest is subject to a cap equal to zero, and the remaining classes
         are subject to a cap equal to the REMIC Pass-Through Rates on their
         respective Corresponding Classes of Master REMIC Regular Interests.

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

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

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

(6)      The Class P Certificates are entitled to distributions on the Class
         III-P Interest.

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

              (g) For federal income tax purposes, the "latest possible maturity
date" for each of the REMIC I Regular Interests, REMIC II Regular Interests,
REMIC III Regular Interests and Master REMIC Regular Interests is hereby set to
be the Distribution Date of July 2033.

                                  ARTICLE III

                          ADMINISTRATION AND SERVICING
                              OF THE MORTGAGE LOANS

              Section 3.01 Servicer to Assure Servicing.

              (a) The Servicer shall supervise, or take such actions as are
necessary to ensure, the servicing and administration of the Mortgage Loans and
any REO Property in accordance with this Agreement and its normal servicing
practices, which generally shall conform to the standards of an institution
prudently servicing mortgage loans for its own account and shall have full
authority to do anything it reasonably deems appropriate or desirable in
connection with such servicing and administration. The Servicer may perform its
responsibilities relating to servicing through other agents or independent
contractors, but shall not thereby be released from any of its responsibilities
as hereinafter set forth. Subject to Section 3.06(b), the authority of the
Servicer, in its capacity as Servicer, and any Subservicer acting on its behalf,
shall include, without limitation, the power to (i) consult with and advise any
Subservicer regarding administration of a related Mortgage Loan, (ii) approve
any recommendation by a Subservicer to foreclose on a related Mortgage Loan,
(iii) supervise the filing and collection of insurance claims and take or cause
to be taken such actions on behalf of the insured Person thereunder as shall be
reasonably necessary to prevent the denial of coverage thereunder, and (iv)
effectuate foreclosure or other

                                       20

<PAGE>

conversion of the ownership of the Mortgaged Property securing a related
Mortgage Loan, including the employment of attorneys, the institution of legal
proceedings, the collection of deficiency judgments, the acceptance of
compromise proposals and any other matter pertaining to a delinquent Mortgage
Loan. The authority of the Servicer shall include, in addition, the power on
behalf of the Certificateholders, the Trustee, or any of them to (i) execute and
deliver customary consents or waivers and other instruments and documents, (ii)
consent to transfer of any related Mortgaged Property and assumptions of the
related Mortgage Notes and Mortgages (in the manner provided in this Agreement)
and (iii) collect any Insurance Proceeds and Liquidation Proceeds. Without
limiting the generality of the foregoing, the Servicer and any Subservicer
acting on its behalf may, and is hereby authorized, and empowered by the Trustee
when the Servicer believes it is reasonably necessary in its best judgment in
order to comply with its servicing duties hereunder, to execute and deliver, on
behalf of itself, the Certificateholders, the Trustee, or any of them, any
instruments of satisfaction, cancellation, partial or full release, discharge
and all other comparable instruments, with respect to the related Mortgage
Loans, the insurance policies and the accounts related thereto, and the
Mortgaged Properties. The Servicer may exercise this power in its own name or in
the name of a Subservicer.

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

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

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

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

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

                                       21

<PAGE>

              Section 3.02 Subservicing Agreements Between Servicer and
Subservicers.

              (a) The Servicer may enter into Subservicing Agreements with
Subservicers for the servicing and administration of the Mortgage Loans and for
the performance of any and all other activities of the Servicer hereunder. Each
Subservicer shall be either (i) an institution the accounts of which are insured
by the FDIC or (ii) another entity that engages in the business of originating
or servicing mortgage loans comparable to the Mortgage Loans, and in either case
shall be authorized to transact business in the state or states in which the
related Mortgaged Properties it is to service are situated, if and to the extent
required by applicable law to enable the Subservicer to perform its obligations
hereunder and under the Subservicing Agreement. Any Subservicing Agreement
entered into by the Servicer shall include the provision that such Agreement may
be immediately terminated (i) (x) with cause and without any termination fee by
the Servicer hereunder and/or (y) without cause, in which case the Servicer
shall be solely responsible for any termination fee or penalty resulting
therefrom and (ii) at the option of the Trustee upon the termination or
resignation of the Servicer hereunder, in which case the Servicer shall be
solely responsible for any termination fee or penalty resulting therefrom. In
addition, each Subservicing Agreement shall provide for servicing of the
Mortgage Loans consistent with the terms of this Agreement. The Servicer and the
Subservicers may enter into Subservicing Agreements and make amendments to the
Subservicing Agreements or enter into different forms of Subservicing Agreements
providing for, among other things, the delegation by the Servicer to a
Subservicer of additional duties regarding the administration of the Mortgage
Loans; provided, however, that any such amendments or different forms shall be
consistent with and not violate the provisions of this Agreement, and that no
such amendment or different form shall be made or entered into which could be
reasonably expected to be materially adverse to the interests of the
Certificateholders, without the consent of the Certificateholders holding at
least 51% of the aggregate Voting Rights.

              (b) As part of its servicing activities hereunder, the Servicer,
for the benefit of the Trustee, and the Certificateholders, shall enforce the
obligations of each Subservicer under the related Subservicing Agreement. Such
enforcement, including, without limitation, the legal prosecution of claims,
termination of Subservicing Agreements and the pursuit of other appropriate
remedies, shall be in such form and carried out to such an extent and at such
time as the Servicer, in its good faith business judgment, would require were it
the owner of the related Mortgage Loans. The Servicer shall pay the costs of
such enforcement at its own expense, but shall be reimbursed therefor only (i)
from a general recovery resulting from such enforcement only to the extent, if
any, that such recovery exceeds all amounts due in respect of the related
Mortgage Loan or (ii) from a specific recovery of costs, expenses or attorneys'
fees against the party against whom such enforcement is directed.

              Section 3.03 Successor Subservicers.

              The Servicer shall be entitled to terminate any Subservicing
Agreement that may exist in accordance with the terms and conditions of such
Subservicing Agreement and without any limitation by virtue of this Agreement;
provided, however, that upon termination, the Servicer shall either act as
servicer of the related Mortgage Loans or enter into an appropriate contract
with a successor Subservicer reasonably acceptable to the Certificate
Administrator, on

                                       22

<PAGE>

behalf of the Trustee, pursuant to which such successor Subservicer will be
bound by all relevant terms of the related Subservicing Agreement pertaining to
the servicing of such Mortgage Loans.

              Section 3.04 Liability of the Servicer.

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

              (b) Any Subservicing Agreement that may be entered into and any
transactions or services relating to the Mortgage Loans involving a Subservicer
in its capacity as such and not as an originator shall be deemed to be between
the Subservicer and the Servicer alone, and the Certificate Administrator, the
Trustee and the Certificateholders shall not be deemed parties thereto and shall
have no claims, rights, obligations, duties or liabilities with respect to the
Subservicer, except as set forth in Section 3.05.

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

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

                                       23

<PAGE>

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

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

              Section 3.06 Collection of Mortgage Loan Payments.

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

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

              (c) Within five Business Days after the Servicer has determined
that all amounts which it expects to recover from or on account of a Liquidated
Mortgage Loan have been recovered and that no further Liquidation Proceeds will
be received in connection therewith, the

                                       24

<PAGE>

Servicer shall provide to the Certificate Administrator a certificate of a
Servicing Officer that such Mortgage Loan became a Liquidated Mortgage Loan as
of the date of such determination.

         (d) The Servicer shall establish a segregated account in the name of
the Trustee (the "Collection Account"), which shall be an Eligible Account, in
which the Servicer shall deposit or cause to be deposited any amounts
representing payments on and any collections in respect of the Mortgage Loans
received by it after the Cut-Off Date or, with respect to the Subsequent
Mortgage Loans, the Subsequent Cut-Off Date (other than in respect of the
payments referred to in the following paragraph) within two Business Days
following receipt thereof, including the following payments and collections
received or made by it (without duplication):

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

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

              (iii) Net Liquidation Proceeds;

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

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

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

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

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

                                       25

<PAGE>

Loans and shall hold all collections in the Collection Account for the benefit
of the Trustee, and the Certificateholders, as their interests may appear.

              Funds in the Collection Account may be invested in Eligible
Investments, but shall not be commingled with the Servicer's own funds or
general assets or with funds respecting payments on mortgage loans or with any
other funds not related to the Certificates. Income earned on such Eligible
Investments shall be for the account of the Servicer. The Servicer shall be
obligated to cover losses on such Eligible Investments.

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

              Section 3.07 Withdrawals from the Collection Account.

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

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

                  (ii)  to the extent deposited to the Collection Account, to
         reimburse itself or the related Subservicer for previously unreimbursed
         expenses incurred in maintaining individual insurance policies pursuant
         to Section 3.11, or Liquidation Expenses, paid pursuant to Section
         3.13, such withdrawal right being limited to amounts received on
         particular Mortgage Loans (other than any Repurchase Price in respect
         thereof) which represent late recoveries of the payments for which such
         advances were made, or from related Liquidation Proceeds;

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

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

                  (v)   to reimburse the Servicer or any Subservicer for any
         unreimbursed Advance of its own funds or any unreimbursed advance of
         such Subservicer's own funds,

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<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

              (b) The deposits in the Servicing Accounts shall be held in trust
by the Servicer or a Subservicer (and its successors and assigns) in the name of
the Trustee. Such Servicing Accounts shall be Eligible Accounts and, if
permitted by applicable law, invested in Eligible Investments held in trust by
the Servicer or a Subservicer as described above and maturing, or be subject to
redemption or withdrawal, no later than the date on which such funds are
required to be withdrawn, and in no event later than 45 days after the date of
investment; withdrawals of amounts from the Servicing Accounts may be made only
to effect timely payment of taxes, assessments, insurance premiums, or
comparable items, to reimburse the Servicer or a Subservicer for any advances
made with respect to such items, to refund to any Mortgagors any sums as may be
determined to be overages, to pay interest, if required, to Mortgagors on
balances in the Servicing Accounts or to clear and terminate the Servicing
Accounts at or any time after the termination of this Agreement. Amounts
received from Mortgagors for deposit into the Servicing Accounts shall be
deposited in the Servicing Accounts by the Servicer within two days of receipt.
The Servicer shall advance from its own funds amounts needed to pay items
payable from the Servicing Accounts if the Servicer reasonably believes that
such amounts are recoverable from the related Mortgagor. The Servicer shall
comply with all laws relating to the Servicing Accounts, including laws relating
to payment of interest on the Servicing Accounts. If interest earned by the
Servicer on the Servicing Accounts is not sufficient to pay required interest on
the Servicing Accounts, the Servicer shall pay the difference from its own
funds. The Servicing Accounts shall not be the property of the Trust.

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

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

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<PAGE>

photocopy any of the documentation and shall provide equipment for that purpose
at a charge that covers their own actual out-of-pocket costs.

              Section 3.10 [Reserved]

              Section 3.11 Maintenance of Hazard Insurance and Fidelity
Coverage.

              (a) The Servicer shall maintain and keep, or cause each
Subservicer to maintain and keep, with respect to each Mortgage Loan and each
REO Property, in full force and effect hazard insurance (fire insurance with
extended coverage) equal to at least the lesser of the Principal Balance of the
Mortgage Loan or the current replacement cost of the Mortgaged Property, and
containing a standard mortgagee clause, provided, however, that the amount of
hazard insurance may not be less than the amount necessary to prevent loss due
to the application of any co-insurance provision of the related policy. Unless
applicable state law requires a higher deductible, the deductible on such hazard
insurance policy may be no more than $1,500 or 1% of the applicable amount of
coverage, whichever is less. In the case of a condominium unit or a unit in a
planned unit development, the required hazard insurance shall take the form of a
multi-peril policy covering the entire condominium project or planned unit
development, in an amount equal to at least 100% of the insurable value based on
replacement cost. If the Servicer shall obtain and maintain a blanket policy
consistent with its general mortgage servicing activities insuring against
hazard losses on all of the Mortgage Loans, it shall conclusively be deemed to
have satisfied its obligations as set forth in this Section 3.11(a), it being
understood and agreed that such policy may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been maintained
on the related Mortgaged Property a policy complying with this Section 3.11(a)
and there shall have been a loss which would have been covered by such policy,
deposit in the Collection Account the amount not otherwise payable under the
blanket policy because of such deductible clause without any right of
reimbursement. Any such deposit by the Servicer shall be made on the last
Business Day of the Due Period in the month in which payments under any such
policy would have been deposited in the Collection Account. In connection with
its activities as servicer of the Mortgage Loans, the Servicer agrees to
present, on behalf of itself, the Trust, and the Trustee, claims under any such
blanket policy.

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

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

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<PAGE>

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

              (e) If insurance has not been maintained complying with
Subsections 3.11 (a) and (d) and there shall have been a loss which would have
been covered by such insurance had it been maintained, the Servicer shall pay,
or cause the related Subservicer to pay, for any necessary repairs without any
right of reimbursement.

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

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

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

              (a) In any case in which the Servicer is notified by any Mortgagor
or Subservicer that a Mortgaged Property relating to a Mortgage Loan has been or
is about to be conveyed by the Mortgagor, the Servicer shall enforce, or shall
instruct such Subservicer to enforce, any due-on-sale clause contained in the
related Mortgage to the extent permitted under the terms of the

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<PAGE>

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

              (b) Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Servicer shall not be deemed to be in default, breach or
any other violation of its obligations hereunder by reason of any assumption of
a Mortgage Loan by operation of law or any conveyance by the Mortgagor of the
related Mortgaged Property or assumption of a Mortgage Loan which the Servicer
reasonably believes it may be restricted by law from preventing, for any reason
whatsoever or if the exercise of such right would impair or threaten to impair
any recovery under any applicable insurance policy.

              Section 3.13 Realization Upon Defaulted Mortgage Loans.

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

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<PAGE>

for purposes of reimbursements from the Collection Account pursuant to Section
3.07) or through Insurance Proceeds (respecting which it shall have similar
priority). The Servicer shall be responsible for all costs and expenses
constituting Liquidation Expenses incurred by it in any such proceedings;
provided, however, that it shall be entitled to reimbursement thereof (as well
as its normal servicing compensation) as set forth in Section 3.07. Any income
from or other funds (net of any income taxes) generated by REO Property shall be
deemed for purposes of this Agreement to be Liquidation Proceeds.

              Any subsequent collections with respect to any Liquidated Mortgage
Loan shall be deposited to the Collection Account. For purposes of determining
the amount of any Liquidation Proceeds or Insurance Proceeds, or other
unscheduled collections, the Servicer may take into account any estimated
additional Liquidation Expenses expected to be incurred in connection with the
related defaulted Mortgage Loan.

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

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

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

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         Section 3.14 Certificate Administrator to Cooperate; Release of
Mortgage Files.

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

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

         (c) The Servicer shall cause each Mortgage File or any document therein
released pursuant to Subsection 3.14(b) to be returned to the Certificate
Administrator when the need therefor no longer exists, and in any event within
21 days of the Servicer's receipt thereof, unless the Mortgage Loan has become a
Liquidated Mortgage Loan and the Liquidation Proceeds relating to the Mortgage
Loan have been deposited in the Collection Account or such Mortgage File is
being used to pursue foreclosure or other legal proceedings. Prior to return of
a Mortgage File or any document to the Certificate Administrator, the Servicer,
the related insurer or Subservicer to whom such file or document was delivered
shall retain such file or document in its respective control as bailee for the
Certificate Administrator, on behalf of the Trustee, unless the Mortgage File or
such document has been delivered to an attorney, or to a public trustee or other
public official as required by law, to initiate or pursue legal action or other
proceedings for the foreclosure of the Mortgaged Property either judicially or
non-judicially, and the Servicer has delivered to the Certificate Administrator
and the Trustee, a certificate of a Servicing Officer certifying as to the name
and address of the Person to which such Mortgage File or such document was
delivered and the purpose or purposes of such delivery. If a Mortgage Loan
becomes a Liquidated Mortgage Loan, the Certificate Administrator, on behalf of
the Trustee, shall deliver the Request for Release with respect thereto to the
Servicer upon deposit of the related Liquidation Proceeds in the Collection
Account.

         (d) The Certificate Administrator, on behalf of the Trustee, shall
execute and deliver or cause to be executed and delivered to the Servicer any
court pleadings, requests for trustee's sale or other documents necessary to (i)
the foreclosure or trustee's sale with respect to a Mortgaged Property; (ii) any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Mortgage; (iii) obtain a deficiency judgment against the Mortgagor; or
(iv) enforce any other rights or remedies provided by the Mortgage Note or
Mortgage or otherwise

                                       33

<PAGE>

available at law or equity. Together with such documents or pleadings the
Servicer shall deliver to the Certificate Administrator and the Trustee a
certificate of a Servicing Officer in which it requests the Certificate
Administrator, on behalf of the Trustee, to execute or cause to be executed the
pleadings or documents. The certificate shall certify and explain the reasons
for which the pleadings or documents are required. It shall further certify that
the Trustee's or the Certificate Administrator's execution and delivery of the
pleadings or documents will not invalidate any insurance coverage under the
insurance policies or invalidate or otherwise affect the lien of the Mortgage,
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale.

         Section 3.15 Servicing Compensation.

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

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

         Section 3.16 Annual Statements of Compliance.

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

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<PAGE>

the Certificateholders upon request or by the Certificate Administrator at the
expense of the Servicer should the Servicer fail to provide such copies.

         Section 3.17 Annual Independent Public Accountants' Servicing Report.

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

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

         Section 3.18 Optional Purchase of Defaulted Mortgage Loans.

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

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

         The Servicer shall prepare and deliver all federal and state
information reports when and as required by all applicable state and federal
income tax laws. In particular, with respect to the requirement under Section
6050J of the Code to the effect that the Servicer or Subservicer shall make
reports of foreclosures and abandonments of any mortgaged property, the Servicer
or Subservicer shall file reports relating to each instance occurring during the
previous

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<PAGE>

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

         Section 3.20 Purchase of Converted Mortgage Loans.

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

         Section 3.21 [Reserved]

         Section 3.22 Servicing and Administration of the MI Policies.

         (a) The Servicer shall take all such actions on behalf of the Trustee
as are necessary to service, maintain and administer the MI Policies and to
perform the Trustee's obligations and enforce the Trustee's rights under the MI
Policies, which actions shall conform to the standards of an institution
prudently administering MI Policies for its own account. Except as expressly set
forth herein, the Servicer shall have full authority on behalf of the Trust to
do anything it reasonably deems appropriate or desirable in connection with the
servicing, maintenance and administration of the MI Policies. The Servicer shall
make its best reasonable efforts to file all insured claims under the MI
Policies and collect from the MI Insurer all Insurance Proceeds due to the
Trustee under the MI Policies. The Servicer shall not take, or permit any
subservicer to take, any action which would result in non-coverage under any
applicable MI Policy of any loss which, but for the actions of the Servicer or
Subservicer, would have been covered thereunder. To the extent coverage is
available, the Servicer shall keep or cause to be kept in full force and effect
each such MI Policy for the life of the Mortgage Loan; provided, however, that
if a MI Insurer Insolvency Event has occurred and is continuing, the Servicer
may terminate the MI Policy on any Mortgage Loan that is not then past due. The
Servicer shall cooperate with the MI Insurer and shall use its best efforts to
furnish all reasonable aid, evidence and information in the possession of the
Servicer or to which the Servicer has access with respect to any Mortgage Loan.

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

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<PAGE>

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

         (d) The Trustee and the Certificate Administrator, on behalf of the
Trustee, shall furnish the Servicer with any powers of attorney and other
documents in form as provided to it necessary or appropriate to enable the
Servicer to service and administer the MI Policies; provided, however, that
neither the Certificate Administrator nor the Trustee shall be liable for the
actions of the Servicer under such powers of attorney.

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

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

         Section 3.23 Determination Date Reports.

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

         The determination by the Servicer of such amounts shall, in the absence
of obvious error, be presumptively deemed to be correct for all purposes
hereunder and the Trustee

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<PAGE>

and the Certificate Administrator shall be fully protected in relying upon the
same without any independent check or verification.

         Section 3.24 Advances.

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

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

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

         Section 3.25 Compensating Interest Payments.

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

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<PAGE>

                                   ARTICLE IV

                                  FLOW OF FUNDS

         Section 4.01 Distributions.

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

             (i)  On each Distribution Date, the Certificate Administrator, on
     behalf of the Trustee, will distribute, pro rata from both the Group I
     Interest Remittance Amount and the Group II Interest Remittance Amount, the
     Certificate Administrator Fee which is due on that Distribution Date to the
     Certificate Administrator. After making that distribution, the Certificate
     Administrator, on behalf of the Trustee, will then apply the remaining
     Interest Remittance Amount to the payment of interest then due on the
     certificates in the following order of priority:

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

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

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

             (II) payable solely from the Group II Interest Remittance Amount
         for that Distribution Date or, to the extent that the Group II Interest
         Remittance Amount is less than the related REMIC Monthly Interest
         Distributable Amount for the Class A-2 Certificates, also from the
         Group I Cross Collateralization Amount for that Distribution Date, to
         the Holders of the Class A-2 Certificates, the REMIC Monthly Interest
         Distributable Amount for such Class; and

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<PAGE>

                  (III) payable from both the Group I Interest Remittance Amount
              and the Group II Interest Remittance Amount, the Class AIO Monthly
              Interest Distributable Amount, which shall be paid as follows:

                        (x) first, to the Holders of the Class AIO Certificates,
                   the Class AIO Unpaid Interest Shortfall Amount; and

                        (y) second, to the Supplemental Interest Account for
                   further application in accordance with Section 4.04 hereof,
                   the Class AIO Current Interest.

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

              (D) fourth, payable from both the Group I Interest Remittance
Amount and the Group II Interest Remittance Amount, to the Holders of the Class
M-2 Certificates, the REMIC Monthly Interest Distributable Amount for Class M-2;

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

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

              (G) seventh, payable from both the Group I Interest Remittance
Amount and the Group II Interest Remittance Amount, to the Holders of the Class
R Certificates, any remainder.

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

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

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

                  (II) payable solely from the Group II Principal Remittance
              Amount, to the Holders of the Class A-2 Certificates, the entire
              amount of the Group II

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<PAGE>

                  Principal Remittance Amount, until the Certificate Principal
                  Balance of the Class A-2 Certificates has been reduced to zero
                  (except that on the Class P Principal Distribution Date, the
                  Certificate Principal Balance of the Class P Certificates
                  shall first be paid from the Group II Principal Remittance
                  Amount to the Holders of the Class P Certificates);

                  (B) second:

                      (I)  if the Certificate Principal Balance of the Class A-1
                  Certificates has been reduced to zero, then to the Holders of
                  the Class A-2 Certificates, the amount of any remaining Group
                  I Principal Remittance Amount, until the Certificate Principal
                  Balance of the Class A-2 Certificates has been reduced to
                  zero; or

                      (II) if the Certificate Principal Balance of the Class A-2
                  Certificates has been reduced to zero, then to the Holders of
                  the Class A-1 Certificates, the amount of any remaining Group
                  II Principal Remittance Amount, until the Certificate
                  Principal Balance of the Class A-1 Certificates has been
                  reduced to zero;

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

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

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

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

                  (G) seventh, payable from both the Group I Principal
Remittance Amount and the Group II Principal Remittance Amount, to the Trustee
and the Certificate Administrator, pro rata, any amounts owed to them under the
Basic Documents remaining unpaid;

                  (H) eighth, payable from both the Group I Principal Remittance
Amount and the Group II Principal Remittance Amount, to the Servicer, the amount
of any reimbursement of indemnification owed to it by the Trust pursuant to
Section 6.03 hereof;

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<PAGE>

                  (I)     ninth, payable from both the Group I Principal
Remittance Amount and the Group II Principal Remittance Amount, to the Holders
of the Class O Certificates, the entire remaining Principal Remittance Amount
until the Certificate Principal Balance of the Class O Certificates has been
paid; and

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

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

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

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

                          (II)    payable solely from the Group II Principal
                  Remittance Amount, to the holders of the Class A-2
                  Certificates, the Class A-2 Principal Distribution Amount,
                  until the Certificate Principal Balance of the Class A-2
                  Certificates has been reduced to zero (except that on the
                  Class P Principal Distribution Date, the Certificate Principal
                  Balance of the Class P Certificates shall first be paid from
                  the Group II Principal Remittance Amount to the holders of the
                  Class P Certificates);

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

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

                          (II)    if the Group II Principal Remittance Amount
                  was insufficient to pay the Class A-2 Principal Distribution
                  Amount, then payable from the remaining Group I Principal
                  Remittance Amount, to the holders of the Class A-2
                  Certificates, the unpaid portion of the Class A-2 Principal
                  Distribution Amount.

                  (C)     third, payable from both the Group I Principal
Remittance Amount and the Group II Principal Remittance Amount, to the Holders
of the Class M-1 Certificates, the Class

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<PAGE>

M-1 Principal Distribution Amount, until the Certificate Principal Balance of
the Class M-1 Certificates has been reduced to zero;

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

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

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

          (G)   seventh, payable from both the Group I Principal Remittance
Amount and the Group II Principal Remittance Amount, to the Trustee and the
Certificate Administrator, pro rata, any amounts owed to them under the Basic
Documents remaining unpaid;

          (H)   eighth, payable from both the Group I Principal Remittance
Amount and the Group II Principal Remittance Amount, to the Servicer, the amount
of any reimbursement of indemnification owed to it by the Trust pursuant to
Section 6.03 hereof;

          (I)   ninth, payable from both the Group I Principal Remittance Amount
and the Group II Principal Remittance Amount, to the Holders of the Class O
Certificates, the entire remaining Principal Remittance Amount until the
Certificate Principal Balance of the Class O Certificates has been paid; and

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

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

          (c) Distributions on Book-Entry Certificates. Each distribution with
respect to a Book-Entry Certificate shall be paid to the Depository, which shall
credit the amount of such distribution to the accounts of its Depository
Participants in accordance with its normal procedures. Each Depository
Participant shall be responsible for disbursing such distribution to the
Certificate Owners that it represents and to each indirect participating
brokerage firm (a

                                       43

<PAGE>

"brokerage firm" or "indirect participating firm") for which it acts as agent.
Each brokerage firm shall be responsible for disbursing funds to the Certificate
Owners that it represents. All such credits and disbursements with respect to a
Book-Entry Certificate are to be made by the Depository and the Depository
Participants in accordance with the provisions of the Certificates. None of the
Certificate Administrator, the Trustee, the Company, the Servicer or the Seller
shall have any responsibility therefor except as otherwise provided by
applicable law.

          Section 4.02 Distribution Account.

          (a) No later than the Closing Date, the Certificate Administrator, on
behalf of the Trustee, shall establish and maintain a segregated trust account
that is an Eligible Account, which shall be titled "Distribution Account,
JPMorgan Chase Bank, as Trustee for the registered holders of NovaStar Mortgage
Funding Trust 2002-3, Home Equity Loan Asset-Backed Certificates, Series 2002-3"
(the "Distribution Account"). The Certificate Administrator shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the Interest
Remittance Amount and the Principal Remittance Amount remitted on each Servicer
Remittance Date to the Certificate Administrator by the Servicer. Funds
deposited in the Distribution Account shall be held in trust by the Certificate
Administrator, on behalf of the Trustee, for the Certificateholders for the uses
and purposes set forth herein.

          (b) The Certificate Administrator, on behalf of the Trustee, may
invest funds deposited in the Distribution Account in Eligible Investments in
its discretion with a maturity date (i) no later than the Business Day
immediately preceding the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if a Person other than the
Certificate Administrator, on behalf of the Trustee, or an Affiliate manages or
advises such investment, and (ii) no later than the date on which such funds are
required to be withdrawn from such account pursuant to this Agreement, if the
Certificate Administrator, on behalf of the Trustee, or an Affiliate manages or
advises such investment. All income or other gain from such investments may be
released from the Distribution Account and paid to the Certificate
Administrator, from time to time as part of its compensation for acting as
Certificate Administrator. The Certificate Administrator shall be obligated to
cover losses on such Eligible Investments.

          (c) Amounts on deposit in the Distribution Account shall be withdrawn
by the Certificate Administrator, on behalf of the Trustee, as follows:

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

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

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

          (d) On each Distribution Date, the Certificate Administrator, on
behalf of the Trustee, shall distribute all amounts on deposit in the
Distribution Account established by it to

                                       44

<PAGE>

Certificateholders in respect of the Certificates and to such other persons in
the order of priority set forth in Section 4.01 hereof.

          Section 4.03 Statements.

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

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

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

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

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

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

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

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

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

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

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<PAGE>

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

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

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

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

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

                  (xv)   the difference between the Swap Notional Amount and the
      Underwritten Certificates (and the Class B Certificate if held by an
      entity unrelated to the Seller) Principal Balance on such Distribution
      Date;

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

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

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

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

                                       46

<PAGE>

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

                  (e) No later than noon on the Business Day prior to each
Distribution Date, the Certificate Administrator shall forward, by facsimile
transmission, the statement prepared pursuant to paragraph (a) of this Section
4.03, together with all other information reasonably necessary to make the
distributions pursuant to Section 4.01 of this Agreement, to the Trustee. On
each Distribution Date, the Certificate Administrator, on behalf of the Trustee,
shall forward by mail to each Certificateholder the statement prepared pursuant
to paragraph (a) of this Section 4.03. Neither the Trustee nor the Certificate
Administrator shall have any responsibility to (i) verify information provided
by the Servicer to be included in such statement or (ii) include any information
required to be included in such statement if the Servicer has failed to timely
produce such information to the Certificate Administrator, as required pursuant
hereto.

                  (f) No later than noon on the third Business Day prior to each
Distribution Date, the Certificate Administrator will verify that no Notional
Amount Test Event is scheduled to occur on the related Distribution Date. In the
event a Notional Amount Test Event would otherwise occur on the related
Distribution Date, the Certificate Administrator will immediately provide notice
in the form of Exhibit J to the appropriate NovaStar entity and release in
$25,000,000 increments from the affected Swap Agreement on the day immediately
preceding that Distribution Date until no Notional Amount Test Event will occur
on the related Distribution Date. The Certificate Administrator shall release
the first $25,000,000 notional amount from the Swap Counterparty with the
earliest maturity Swap Agreement and shall subsequently release from the Trust
in $25,000,000 notional amounts from the alternate Swap Counterparty and
continue in this manner until the two-year duration Swap Agreements have been
reduced to a zero notional amount. The Certificate Administrator shall repeat
the process of notional amount reduction described above until the remaining
three-year Swap Agreements have been reduced to a zero notional amount. Once
such Swap Agreements have been released from the Trust, the related Swap
Counterparty will have no obligation to, nor interest in, the Trust.

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

                  Section 4.04 Supplemental Interest Trust.

                  (a) (i) The parties do hereby create and establish a sub-trust
of the Trust Fund, which shall hold an account, which, no later than the Closing
Date, the Certificate Administrator shall, at the direction of the Servicer,
establish and maintain, on behalf of the Trustee, as a segregated trust account
that is an Eligible Account, which shall be titled "Supplemental Interest

                                       47

<PAGE>

Trust, Wachovia Bank, National Association, as Certificate Administrator for the
registered holders of NovaStar Mortgage Funding Trust 2002-3, Home Equity Loan
Asset-Backed Certificates, Series 2002-3." The Certificate Administrator shall,
promptly upon receipt, deposit in the Supplemental Interest Trust each
distribution of the Class AIO Current Interest pursuant to Section
4.01(a)(i)(B)(III) and each distribution of the Class I Monthly Interest
Distributable Amount pursuant to Section 4.01(a)(i)(A). Funds deposited in the
Supplemental Interest Trust shall be held in trust by the Certificate
Administrator for the Certificateholders for the uses and purposes set forth
herein. Neither the Supplemental Interest Trust nor the Supplemental Interest
Account shall be an asset of any of the REMICs created hereunder.

                  (ii) On each Distribution Date prior to the Class I
Termination Date, the funds in the Supplemental Interest Trust (as reduced from
time to time in accordance with this Section 4.04) will equal the sum of (a) any
amounts received under any Swap Agreement pursuant to Section 4.04(d), (b) the
Class I Monthly Interest Distributable Amount and (c) the Class AIO Monthly
Interest Distributable Amount.

                  On each Distribution Date commencing in May 2005, the funds in
the Supplemental Interest Trust (as reduced from time to time in accordance with
this Section 4.04) will equal the Class AIO Monthly Interest Distributable
Amount.

                  (b)  The Certificate Administrator will invest funds deposited
in the Supplemental Interest Trust as directed in writing by the Servicer in
Eligible Investments with a maturity date (i) no later than the Business Day
immediately preceding the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if a Person other than the
Certificate Administrator or an Affiliate manages or advises such investment,
and (ii) no later than the date on which such funds are required to be withdrawn
from such account pursuant to this Agreement, if the Certificate Administrator
or an Affiliate manages or advises such investment. All income and gain realized
from investment of funds deposited in the Supplemental Interest Trust shall be
credited to such Account. The Supplemental Interest Trust will not be an asset
of any of the REMICs created hereunder.

                  (c)  On each Distribution Date, the Certificate Administrator
shall distribute the funds held in the Supplemental Interest Trust as follows:

                       (i)   first, to each Swap Counterparty, its related Swap
         Amount for such Distribution Date;

                       (ii)  second, any remaining amounts to pay, on a pro rata
         basis, by the amount of Supplemental Interest Payments due to each of
         the Class A-1 and Class A-2 Certificates, the Supplemental Interest
         Payment for the Class A-1 Certificates and Class A-2 Certificates;

                       (iii) third, any remaining amounts to pay the
         Supplemental Interest Payment for the Class M-1 Certificates;

                       (iv)  fourth, any remaining amounts to pay the
         Supplemental Interest Payment for the Class M-2 Certificates;

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<PAGE>

                    (v)    fifth, any remaining amounts to pay the Supplemental
       Interest Payment for the Class M-3 Certificates;

                    (vi)   sixth, any remaining amounts to pay the Supplemental
       Interest Payment for the Class B Certificates; and

                    (vii)  seventh, to pay any remaining amount to the Class AIO
       Certificates.

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

             Section 4.05  Pre-Funding Account.

             (a)  No later than the Closing Date, the Certificate Administrator,
at the direction of the Servicer, shall establish and maintain, on behalf of the
Trustee, a segregated trust account that is an Eligible Account, which shall be
titled "Pre-Funding Account, Wachovia Bank, National Association, as Certificate
Administrator for the registered holders of NovaStar Mortgage Funding Trust
2002-3, Home Equity Loan Asset-Backed Certificates, Series 2002-3" (the
"Pre-Funding Account"). The Certificate Administrator shall, promptly upon
receipt, deposit in the Pre-Funding Account and retain therein the Original
Pre-Funded Amount remitted on the Closing Date to the Certificate Administrator
by the Company. Funds deposited in the Pre-Funding Account shall be held in
trust by the Certificate Administrator, on behalf of the Trustee, for the
Certificateholders for the uses and purposes set forth herein.

             (b)  The Certificate Administrator will invest funds deposited in
the Pre-Funding Account as directed by the Servicer in Permitted Investments
with a maturity date (i) no later than the Business Day immediately preceding
the date on which such funds are required to be withdrawn from such account
pursuant to this Agreement, if a Person other than the Certificate Administrator
or an Affiliate manages or advises such investment, and (ii) no later than the
date on which such funds are required to be withdrawn from such account pursuant
to this Agreement, if the Certificate Administrator or an Affiliate manages or
advises such investment. For federal income tax purposes, the Servicer shall be
the owner of the Pre-Funding Account and shall report all items of income,
deduction, gain or loss arising therefrom. All income and gain realized from
investment of funds deposited in the Pre-Funding Account shall be withdrawn and
deposited in the Interest Coverage Account. The Trustee shall treat the
Pre-Funding Account as an outside reserve fund within the meaning of Treasury
Regulation Section 1.860G-2(h). At no time will the Pre-Funding Account be an
asset of any REMIC created hereunder.

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

                    (i)    On any Subsequent Transfer Date, the Certificate
       Administrator shall withdraw from the Pre-Funding Account an amount equal
       to 100% of the Principal Balances of the Subsequent Mortgage Loans
       transferred and assigned to the Certificate Administrator for deposit in
       the Mortgage Pool on such Subsequent Transfer Date and

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<PAGE>

       pay such amount to or upon the order of the Company upon satisfaction of
       the conditions set forth in Section 2.08 with respect to such transfer
       and assignment;

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

                    (iii)  To withdraw investment income for deposit in the
       Interest Coverage Account;

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

                    (v)    To clear and terminate the Pre-Funding Account upon
       the earlier to occur of (A) the Distribution Date immediately following
       the end of the Funding Period but not later than the Distribution Date in
       December 2002 and (B) the termination of this Agreement, with any amounts
       remaining on deposit therein being paid to the Holders of the
       Certificates then entitled to distributions in respect of principal.

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

             Section 4.06  Interest Coverage Account.

             (a)    No later than the Closing Date, the Certificate
Administrator, at the direction of the Servicer, shall establish and maintain,
on behalf of the Trustee, a segregated trust account that is an Eligible
Account, which shall be titled "Interest Coverage Account, Wachovia Bank,
National Association, as Certificate Administrator for the registered holders of
NovaStar Mortgage Funding Trust 2002-3, Home Equity Loan Asset-Backed
Certificates, Series 2002-3" (the "Interest Coverage Account"). The Certificate
Administrator shall, promptly upon receipt, deposit in the Interest Coverage
Account and retain therein (i) the Interest Coverage Amount (which amount is
$1,200,000) remitted on the Closing Date to the Certificate Administrator by the
Company and (ii) income and gain realized from investments in the Pre-Funding
Account. Funds deposited in the Interest Coverage Account shall be held in trust
by the Certificate Administrator, on behalf of the Trustee, for the
Certificateholders for the uses and purposes set forth herein.

             (b)    For federal income tax purposes, the Trustee shall treat the
Interest Coverage Account as an outside reserve fund within the meaning of
Treasury Regulation Section 1.860G-2(h). The Seller shall be the owner of the
Interest Coverage Account and shall report all items of income, deduction, gain
or loss arising therefrom. At no time will the Interest Coverage Account be an
asset of any REMIC created hereunder. All income and gain realized from
investment of funds deposited in the Interest Coverage Account shall be for the
sole and exclusive benefit of the Servicer and shall be remitted by the
Certificate Administrator to the Servicer no later than the first Business Day
following receipt of such income and gain by the Certificate Administrator. The
Servicer shall deposit in the Interest Coverage Account the amount of any

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<PAGE>

net loss incurred in respect of any such Permitted Investment immediately upon
realization of such loss.

             (c)    On each Distribution Date during the Funding Period and on
the day of the termination of the Funding Period, the Certificate Administrator
shall withdraw from the Interest Coverage Account, to the extent funds are
available therefore, and deposit in the Distribution Account an amount, as
provided in the related Determination Date Report, equal to the greater of (i)
the income and gain realized from investments in the Pre-Funding Account and
deposited in the Interest Coverage Account since the prior Distribution Date, or
(ii) the difference between (A) the sum of the product of (x) the principal
balance of each REMIC I Regular Interest and (y) its corresponding REMIC
Pass-Through Rate divided by 12, and (B) the Interest Remittance Amount for such
Distributable Date (excluding the amount of interest included pursuant to clause
(vi) of the definition of REMIC Available Funds), but not less than zero. To the
extent that funds are not available in the Interest Coverage Account to pay the
amount pursuant to clause (ii) of this subsection (c), the Company shall deposit
such difference in the Distribution Account no later than the related
Distribution Date. Such withdrawal and deposit shall be treated as a
contribution of cash by the Company to REMIC I on the date thereof.

             (d)    Upon the earliest of (i) the Distribution Date immediately
following the end of the Funding Period but not later than the Distribution Date
in December 2002, (ii) the reduction of the Certificate Principal Balances of
the Certificates to zero or (iii) the termination of this Agreement in
accordance with Section 11.01, any amount remaining on deposit in the Interest
Coverage Account after distributions pursuant to paragraph (c) above shall be
withdrawn by the Certificate Administrator and paid to the Servicer or its
designee.

                  Section 4.07  Allocation of Realized Losses.

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

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

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<PAGE>

                                   ARTICLE V

                                THE CERTIFICATES

             Section 5.01  The Certificates.

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

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

             Section 5.02  Registration of Transfer and Exchange of
                           Certificates.

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

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<PAGE>

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

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

                  (b)  Except as provided in paragraph (c) below, the Book-Entry
Certificates shall at all times remain registered in the name of the Depository
or its nominee and at all times: (i) registration of such Certificates may not
be transferred by the Certificate Administrator except to another Depository;
(ii) the Depository shall maintain book-entry records with respect to the
Certificate Owners and with respect to ownership and transfers of such
Certificates; (iii) ownership and transfers of registration of such Certificates
on the books of the Depository shall be governed by applicable rules established
by the Depository; (iv) the Depository may collect its usual and customary fees,
charges and expenses from its Depository Participants; (v) the Certificate
Administrator shall for all purposes deal with the Depository as representative
of the Certificate Owners of the Certificates for purposes of exercising the
rights of Holders under this Agreement, and requests and directions for and
votes of such representative shall not be deemed to be inconsistent if they are
made with respect to different Certificate Owners; (vi) the Certificate
Administrator may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its Depository Participants and
furnished by the Depository Participants with respect to indirect participating
firms and Persons shown on the books of such indirect participating firms as
direct or indirect Certificate Owners; and (vii) the direct participants of the
Depository shall have no rights under this Agreement under or with respect to
any of the Certificates held on their behalf by the Depository, and the
Depository may be treated by the Trustee, the Certificate Administrator and its
agents, employees, officers and directors as the absolute owner of the
Certificates for all purposes whatsoever.

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

                                       53

<PAGE>

event of any conflict between the terms of any such Letter of Representation and
this Agreement, the terms of this Agreement shall control.

                  (c)  If (i)(x) the Depository or the Company advises the
Certificate Administrator in writing that the Depository is no longer willing or
able to discharge properly its responsibilities as Depository and (y) the
Certificate Administrator or the Company is unable to locate a qualified
successor, (ii) the Company, at its sole option, with the consent of the
Certificate Administrator, elects to terminate the book-entry system through the
Depository or (iii) after the occurrence of a Servicing Default, the Certificate
Owners of the Book-Entry Certificates representing not less than 51% of the
Voting Rights advise the Certificate Administrator and Depository through the
Financial Intermediaries and the Depository Participants in writing that the
continuation of a book-entry system through the Depository to the exclusion of
definitive, fully registered certificates ("Definitive Certificates") to
Certificate Owners is no longer in the best interests of the Certificate Owners.
Upon surrender to the Certificate Registrar of the Book-Entry Certificates by
the Depository, accompanied by registration instructions from the Depository for
registration, the Trustee or the Certificate Administrator, on behalf of the
Trustee, shall, at the Company's expense, in the case of (ii) above, or the
Seller's expense, in the case of (i) and (iii) above, execute on behalf of the
Trust and authenticate the Definitive Certificates. None of the Company, the
Certificate Administrator nor the Trustee shall be liable for any delay in
delivery of such instructions and may conclusively rely on, and shall be
protected in relying on, such instructions. Upon the issuance of Definitive
Certificates, the Certificate Administrator, the Trustee, the Certificate
Registrar, the Servicer, any Paying Agent and the Company shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder.

                  (d)  No transfer, sale, pledge or other disposition of any
Class B Certificate, Class I Certificate, Class O Certificate or Residual
Certificate shall be made unless such disposition is exempt from the
registration requirements of the Securities Act of 1933, as amended (the "1933
Act"), and any applicable state securities laws or is made in accordance with
the 1933 Act and laws. In the event of any such transfer, except with respect to
the initial transfers of any Class B Certificate, Class I Certificate, Class O
Certificate or Residual Certificates by the Company to NFRC, unless (i) such
transfer is made in reliance upon Rule 144A under the 1933 Act and an investment
letter, in substantially the form attached hereto as Exhibit G, is delivered by
the Transferee to the Certificate Administrator) or (ii) a written Opinion of
Counsel (which may be in-house counsel) acceptable to and in form and substance
reasonably satisfactory to the Certificate Administrator and the Company is
delivered to them stating that such transfer may be made pursuant to (x) the
1933 Act, or an exemption thereto, describing the applicable provision or
exemption and the basis therefor, and (y) the Investment Company Act of 1940, or
an exemption thereto, describing the applicable provision or exemption and the
basis therefor, which Opinion of Counsel shall not be an expense of the
Certificate Administrator or the Company. The Holder of a Class B Certificate,
Class I Certificate, Class O Certificate or Residual Certificate desiring to
effect such transfer shall, and does hereby agree to, indemnify the Certificate
Administrator, the Trustee and the Company against any liability that may result
if the transfer is not so exempt or is not made in accordance with such federal
and state laws.

                                       54

<PAGE>

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

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

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

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

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

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

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

                       B.     a covenant of the proposed transferee  to the
         effect that the proposed transferee agrees to be bound by and to abide
         by the transfer restrictions applicable to the Residual Certificates.

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<PAGE>

                      (iv)    Any attempted or purported  transfer of any
         Ownership Interest in a Residual Certificate in violation of the
         provisions of this Section shall be absolutely null and void and shall
         vest no rights in the purported transferee. If any purported transferee
         shall, in violation of the provisions of this Section, become a Holder
         of a Residual Certificate, then the prior Holder of such Residual
         Certificate that is a Permitted Transferee shall, upon discovery that
         the registration of transfer of such Residual Certificate was not in
         fact permitted by this Section, be restored to all rights as Holder
         thereof retroactive to the date of registration of transfer of such
         Residual Certificate. Neither the Certificate Administrator nor the
         Trustee shall be under no liability to any Person for any registration
         of transfer of a Residual Certificate that is in fact not permitted by
         this Section or for making any distributions due on such Residual
         Certificate to the Holder thereof or taking any other action with
         respect to such Holder under the provisions of this Agreement so long
         as the Certificate Administrator received the documents specified in
         clause (iii). The Certificate Administrator shall be entitled to
         recover from any Holder of a Residual Certificate that was in fact not
         a Permitted Transferee at the time such distributions were made all
         distributions made on such Residual Certificate. Any such distributions
         so recovered by the Certificate Administrator shall be distributed and
         delivered by the Certificate Administrator to the prior Holder of such
         Residual Certificate that is a Permitted Transferee.

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

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

The foregoing provisions of this Section shall cease to apply to transfers
occurring on or after the date on which there shall have been delivered to the
Certificate Administrator, in form and substance satisfactory to the Certificate
Administrator, (i) written notification from each Rating

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Agency that the removal of the restrictions on Transfer set forth in this
Section will not cause such Rating Agency to downgrade its rating of the
Certificates and (ii) an Opinion of Counsel to the effect that such removal will
not cause any REMIC created hereunder to fail to qualify as a REMIC.

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

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

             Section 5.03  Mutilated, Destroyed, Lost or Stolen Certificates.

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

             Section 5.04  Persons Deemed Owners.

             The Servicer, the Company, the Trustee, the Certificate
Administrator, the Certificate Registrar, any Paying Agent and any agent of the
Servicer, the Company, the Trustee, the Certificate Administrator, the
Certificate Registrar, any Paying Agent or the Certificate Administrator may
treat the Person, including a Depository, in whose name any Certificate is
registered as the owner of such Certificate for the purpose of receiving
distributions pursuant to Section 4.01 and for all other purposes whatsoever,
and none of the Servicer, the Trust, the Certificate Administrator, the Trustee
nor any agent of any of them shall be affected by notice to the contrary.

             Section 5.05  Appointment of Paying Agent.

             (a)  The Paying Agent shall make distributions to
Certificateholders from the Distribution Account pursuant to Section 4.01 and
shall report the amounts of such distributions to the Certificate Administrator.
The duties of the Paying Agent may include the obligation to

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

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

                                   ARTICLE VI

                          THE SERVICER AND THE COMPANY

             Section 6.01  Liability of the Servicer and the Company.

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

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

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

             Section 6.03  Limitation on Liability of the Servicer and Others.

             Neither the Servicer nor any of the directors or officers or
employees or agents of the Servicer shall be under any liability to the Trust or
the Certificateholders for any action taken or for refraining from the taking of
any action by the Servicer in good faith pursuant to this Agreement, or for
errors in judgment; provided, however, that this provision shall not protect the
Servicer or any such Person against any liability which would otherwise be
imposed by reason of

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its willful misfeasance, bad faith or negligence in the performance of duties of
the Servicer or by reason of its reckless disregard of its obligations and
duties of the Servicer hereunder.

             The Servicer and any director or officer or employee or agent of
the Servicer may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder. The Servicer and any director or officer or employee or agent of the
Servicer shall be indemnified by the Trust and held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
this Agreement or the Certificates, including any amount paid to the Certificate
Administrator, on behalf of the Trustee, pursuant to Section 6.06(b), other than
any loss, liability or expense related to any specific Mortgage Loan or Mortgage
Loans (except as any such loss, liability or expense shall be otherwise
reimbursable pursuant to this Agreement) and any loss, liability or expense
incurred by reason of its willful misfeasance, bad faith or negligence in the
performance of its duties hereunder or by reason of its reckless disregard of
its obligations and duties hereunder. The Servicer shall not be under any
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties to service the Mortgage Loans in accordance with this
Agreement, and which in its opinion may involve it in any expense or liability;
provided, however, that the Servicer may in its sole discretion undertake any
such action which it may deem necessary or desirable in respect of this
Agreement, and the rights and duties of the parties hereto and the interests of
the Certificateholders hereunder. In such event, the reasonable legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust, and the Servicer shall be entitled
to be reimbursed therefor. The Servicer's right to indemnity or reimbursement
pursuant to this Section 6.03 shall survive any resignation or termination of
the Servicer pursuant to Section 6.04 or 7.01 with respect to any losses,
expenses, costs or liabilities arising prior to such resignation or termination
(or arising from events that occurred prior to such resignation or termination).
Any reimbursements or indemnification to the Servicer from the Trust pursuant to
this Section 6.03 shall be payable in the priority set forth in Section 4.01
hereof.

             Section 6.04  Servicer Not to Resign.

             Subject to the provisions of Section 6.02, the Servicer shall not
resign from the obligations and duties hereby imposed on it except (i) upon
determination that the performance of its obligations or duties hereunder are no
longer permissible under applicable law or (ii) upon satisfaction of the
following conditions: (a) the Servicer has proposed a successor servicer to the
Trust, the Trustee and the Certificate Administrator in writing and such
proposed successor servicer is reasonably acceptable to the Trustee and the
Certificate Administrator; and (b) each Rating Agency shall have delivered a
letter to the Trust, the Trustee, and the Certificate Administrator prior to the
appointment of the successor servicer stating that the proposed appointment of
such successor servicer as Servicer hereunder will not result in the reduction
or withdrawal of then current rating of the Certificates; provided, however,
that no such resignation by the Servicer shall become effective until such
successor servicer or, in the case of (i) above, the Certificate Administrator
or its designee as successor Servicer shall have assumed the Servicer's
responsibilities and obligations hereunder or the Trustee or its designee as
successor Servicer shall have designated a successor servicer in accordance with
Section 7.02. Any such resignation shall not relieve the Servicer of
responsibility for any of the obligations specified in Sections 7.01 and 7.02 as
obligations that survive the resignation or termination of the Servicer.

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The Servicer shall have no claim (whether by subrogation or otherwise) or other
action against any Certificateholder for any amounts paid by the Servicer
pursuant to any provision of this Pooling and Agreement. Any such determination
permitting the resignation of the Servicer under clause (i) above shall be
evidenced by an Opinion of Counsel to such effect delivered to the Certificate
Administrator, and the Trustee.

             Section 6.05  Delegation of Duties.

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

             Section 6.06  Servicer to Pay Trustee's, and Certificate
Administrator's Fees and Expenses; Indemnification.

             (a) The Servicer covenants and agrees to pay to the Certificate
Administrator, the Trustee and any co-trustee of the Trustee from time to time,
and the Certificate Administrator, the Trustee and any such co-trustee shall be
entitled to, reasonable compensation, including all indemnification payments
(which shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust) for all services rendered by each
of them in the execution of the trusts created hereunder and in the exercise and
performance of any of the powers and duties and the Servicer will pay or
reimburse the Certificate Administrator, the Trustee and any co-trustee upon
request for all reasonable expenses, disbursements and advances incurred or made
by the Certificate Administrator, the Trustee or any co-trustee of the Trustee
in accordance with any of the provisions of this Agreement except any such
expense, disbursement or advance as may arise from its negligence or bad faith.

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

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

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

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

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

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

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

             (d) In the event the Trustee becomes the Servicer pursuant to
Section 7.02 hereof, neither the Trustee nor the Certificate Administrator shall
be obligated, in its individual capacity, to pay any obligation of the Servicer
under clause (a), (b) or (c) above.

                                  ARTICLE VII

                                    DEFAULT

             Section 7.01     Servicing Default.

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

                     (i)      Any failure by the Servicer to deposit in the
         Collection Account or Distribution Account (A) any Advances and
         Compensating Interest or (B) any other Deposit required to be made
         under the terms of this Agreement, which, in the case of this clause
         (B), continues unremedied for a period of three Business Days after the
         date upon

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         which written notice of such failure shall have been given to the
         Servicer by the Trustee or the Certificate Administrator or to the
         Servicer, the Trustee and the Certificate Administrator the Holders of
         Certificates evidencing at least 25% of the Voting Rights; or

                      (ii)    Failure on the part of the Servicer  duly to
         observe or perform in any material respect any other covenants or
         agreements of the Servicer set forth in this Agreement, which failure,
         in each case, materially and adversely affects the interests of
         Certificateholders or the breach of any representation or warranty of
         the Servicer in this Agreement which materially and adversely affects
         the interests of the Certificateholders, and which in either case
         continues unremedied for a period of 30 days after the date on which
         written notice of such failure or breach, requiring the same to be
         remedied, and stating that such notice is a "Notice of Default"
         hereunder, shall have been given to the Servicer by the Certificate
         Administrator or the Trustee or to the Servicer, the Certificate
         Administrator and the Trustee by the Holders of Certificates evidencing
         at least 25% of the Voting Rights; or

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

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

                      (v)     The Cumulative Loss Percentage exceeds (a) with
         respect to the first 12 Distribution Dates, 1.00% of the Cut-off Date
         Aggregate Principal Balance, (b) with respect to the next 12
         Distribution Dates, 1.25% of the Cut-off Date Aggregate Principal
         Balance, (c) with respect to the next 12 Distribution Dates, 1.50% of
         the Cut-off Date Aggregate Principal Balance, (d) with respect to the
         next 12 Distribution Dates, 1.75% of the Cut-off Date Aggregate
         Principal Balance, (e) with respect to the next 12 Distribution Dates,
         2.50% of the Cut-off Date Aggregate Principal Balance, (f) and with
         respect to all Distribution Dates thereafter, 4.00% of the Cut-off Date
         Aggregate Principal Balance; or

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                      (vi)    Realized Losses on the Mortgage Loans over any
         twelve-month period exceeds 1.00% of the sum of the aggregate Principal
         Balance of the Initial Mortgage Loans as of the Cut-off Date and the
         Original Pre-Funded Amount; or

                      (vii)   The Rolling 90 Day Delinquency Percentage exceeds
         17%.

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

             Section 7.02     Trustee to Act; Appointment of Successor.

             (a)  Within 90 days of the time the Servicer (and the Trustee or
the Certificate Administrator, if notice is sent by the Holders) receives a
notice of termination pursuant to Section 7.01, the Trustee (or such other
successor Servicer as is approved in accordance with this Agreement) shall be
the successor in all respects to the Servicer in its capacity as servicer under
this Agreement and the transactions set forth or provided for herein and shall
be subject to all the responsibilities, duties and liabilities relating thereto
placed on the Servicer by the terms and provisions hereof arising on and after
its succession. Notwithstanding the foregoing, the parties hereto agree that the
Trustee, in its capacity as successor Servicer, immediately will assume all of
the obligations of the Servicer to make Advances; provided however, that the
obligation of the Trustee to make Advances is subject to the standards set forth
in Section 3.24 hereof. Notwithstanding the foregoing, the Trustee, in its
capacity as successor Servicer, shall not be responsible for the lack of
information and/or documents that it cannot obtain through reasonable efforts.
As compensation therefor, the Trustee (or such other successor Servicer) shall
be entitled to such compensation as the Servicer would have been entitled to
hereunder if no such notice of termination had been given. Notwithstanding the
above, (i) if the Trustee is unwilling to act as successor Servicer or (ii) if
the Trustee is legally unable so to act, the Trustee shall appoint or petition a
court of competent jurisdiction to appoint, any established housing and home
finance institution, bank or other mortgage loan or home equity loan servicer
having a net worth of not less than $10,000,000 as the successor to the Servicer
hereunder in the assumption

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of all or any part of the responsibilities, duties or liabilities of the
Servicer hereunder; provided, that the appointment of any such successor
Servicer will not result in the qualification, reduction or withdrawal of the
ratings assigned to the Certificates by the Rating Agencies as evidenced by a
letter to such effect from the Rating Agencies. Pending appointment of a
successor to the Servicer hereunder, unless the Trustee is prohibited by law
from so acting, the Trustee shall act in such capacity as hereinabove provided.
In connection with such appointment and assumption, the successor shall be
entitled to receive compensation out of payments on Mortgage Loans in an amount
equal to the compensation which the Servicer would otherwise have received
pursuant to Section 3.18 (or such other compensation as the Trustee and such
successor shall agree, not to exceed the Servicing Fee). The appointment of a
successor Servicer shall not affect any liability of the predecessor Servicer
which may have arisen under this Agreement prior to its termination as Servicer
to pay any deductible under an insurance policy pursuant to Section 3.14 or to
indemnify the Certificate Administrator and the Trustee pursuant to Section
3.06), nor shall any successor Servicer be liable for any acts or omissions of
the predecessor Servicer or for any breach by such Servicer of any of its
representations or warranties contained herein or in any related document or
agreement. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
All Servicing Transfer Costs shall be paid by the predecessor Servicer upon
presentation of reasonable documentation of such costs, and if such predecessor
Servicer defaults in its obligation to pay such costs, such costs shall be paid
by the successor Servicer, the Certificate Administrator or the Trustee (in
which case the successor Servicer, the Certificate Administrator or the Trustee,
as applicable, shall be entitled to reimbursement therefor from the assets of
the Trust).

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

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

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the original with evidence of recording thereon or a copy certified by the
public recording office in which such assignment was recorded.

         Section 7.03 Waiver of Defaults.

         The Majority Certificateholders may, on behalf of all
Certificateholders, waive any events permitting removal of the Servicer as
servicer pursuant to this Article VII, 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 Servicing
Default arising therefrom shall be deemed to have been remedied for every
purpose of this Agreement. No such waiver shall extend to any subsequent or
other default or impair any right consequent thereto except to the extent
expressly so waived. Notice of any such waiver shall be given by the Certificate
Administrator to the Rating Agencies.

         Section 7.04 Notification to Certificateholders.

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

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

         Section 7.05 Survivability of Servicer Liabilities.

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

                                  ARTICLE VIII

                  THE TRUSTEE AND THE CERTIFICATE ADMINISTRATOR

         Section 8.01 Duties of the Trustee and the Certificate Administrator.

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

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

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

              (ii) in the absence of bad faith on its part, each of the Trustee
         and the Certificate Administrator, as the case may be, may conclusively
         rely, as to the truth of the statements and the correctness of the
         opinions expressed therein, upon certificates or opinions furnished to
         the Trustee and/or the Certificate Administrator, as applicable, and
         conforming to the requirements of this Agreement; provided, however,
         that each of the Trustee and the Certificate Administrator, as the case
         may be, shall examine the certificates and opinions delivered to it to
         determine whether or not they conform to the requirements of this
         Agreement, provided, further, however, that the Trustee shall have no
         duty or responsibility to review any document, certificate, instrument
         or opinion delivered solely to the Certificate Administrator.

           (b) Neither the Trustee nor the Certificate Administrator may be
relieved from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that:

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

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

              (iii) neither the Trustee nor the Certificate Administrator shall
         be liable with respect to any action it takes or omits to take in good
         faith in accordance with a direction received by it from the Majority
         Certificateholders.

           Neither the Trustee nor the Certificate Administrator shall be liable
for interest on any money received by the Trustee or the Certificate
Administrator, as the case may be, except as the Trustee or the Certificate
Administrator, respectively, may agree in writing with the Servicer.

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

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

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

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

              (d) For all purposes under this Agreement, neither the Trustee nor
the Certificate Administrator shall be deemed to have notice or knowledge of any
Servicing Default unless a Responsible Officer assigned to and working in the
Trustee's or the Certificate Administrator's, respectively, corporate trust
department has actual knowledge thereof or unless written notice of any event
which is in fact such Servicing Default is received by the Trustee or the
Certificate Administrator, respectively, at the Corporate Trust Office, and such
notice references the Certificates generally, the Trust, or this Agreement.

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

              Notwithstanding any term or provision in this Agreement to the
contrary, the rights and obligations of the Trustee as trustee under this
Agreement shall not be diminished by the fact that the Trustee may employ the
services of the Certificate Administrator to accomplish the duties of the
Trustee hereunder. Accordingly, any references in this Agreement or the other
Basic Documents alluding to a right or obligation of the Certificate
Administrator shall be construed to mean such right or obligation of the
Trustee, which right or obligation may be accepted or performed by the
Certificate Administrator, on behalf of the Trustee,.

              Section 8.02 Rights of Trustee and Certificate Administrator.

              Each of the Trustee and the Certificate Administrator may rely and
shall be protected in acting or refraining from acting on any resolution,
officer's certificate, opinion of counsel, certificate of auditors or other
certificate, statement, instrument, or document believed

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<PAGE>

by it to be genuine and to have been signed or presented by the proper person.
The Trustee and the Certificate Administrator need not investigate any fact or
matter stated in the document.

              Before either the Trustee or the Certificate Administrator acts or
refrains from acting, it may require an Officer's Certificate or an Opinion of
Counsel reasonably satisfactory in form and substance to the Trustee or the
Certificate Administrator, as the case may be, which Officer's Certificate or
Opinion of Counsel shall not be at the expense of the Trustee, the Certificate
Administrator or the Trust Fund. Neither the Trustee nor the Certificate
Administrator shall be liable for any action either of them takes or omits to
take in good faith in reliance on an Officer's Certificate or Opinion of
Counsel.

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

              Neither the Trustee nor the Certificate Administrator shall be
liable for any action either of them takes or omits to take in good faith which
it believes to be authorized or within its rights or powers; provided, however,
that the Trustee's conduct or the Certificate Administrator's conduct, as the
case may be, does not constitute willful misconduct, negligence or bad faith.

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

              The Trustee and the Certificate Administrator shall be under no
obligation to exercise any of the trusts or powers vested in it by this
Agreement or to institute, conduct or defend any litigation hereunder or in
relation hereto at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement, unless such
Certificateholders shall have offered to the Trustee and the Certificate
Administrator reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby (which in the case of the
Majority Certificateholders will be deemed to be satisfied by a letter agreement
with respect to such costs from such Majority Certificateholders); nothing
contained herein shall, however, relieve the Trustee or the Certificate
Administrator of the obligation, upon the occurrence of a Servicing Default of
which a Responsible Officer of the Trustee or the Certificate Administrator
shall have actual knowledge (which has not been cured), to exercise such of the
rights and powers vested in it by this Agreement, and to use the same degree of
care and skill in their exercise, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs.

              The Trustee and the Certificate Administrator shall not be bound
to make any investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document,

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<PAGE>

unless requested in writing to do by the Majority Certificateholders; provided,
however, that if the payment within a reasonable time to the Trustee and the
Certificate Administrator of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of the
Trustee or the Certificate Administrator, not reasonably assured to the Trustee
or the Certificate Administrator by the security afforded to it by the terms of
this Agreement, the Trustee or the Certificate Administrator may require
reasonable indemnity against such cost, expense or liability as a condition to
taking any such action. The reasonable expense of every such examination shall
be paid by the Servicer or, if paid by the Trustee or the Certificate
Administrator, shall be repaid by the Servicer upon demand from the Servicer's
own funds.

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

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

              Section 8.03 Individual Rights of Trustee and Certificate
Administrator.

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

              Section 8.04 Trustee's and Certificate Administrator's Disclaimer.

              Neither the Trustee nor the Certificate Administrator shall be
responsible for and makes no representation as to the validity or adequacy of
this Agreement or the Certificates, or of any Mortgage Loan or related document,
or of MERS or the MERS System. Neither the Trustee nor the Certificate
Administrator shall be accountable for the use of the proceeds from the
Certificates, and neither the Trustee nor the Certificate Administrator shall be
responsible for any statement of the Trust in this Agreement or in any document
issued in connection with the sale of the Certificates or in the Certificates
other than the Trustee's or the Certificate Registrar's certificate of
authentication.

              Section 8.05 Notice of Servicing Default.

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

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<PAGE>

              Section 8.06 [Reserved].

              Section 8.07 Compensation and Indemnity.

              The amount of the Certificate Administrator Fee shall be paid to
the Certificate Administrator on each Distribution Date pursuant to Section
4.01(a)(i) of this Agreement, and all amounts owing to the Trustee and to the
Certificate Administrator hereunder in excess of such amount shall be paid
solely as provided in this Agreement. On each Distribution Date, the Certificate
Administrator will pay to the Trustee its fee as compensation for the
performance of its duties hereunder in the amount as set forth in a separate
letter agreement between the Certificate Administrator and the Trustee. The
Trustee's compensation and the Certificate Administrator's compensation shall
not be limited by any law on compensation of a trustee of an express trust.

              Section 8.08 Replacement of Trustee or Certificate Administrator.

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

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

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

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

              (d) the Trustee or the Certificate Administrator otherwise becomes
incapable of acting.

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

              A successor Trustee or successor Certificate Administrator shall
deliver a written acceptance of its appointment to the retiring Trustee or
retiring Certificate Administrator, the Company, the Trustee, the Certificate
Administrator and the Servicer. Thereupon, the

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<PAGE>

resignation or removal of the retiring Trustee or retiring Certificate
Administrator shall become effective, and the successor Trustee or successor
Certificate Administrator shall have all the rights, powers and duties of the
Trustee or the Certificate Administrator under this Agreement. The successor
Trustee or successor Certificate Administrator shall mail a notice of its
succession to the Certificateholders. The retiring Trustee or retiring
Certificate Administrator shall promptly transfer all property held by it as
Trustee or Certificate Administrator to the successor Trustee or successor
Certificate Administrator.

              Subject to the foregoing provisions of this Section 8.08, the
Trustee may terminate the Certificate Administrator at any time for failure to
perform its obligations hereunder or under the Basic Documents provided it or a
Certificate Administrator acceptable to the Company assumes the obligations of
the Certificate Administrator.

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

              Section 8.09 Successor Trustee or Certificate Administrator by
Merger.

              If the Trustee or the Certificate Administrator consolidates with,
merges or converts into, or transfers all or substantially all of its corporate
trust business or assets to, another corporation or banking association, the
resulting, surviving or transferee corporation, without any further act, shall
be the successor Trustee or successor Certificate Administrator, as applicable;
provided, that such corporation or banking association shall be otherwise
qualified and eligible under Section 8.11 hereof.

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

              Section 8.10 Appointment of Co-Trustee or Separate Trustee.

              Notwithstanding any other provisions of this Agreement, at any
time, for the purpose of meeting any legal requirement of any jurisdiction in
which any part of the Trust Fund may at the time be located, the Trustee shall
have the power and may execute and deliver all

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<PAGE>

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

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

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

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

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

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

              Any separate trustee or co-trustee may at a1ny time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-trustee
shall die, become incapable of acting, resign or be removed, all of its estates,
properties, rights, remedies and trusts shall vest in and be exercised by the
Trustee, to the extent permitted by law, without the appointment of a new or
successor trustee.

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          Section 8.11 Eligibility; Disqualification.

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

          Section 8.12 [Reserved]

          Section 8.13 Representations and Warranties.

          (a) The Trustee hereby represents that:

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

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

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

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

          (b) The Certificate Administrator hereby represents that:

               (i)     The Certificate Administrator is duly organized and
     validly existing as a national banking association in good standing under
     the laws of the United States with power and authority to own its
     properties and to conduct its business as such properties are currently
     owned and such business is presently conducted;

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

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

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

          Section 8.14 Directions to Trustee and Certificate Administrator.

          The Trustee or the Certificate Administrator, on behalf of the
Trustee,, as the case may be, is hereby directed:

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

          (b) to authenticate and deliver the Certificates of each Class
substantially in the forms prescribed by Exhibits A-1, A-2, A-3, A-4, A-5, A-6,
A-7, A-8 and A-9 in accordance with the terms of this Agreement; and

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

          Section 8.15 The Agents.

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

          Section 8.16 Reports by the Certificate Administrator; Trust Fiscal
Year.

          The Certificate Administrator, on behalf of the Trust, shall:

          (a) file with the Commission, on behalf of the Trust, the annual
reports and information, documents and other reports (or copies of such portions
of any of the foregoing as

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<PAGE>

the Commission may from time to time by rules and regulations prescribe) that
the Trust may be required to file with the Commission pursuant to Section 13 or
15(d) of the Exchange Act. Such filings shall be as follows: within 15 days
after each Distribution Date, the Certificate Administrator, on behalf of the
Trust, shall file with the Commission via the Electronic Data Gathering,
Analysis and Retrieval System, a Form 8-K with a copy of the statement to
Certificateholders for such Distribution Date as an exhibit thereto. Prior to
January 31, 2003, the Certificate Administrator, shall file a Form 15 Suspension
Notification with respect to the Trust Fund, if applicable. Prior to March 31,
2003, the Certificate Administrator, on behalf of the Trust, shall file a Form
10-K, in substance conforming to industry standards, with respect to the Trust
Fund. The Company will prepare and execute any certifications to be filed with
the Form 10-K as required under the Sarbanes-Oxley Act of 2002. The Trust hereby
grants to the Certificate Administrator, a limited power of attorney to execute
and file each such document on behalf of the Trust. Such power of attorney shall
continue until the termination of the Trust Fund. The Certificate Administrator,
on behalf of the Trust, shall deliver to the Seller and the Trustee within three
Business Days after filing any Form 8-K or Form 10-K pursuant to this Section
8.16 a copy of such Form 8-K or Form 10-K, as the case may be; and

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

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

                                   ARTICLE IX

                                   [Reserved]

                                   ARTICLE X

                              REMIC ADMINISTRATION

          Section 10.01 REMIC Administration.

          (a) [Reserved].

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

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

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<PAGE>

hereunder. The Servicer shall be entitled to reimbursement of expenses to the
extent provided in clause (i) above from the Collection Account.

          (d) The Certificate Administrator shall (a) maintain (or cause to be
maintained) the books of the Trust on a calendar year basis using the accrual
method of accounting, (b) deliver (or cause to be delivered) to each
Certificateholder as may be required by the Code and applicable Treasury
Regulations, including the REMIC Provisions, such information as may be required
to enable each Certificateholder to prepare its federal and state income tax
returns, (c) prepare and file or cause to be prepared and filed such tax returns
relating to the Trust as may be required by the Code and applicable Treasury
Regulations (including timely making one or more elections to treat the Trust as
a REMIC for federal income tax purposes and any other such elections as may from
time to time be required or appropriate under any applicable state or federal
statutes, rules or regulations), (d) collect or cause to be collected any
required withholding tax with respect to income or distributions to
Certificateholders and prepare or cause to be prepared the appropriate forms
relating thereto and (e) maintain records as required by the REMIC Provisions.

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

          (f) The Trustee, the Servicer, the Certificate Administrator and the
Holders of Certificates shall take any action or cause the REMIC to take any
action necessary to create or maintain the status of each REMIC as a REMIC under
the REMIC Provisions and shall assist each other as necessary to create or
maintain such status. Neither the Trustee, the Certificate Administrator, the
Servicer nor the Holder of any Residual Certificate shall take any action, cause
any REMIC created hereunder to take any action or fail to take (or fail to cause
to be taken) any action that, under the REMIC Provisions, if taken or not taken,
as the case may be, could (i) endanger the status of such REMIC as a REMIC or
(ii) result in the imposition of a tax upon such REMIC (including but not
limited to the tax on prohibited transactions as defined in Code Section
860F(a)(2) and the tax on prohibited contributions set forth on Section 860G(d)
of the Code) (either such event, an "Adverse REMIC Event") unless the Trustee,
the Certificate Administrator and the Servicer have received an Opinion of
Counsel (at the expense of the party seeking to take such action) to the effect
that the contemplated action will not endanger such status or result in the
imposition of such a tax. In addition, prior to taking any action with respect
to any REMIC created hereunder or the assets therein, or causing such REMIC to
take any action, which is not expressly permitted under the terms of this
Agreement, any Holder of a

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Residual Certificate will consult with the Trustee, the Certificate
Administrator and the Servicer, or their respective designees, in writing, with
respect to whether such action could cause an Adverse REMIC Event to occur with
respect to any REMIC, and no such Person shall take any such action or cause any
REMIC to take any such action as to which the Trustee, the Certificate
Administrator or the Servicer has advised it in writing that an Adverse REMIC
Event could occur.

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

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

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

          (j) None of the Trustee, the Certificate Administrator nor the
Servicer shall enter into any arrangement by which any REMIC created hereunder
will receive a fee or other compensation for services.

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

          (l) The Trustee shall treat the Supplemental Interest Trust as an
outside reserve fund within the meaning of Treasury Regulation Section
1.860G-2(h) that is owned by the holder of the Class AIO Certificate and that is
not an asset of any REMIC. The Trustee shall treat the rights of the Class A-1,
Class A-2, Class M-1, Class M-2, Class M-3 and Class B Certificateholders to
receive payments from the Supplemental Interest Trust as a notional principal
contract written by the Class AIO Certificateholder in favor of the Class A-1,
Class A-2, Class M-1, Class M-2, Class M-3 and Class B Certificateholders. Thus,
each Class A-1, Class A-2, Class M-1, Class M-2, Class M-3 and Class B
Certificate shall be treated as representing not only ownership of a regular
interest in the Master REMIC but also ownership of an interest in a notional
principal contract.

          Section 10.02 Prohibited Transactions and Activities.

          Neither the Company, the Servicer, the Certificate Administrator nor
the Trustee shall sell, dispose of, or substitute for any of the Mortgage Loans,
if such disposition, acquisition, substitution, or acceptance would (a) affect
adversely the status of any REMIC created hereunder

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<PAGE>

as a REMIC or (b) cause any REMIC created hereunder to be subject to a tax on
prohibited transactions or prohibited contributions pursuant to the REMIC
Provisions.

                                   ARTICLE XI

                                   TERMINATION

          Section 11.01 Termination.

          (a) The respective obligations and responsibilities of the Seller, the
Servicer, the Company, the Certificate Administrator and the Trustee created
hereby (other than the obligation of the Certificate Administrator to make
certain payments to Certificateholders after the final Distribution Date and the
obligation of the Servicer to send certain notices as hereinafter set forth)
shall terminate upon notice to the Trustee or the Certificate Administrator upon
the earliest of (i) the Distribution Date on which the Certificate Principal
Balances of the Regular Certificates have been reduced to zero, (ii) the final
payment or other liquidation of the last Mortgage Loan in the Trust, (iii) the
optional purchase by the Servicer of the Mortgage Loans as described below and
(iv) the Distribution Date in July 2033. Notwithstanding the foregoing, in no
event shall the trust created hereby continue beyond the expiration of 21 years
from the death of the last survivor of the descendants of Joseph P. Kennedy, the
late ambassador of the United States to the Court of St. James, living on the
date hereof.

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

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

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

          (b) In the event that the Certificate Principal Balances of all of the
Class A Certificates have not been reduced to zero by the Distribution Date on
July 2033, the Certificate Administrator, on behalf of the Trustee, shall (i)
sign a plan of complete liquidation of each REMIC created hereunder meeting the
requirements of a "Qualified Liquidation" under Section 860F of the Code and any
regulations thereunder, (ii) sell all of the assets of the Trust Fund for cash
in a commercially reasonable manner to maximize the value thereof, pursuant to
the terms

                                       78

<PAGE>

of the plan of complete liquidation, (iii) distribute the proceeds of the sale
to the Certificateholders in accordance with Section 4.01 hereof, and (iv)
terminate the Trust. By their acceptance of Certificates, the Holders thereof
hereby agree to appoint the Certificate Administrator as their attorney in fact
to: (i) adopt such a plan of complete liquidation (and the Certificateholders
hereby appoint the Certificate Administrator as their attorney in fact to sign
such a plan) as appropriate and (ii) to take such other action in connection
therewith as may be reasonably required to carry out such plan of complete
liquidation in accordance with the terms thereof.

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

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

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

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<PAGE>

          Section 11.02 Additional Termination Requirements.

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

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

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

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

                                  ARTICLE XII

                            MISCELLANEOUS PROVISIONS

          Section 12.01 Amendment.

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

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<PAGE>

Company, the Trustee and each Swap Counterparty. This Agreement may be amended
by the parties hereto without the consent of the Swap Counterparties after the
Class I Termination Date.

          In addition, this Agreement may be amended from time to time by the
parties hereto with the consent of the Majority Certificateholders for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment or waiver
shall (x) reduce in any manner the amount of, or delay the timing of, payments
on the Certificates or distributions which are required to be made on any
Certificate without the consent of the Holder of such Certificate, (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% Percentage Interest in 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.

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

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

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

          Neither the Certificate Administrator nor the Trustee shall be
obligated to enter into any amendment pursuant to this Section 12.01 that
affects its rights, duties and immunities under this Agreement or otherwise.

          Section 12.02 Recordation of Agreement; Counterparts.

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

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<PAGE>

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 12.03 Limitation on Rights of Certificateholders.

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

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

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

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<PAGE>

          Section 12.04 Governing Law; Jurisdiction.

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

          Section 12.05 Notices.

          All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if personally delivered at or mailed
by certified mail, return receipt requested, or sent by reputable overnight
courier service to:

          (a) in the case of the Company:

                        NovaStar Mortgage Funding Corporation
                        1901 W. 47th Place
                        Suite 105
                        Westwood, Kansas 66205
                        Attention: Matt Kaltenrieder

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

                        NovaStar Mortgage, Inc.
                        1900 W.  47th Place
                        Suite 205
                        Westwood, Kansas 66205
                        Attention: Matt Kaltenrieder

          (c) in the case of Rating Agencies:

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

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

                                       83

<PAGE>

          (d) in the case of the Certificate Administrator:

                        Wachovia Bank, National Association
                        401 South Tryon Street, NC1179
                        12th Floor
                        Charlotte, NC 28288-1179
                        Attention: Structured Finance Trust Services (NovaStar
                        Mortgage Funding Trust, Series 2002-3)

          (e) in the case of the Trustee:

                        JPMorgan Chase Bank
                        450 West 33/rd/ Street, 14/th/ Floor
                        New York, NY 10001
                        Attention: Institutional Trust Services (NovaStar
                        Mortgage Funding Trust, Series 2002-3)

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

          Section 12.06 Severability of Provisions.

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

          Section 12.07 Article and Section References.

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

          Section 12.08 Further Assurances.

          Notwithstanding any other provision of this Agreement, neither the
Certificate Administrator 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.

                                       84

<PAGE>

          Section 12.09 Benefits of Agreement.

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

          Section 12.10 Acts of Certificateholders.

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

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

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

                                       85

<PAGE>

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

                                          NOVASTAR MORTGAGE FUNDING CORPORATION,
                                          as Company

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

                                          NOVASTAR MORTGAGE, INC.,
                                          as Servicer and as Seller

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

                                          WACHOVIA BANK, NATIONAL ASSOCIATION,
                                          as Certificate Administrator

                                          By: /s/ Robert Ashbaugh
                                              ----------------------------------
                                              Name:   Robert Ashbaugh
                                              Title:  Vice President

                                          JPMORGAN CHASE BANK,
                                          as Trustee

                                          By: /s/ Ryan Biasi
                                              ----------------------------------
                                              Name:   Ryan Biasi
                                              Title:  Trust Officer

                [Pooling and Servicing Agreement Signature Page]

                                       86

<PAGE>

STATE OF KANSAS     )
                    ) ss.:
COUNTY OF JOHNSON   )

          On the 24th day of September, 2002 before me, a notary public in and
for said State, personally appeared Matt Kaltenrieder known to me (or proved to
me on the basis of satisfactory evidence) to be a Vice President of NovaStar
Mortgage Funding Corporation, a Delaware corporation that executed the within
instrument, and also known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.

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

                    /s/ Michelle L. McNiel
                    --------------------------------
Seal                Notary Public

                                       87

<PAGE>

STATE OF KANSAS     )
                    ) ss.:
COUNTY OF JOHNSON   )

          On the 24th day of September, 2002 before me, a notary public in and
for said State, personally appeared Matt Kaltenrieder known to me (or proved to
me on the basis of satisfactory evidence) to be a Vice President of NovaStar
Mortgage, Inc., a Virginia corporation that executed the within instrument, and
also known to me (or proved to me on the basis of satisfactory evidence) to be
the person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.

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

                    /s/ Michelle L. McNeil
                    ----------------------------------
Seal                Notary Public

                                       88

<PAGE>

STATE OF NORTH CAROLINA  )
                         ) ss.:
COUNTY OF MECKLENBURG    )

          On the 24th day of September, 2002 before me, a notary public in and
for said State, personally appeared Rob Ashbaugh known to me (or proved to me on
the basis of satisfactory evidence) to be a Vice President of Wachovia Bank,
National Association, a national banking association that executed the within
instrument, and also known to me (or proved to me on the basis of satisfactory
evidence) to be the person who executed it on behalf of said corporation, and
acknowledged to me that such corporation executed the within instrument.

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

                              /s/ Sandi L. Lee
                              ----------------------------------
Seal                          Notary Public

                                       89

<PAGE>

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

          On the 27th day of September, 2002 before me, a notary public in and
for said State, personally appeared Ryan Biasi, known to me (or proved to me on
the basis of satisfactory evidence) to be Trust Officer of JPMorgan Chase Bank
that executed the within instrument, and also known to me (or proved to me on
the basis of satisfactory evidence) to be the person who executed it on behalf
of said association, and acknowledged to me that such corporation executed the
within instrument.

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

                                   /s/ Jonathan P. Ravens
                                   ----------------------------------
          Seal                     Notary Public

                                       90

<PAGE>

                                   APPENDIX A

                                   DEFINITIONS

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

         "Account": The Collection Account, the Pre-Funding Account, the
Interest Coverage Account, the Supplemental Interest Account, and the
Distribution Account.

         "Accrual Period": With respect to each Distribution Date, the period
commencing on the preceding Distribution Date (or in the case of the first
Accrual Period, commencing on the Closing Date) and ending on the day preceding
the applicable Distribution Date.

         "Addition Notice": With respect to the transfer of Subsequent Mortgage
Loans to the Trust Fund pursuant to Section 2.08, a notice of the Company's
designation of the Subsequent Mortgage Loans to be sold to the Trust Fund and
the aggregate principal balance of such Subsequent Mortgage Loans as of the
Subsequent Cut-off Date. The Addition Notice shall be given not later than four
Business Days prior to the related Subsequent Transfer Date and shall be
substantially in the form attached hereto as Exhibit C.

         "Adjustable Rate Mortgage Loan": A Mortgage Loan which provides at any
period during the life of such loan for the adjustment of the Mortgage Rate
payable in respect thereto. The Adjustable Rate Mortgage Loans are identified as
such on the Mortgage Loan Schedule.

         "Adjustment Date": With respect to each Adjustable Rate Mortgage Loan,
each adjustment date, on which the Mortgage Rate of such Mortgage Loan changes
pursuant to the related Mortgage Note.

         "Administrative Fee": With respect to each Distribution Date, the sum
of the MI Premium, the Servicing Fee and the Certificate Administrator Fee with
respect to such Distribution Date.

         "Administrative Fee Rate": As to each Distribution Date, the sum of (i)
the Certificate Administrator Fee Rate, (ii) the Servicing Fee Rate, and (iii)
the total MI Premiums due during the related Due Period, expressed as an annual
percentage rate of the Pool Balance as of the beginning of that Due Period.

         "Advance": As to any Mortgage Loan, any advance made by the Servicer in
respect of any Distribution Date pursuant to Section 3.24.

         "Adverse REMIC Event": As defined in Section 10.01(f) hereof.

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

<PAGE>

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

         "Allocated Realized Loss Amount": With respect to any Distribution Date
and any Class of Mezzanine Certificates, the Class B Certificates, or the Class
O Certificates, the Realized Losses allocated to such Class of Certificates on
such Distribution Date and the Realized Losses allocated to such Class of
Certificates remaining unpaid from the previous Distribution Date pursuant to
Section 4.07 hereof.

         "Applicable Regulations": As to any Mortgage Loan, all federal and
state laws, statutes, rules and regulations applicable thereto.

         "Appraised Value": The appraised value of a Mortgaged Property based
upon the appraisal made at the time of the origination of the related Mortgage
Loan. With respect to a Mortgage Loan the proceeds of which were used to
refinance an existing Mortgage Loan, the appraised value of the Mortgaged
Property based upon the appraisal with the lowest appraised value (as reviewed
and approved by the Seller) obtained within 12 months of the time of
refinancing.

         "Assignment of Mortgage": An assignment of Mortgage, notice of transfer
or equivalent instrument, in recordable form, which is sufficient under the laws
of the jurisdiction wherein the related Mortgaged Property is located to reflect
of record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.

         "Assumed Final Maturity Date": As to each Class of Certificates, the
Distribution Date in July 2033.

         "Available Funds Cap Carryforward Amount": With respect to any Class of
Underwritten Certificates and the Class B Certificates and any Distribution
Date, the sum of (i) the positive excess, if any, of (x) the aggregate
cumulative amount of REMIC Available Funds Cap Shortfall Amounts for such Class
on all prior Distribution Dates over (y) the aggregate cumulative amount of
Supplemental Interest Payments actually paid to the Holders of that Class on all
prior Distribution Dates pursuant to those clauses of Section 4.04(c) which
relate to payments to that Class, plus (ii) interest on the amount described in
clause (i) at a rate equal to the related Formula Rate for such Class and
Distribution Date.

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

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

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

                                       2

<PAGE>

         "Base Prospectus": The base Prospectus, dated April 15, 2002, with
respect to the Offered Certificates.

         "Basic Documents": This Agreement, the Purchase Agreement, each
Subsequent Transfer Instrument, the Side Indemnity Letter, the REMIC Interests
Sale Agreement, the Converted Loan Purchase Agreement, the Underwriting
Agreement, and the other documents and Certificates delivered in connection with
any of the above.

         "Book-Entry Certificates": Any of the Certificates that shall be
registered in the name of the Depository or its nominee, the ownership of which
is reflected on the books of the Depository or on the books of a Person
maintaining an account with the Depository (directly, as a Depository
Participant, or indirectly, as an indirect participant in accordance with the
rules of the Depository and as described in Section 5.02 hereof). On the Closing
Date, the Class A Certificates, the Class AIO Certificates, the Class P
Certificates, the Mezzanine Certificates, and the Class B Certificates shall be
Book-Entry Certificates.

         "Business Day": Any day other than (i) a Saturday or a Sunday or (ii) a
day on which banking institutions in the City of New York, or the states of
California or Kansas or in the city in which the corporate trust offices of the
Trustee and the Certificate Administrator are located, are required or
authorized by law to be closed.

         "Cash Liquidation": As to any defaulted Mortgage Loan other than a
Mortgage Loan as to which an REO Acquisition occurred, a determination by the
Servicer that it has received all Liquidation Proceeds and other payments or
cash recoveries which the Servicer reasonably and in good faith expects to be
finally recoverable with respect to such Mortgage Loan.

         "Certificate": Any Regular Certificate or Class R Certificate.

         "Certificate Administrator": Wachovia Bank, National Association, a
national banking association, and any successor thereto.

         "Certificate Administrator Fee": With respect to each Distribution
Date, the product of (i) the Certificate Administrator Fee Rate divided by 12
and (ii) the sum of the Principal Balance of the Mortgage Loans and the
Pre-Funded Amount as of the first day of the related Due Period.

         "Certificate Administrator Fee Rate": 0.004% per annum.

         "Certificateholder" or "Holder": The Person in whose name a Certificate
is registered in the Certificate Register, except that a Disqualified
Organization or non-U.S. Person shall not be a Holder of a Residual Certificate
for any purpose hereof.

         "Certificate Margin": With respect to the Class A-1 Certificates on
each Distribution Date (A) on or prior to the Rate Step-Up Date, 0.295% per
annum and (B) after the Rate Step-Up Date, 0.590% per annum. With respect to the
Class A-2 Certificates on each Distribution Date (A) on or prior to the Rate
Step-Up Date, 0.380% per annum and (B) after the Rate Step-Up Date, 0.760% per
annum. With respect to the Class M-1 Certificates on each Distribution Date (A)
on or prior to the Rate Step-Up Date, 0.800% per annum and (B) after the Rate
Step-Up Date, 1.200% per annum. With respect to the Class M-2 Certificates on
each Distribution Date

                                        3

<PAGE>

(A) on or prior to the Rate Step-Up Date, 1.530% per annum and (B) after the
Rate Step-Up Date, 2.295% per annum. With respect to the Class M-3 Certificates
on each Distribution Date (A) on or prior to the Rate Step-Up Date, 1.950% per
annum and (B) after the Rate Step-Up Date, 2.925% per annum. With respect to the
Class B Certificates on each Distribution Date (A) on or prior to the Rate
Step-Up Date, 4.750% per annum and (B) after the Rate Step-Up Date, 7.125% per
annum.

         "Certificate Owner": With respect to each Book-Entry Certificate, any
beneficial owner thereof.

         "Certificate Principal Balance": With respect to any Class of Regular
Certificates (other than the Class AIO Certificates, the Class I Certificate and
the Class O Certificates) immediately prior to any Distribution Date, an amount
equal to the Initial Certificate Principal Balance thereof reduced by the sum of
all amounts actually distributed in respect of principal of such Class and, in
the case of a Mezzanine Certificate and the Class B Certificates, Allocated
Realized Loss Amounts applied with respect to that Class on all prior
Distribution Dates. With respect to the Class O Certificates as of any date of
determination, an amount equal to the excess, if any, of (A) the Principal
Balances of the Mortgage Loans over (B) the then aggregate Certificate Principal
Balances of the Class A Certificates, the Mezzanine Certificates, the Class B
Certificates and the Class P Certificates then outstanding. The Class AIO
Certificates and the Class I Certificate will not have a Certificate Principal
Balance.

         "Certificate Register": The register maintained by the Certificate
Registrar in which the Certificate Registrar shall provide for the registration
of Certificates and of transfers and exchanges of Certificates.

         "Certificate Registrar": Initially, the Certificate Administrator, in
its capacity as Certificate Registrar, or any successor to the Certificate
Administrator in such capacity.

         "Class": Collectively, Certificates which have the same priority of
payment and bear the same Class designation and the form of which is identical
except for variation in the Percentage Interest evidenced thereby.

         "Class A Certificate": Any Class A-1 Certificate or Class A-2
Certificate.

         "Class A Principal Distribution Amount": The excess of (x) the
Certificate Principal Balance of the Class A Certificates immediately prior to
such Distribution Date over (y) the lesser of (A) the product of (i) 87.50% and
(ii) the sum of the Pool Balance as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) plus any amounts on
deposit in the Pre-Funding Account and (B) the Pool Balance as of the last day
of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) plus any amounts on deposit in the Pre-Funding Account minus $3,750,000.

         "Class A-1 Certificate": Any one of the Class A-1 Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-1,

                                       4

<PAGE>

representing the right to distributions as set forth herein and therein and
evidencing a regular interest in the Master REMIC.

         "Class A-1 Certificateholder": Any Holder of a Class A-1 Certificate.

         "Class A-1 Principal Distribution Amount": For any Distribution Date,
the product of (i) the Class A Principal Distribution Amount for such
Distribution Date and (ii) the percentage equivalent of a fraction, the
numerator of which is (x) the Group I Principal Remittance Amount for such
Distribution Date and the denominator of which is (y) the Principal Remittance
Amount for such Distribution Date.

         "Class A-2 Certificate": Any one of the Class A-2 Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-2, representing the right to distributions
as set forth herein and therein and evidencing a regular interest in the Master
REMIC.

         "Class A-2 Principal Distribution Amount": For any Distribution Date,
the product of (i) the Class A Principal Distribution Amount for such
Distribution Date, and (ii) the percentage equivalent of a fraction, the
numerator of which is (x) the Group II Principal Remittance Amount for such
Distribution Date, and the denominator of which is (y) the Principal Remittance
Amount for such Distribution Date.

         "Class AIO Certificate": Any one of the Class AIO Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-7, representing the right to distributions
as set forth herein and therein and evidencing one or more regular interests in
the Master REMIC.

         "Class AIO Current Interest": With respect to any Distribution Date is
         equal to the excess of (x) Interest Remittance Formula Amount for that
Distribution Date less (y) the sum of (i) the Administrative Fees, (ii) the
Class I Monthly Distributable Amount, (iii) the REMIC Current Interest for the
Class A-1 Certificates, (iv) the REMIC Current Interest for the Class A-2
Certificates, (v) the REMIC Current Interest for the Class M-1 Certificates,
(vi) the REMIC Current Interest for the Class M-2 Certificates, (vii) the REMIC
Current Interest for the Class M-3 Certificates and (viii) the REMIC Current
Interest for the Class B Certificates.

         "Class AIO Monthly Interest Distributable Amount": As of any
Distribution Date, the sum of (1) the Class AIO Unpaid Interest Shortfall Amount
for that Distribution Date and (2) the Class AIO Current Interest for that
Distribution Date.

         "Class AIO Pass-Through Rate": For any Distribution Date, the
percentage equivalent of a fraction, the numerator of which is equal to the
Class AIO Current Interest for that Distribution Date and the denominator of
which is the product of (1) the actual number of days in the related Accrual
Period, divided by 360 and (2) the Pool Balance as of the first day of the
preceding Due Period.

         "Class AIO Unpaid Interest Shortfall Amount": For the first
Distribution Date, zero and for any Distribution Date after the first
Distribution Date, the amount, if any, by which (a) the Class AIO Monthly
Interest Distributable Amount for the immediately preceding Distribution

                                       5

<PAGE>

Date exceeds (b) the sum of (i) the aggregate amount actually paid to the
Holders of the Class AIO Certificates on such immediately preceding Distribution
Date pursuant to Section 4.01(a)(ii)(B)(x) hereof and (ii) the amount actually
transferred to the Supplemental Interest Trust on such immediately preceding
Distribution Date pursuant to Section 4.01(a)(ii)(B)(y) hereof, plus interest on
such sum, at the Class AIO Pass-Through Rate for the related Accrual Period.

         "Class B Certificate": Any one of the Class B Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-6, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

         "Class B Principal Distribution Amount": The excess of (x) the sum of
(i) the aggregate Certificate Principal Balance of the Class A Certificates
(after taking into account the payment of the Class A-1 Principal Distribution
Amount, and the Class A-2 Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the payment of the Class M-1 Principal Distribution
Amount on such Distribution Date), (iii) the Certificate Principal Balance of
the Class M-2 Certificates (after taking into account the payment of the Class
M-2 Principal Distribution Amount on such Distribution Date) (iv) the
Certificate Principal Balance of the Class M-3 Certificates (after taking into
account the payment of the Class M-3 Principal Distribution Amount on such
Distribution Date) and (v) the Certificate Principal Balance of the Class B
Certificates immediately prior to such Distribution Date over (y) the lesser of
(A) the product of (i) 97.50% and (ii) the sum of the Pool Balance as of the
last day of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) plus any amounts on deposit in the Pre-Funding Account and (B) the Pool
Balance as of the last day of the related Due Period (after giving effect to
scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during
the related Prepayment Period) plus any amounts on deposit in the Pre-Funding
Account minus $3,750,000.

         "Class I Certificate": Any one of the Class I Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-7, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

         "Class I Monthly Interest Distributable Amount": On each Distribution
Date commencing on the first Distribution Date through and including the
Distribution Date in December 2003, an amount equal to the (positive) product of
(x) 3.8361% (on a 30/360 basis) minus one-month LIBOR (on an actual/360 basis)
and (y) the lesser of the Pool Balance and a $530,000,000 notional amount. For
the Distribution Date in January 2004, an amount equal to the (positive) product
of (x) 3.8535% (on a 30/360 basis) minus one-month LIBOR (on an actual/360
basis) and (y) the lesser of the Pool Balance and a $470,000,000 notional
amount. For the Distribution Date commencing in February 2004 through and
including the Distribution Date in March 2004, an amount equal to the (positive)
product of (x) 4.0408% (on a 30/360 basis) minus one-month LIBOR (on an
actual/360 basis) and (y) the lesser of the Pool Balance

                                       6

<PAGE>

and a $320,000,000 notional amount. For the Distribution Date in April 2004, an
amount equal to the (positive) product of (x) 4.2459% (on a 30/360 basis) minus
one-month LIBOR (on an actual/360 basis) and (y) the lesser of the Pool Balance
and a $185,000,000 notional amount. For the Distribution Date commencing in May
2004 through and including the Distribution Date in January 2005, an amount
equal to the (positive) product of (x) 4.3368% (on a 30/360 basis) minus
one-month LIBOR (on an actual/360 basis) and (y) the lesser of the Pool Balance
and a $110,000,000 notional amount. For the Distribution Date commencing in
February 2005 through and including the Distribution Date in March 2005, an
amount equal to the (positive) product of (x) 4.4508% minus one-month LIBOR (on
an actual/360 basis) and (y) the lesser of the Pool Balance and a $60,000,000
notional amount. For the Final Distribution Date for the class I certificate
which shall be the Distribution Date in April 2005, an amount equal to the
(positive) product of (x) 4.6760% (on a 30/360 basis) minus one-month LIBOR (on
an actual/360 basis) and (y) the lesser of the Pool Balance and a $25,000,000
notional amount. In the event that the Class I Monthly Interest Distributable
Amount is not a positive number, no payment will be made in respect of the Class
I Monthly Interest Distributable Amount.

         "Class I Termination Date":  April 25, 2005.

         "Class M-1 Certificate": Any one of the Class M-1 Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-3, representing the right to distributions
as set forth herein and therein and evidencing a regular interest in the Master
REMIC.

         "Class M-1 Principal Distribution Amount": The excess of (x) the sum of
(i) the aggregate Certificate Principal Balance of the Class A Certificates
(after taking into account the payment of the Class A-1 Principal Distribution
Amount, and the Class A-2 Principal Distribution Amount on such Distribution
Date) and (ii) the Certificate Principal Balance of the Class M-1 Certificates
immediately prior to such Distribution Date over (y) the lesser of (A) the
product of (i) 91.50% and (ii) the sum of the Pool Balance as of the last day of
the related Due Period (after giving effect to scheduled payments of principal
due during the related Due Period, to the extent received or advanced, and
unscheduled collections of principal received during the related Prepayment
Period) plus any amounts on deposit in the Pre-Funding Account and (B) the Pool
Balance as of the last day of the related Due Period (after giving effect to
scheduled payments of principal due during the related Due Period, to the extent
received or advanced, and unscheduled collections of principal received during
the related Prepayment Period) plus any amounts on deposit in the Pre-Funding
Account minus $3,750,000.

         "Class M-2 Certificate": Any one of the Class M-2 Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-4, representing the right to distributions
as set forth herein and therein and evidencing a regular interest in the Master
REMIC.

         "Class M-2 Principal Distribution Amount": The excess of (x) the sum of
(i) the aggregate Certificate Principal Balance of the Class A Certificates
(after taking into account the payment of the Class A-1 Principal Distribution
Amount and the Class A-2 Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the payment of the Class M-1 Principal

                                        7

<PAGE>

Distribution Amount on such Distribution Date) and (iii) the Certificate
Principal Balance of the Class M-2 Certificates immediately prior to such
Distribution Date over (y) the lesser of (A) the product of (i) 94.50% and (ii)
the sum of the Pool Balance as of the last day of the related Due Period (after
giving effect to scheduled payments of principal due during the related Due
Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) plus any amounts on
deposit in the Pre-Funding Account and (B) the Pool Balance as of the last day
of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) plus any amounts on deposit in the Pre-Funding Account minus $3,750,000.

         "Class M-3 Certificate": Any one of the Class M-3 Certificates
executed, authenticated and delivered pursuant to Section 5.01, substantially in
the form annexed hereto as Exhibit A-5, representing the right to distributions
as set forth herein and therein and evidencing a regular interest in the Master
REMIC.

         "Class M-3 Principal Distribution Amount": The excess of (x) the sum of
(i) the aggregate Certificate Principal Balance of the Class A Certificates
(after taking into account the payment of the Class A-1 Principal Distribution
Amount, and the Class A-2 Principal Distribution Amount on such Distribution
Date), (ii) the Certificate Principal Balance of the Class M-1 Certificates
(after taking into account the payment of the Class M-1 Principal Distribution
Amount on such Distribution Date), (iii) the Certificate Principal Balance of
the Class M-2 Certificates (after taking into account the payment of the Class
M-2 Principal Distribution Amount on such Distribution Date) and (iv) the
Certificate Principal Balance of the Class M-3 Certificates immediately prior to
such Distribution Date over (y) the lesser of (A) the product of (i) 96.50% and
(ii) the sum of the Pool Balance as of the last day of the related Due Period
(after giving effect to scheduled payments of principal due during the related
Due Period, to the extent received or advanced, and unscheduled collections of
principal received during the related Prepayment Period) plus any amounts on
deposit in the Pre-Funding Account and (B) the Pool Balance as of the last day
of the related Due Period (after giving effect to scheduled payments of
principal due during the related Due Period, to the extent received or advanced,
and unscheduled collections of principal received during the related Prepayment
Period) plus any amounts on deposit in the Pre-Funding Account minus $3,750,000.

         "Class O Certificate": Any one of the Class O Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-9, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

         "Class P Certificate": Any one of the Class P Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-10, representing the right to distributions as set
forth herein and therein and evidencing a regular interest in the Master REMIC.

         "Class P Monthly Distribution Amount": An amount equal to all
prepayment penalties on a Distribution Date received on the Mortgage Pool during
the prior Prepayment Period.

                                        8

<PAGE>

         "Class P Principal Distribution Date": The earlier of (i) the 35th
Distribution Date and (ii) the Distribution Date on which the Certificate
Principal Balances for all of the Class A Certificates are reduced to zero.

         "Class R Certificate": Any one of the Class R Certificates executed,
authenticated and delivered pursuant to Section 5.01, substantially in the form
annexed hereto as Exhibit A-10, representing the right to distributions as set
forth herein, and evidencing the R-I Interest, the R-II Interest, the R-III
Interest and the R-IV Interest, each the sole "residual interest" in REMIC I,
REMIC II, REMIC III and the Master REMIC, respectively.

         "Close of Business": As used herein, with respect to any Business Day,
5:00 p.m. (New York time).

         "Closing Date": September 27, 2002.

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

         "Collection Account": The account or accounts created and maintained by
the Servicer pursuant to Section 3.06(d) hereof, which must be an Eligible
Account.

         "Commission": The Securities and Exchange Commission.

         "Company": NovaStar Mortgage Funding Corporation, a Delaware
corporation, and its successors and assigns.

         "Compensating Interest": With respect to any Determination Date, an
amount equal to the lesser of (i) the aggregate amount of Prepayment Interest
Shortfalls for the related Prepayment Period and (ii) the Servicing Fee for the
related Distribution Date.

         "Conversion Date": The date on which a Convertible Mortgage Loan
becomes a Converted Mortgage Loan according to the terms of the related Mortgage
Note.

         "Converted Loan Purchase Agreement": The Converted Loan Purchase
Agreement, dated as of September 1, 2002, among the Converted Loan Purchaser,
the Certificate Administrator, the Trustee and the Servicer.

         "Converted Loan Purchaser": NovaStar Capital, Inc., a Delaware
corporation, and any successor thereto.

         "Converted Mortgage Loan": Any Convertible Mortgage Loan as to which
the Mortgagor has exercised the option to convert to a fixed Mortgage Rate and
satisfied all of the conditions to conversion set forth in the Mortgage Note.

         "Convertible Mortgage Loans": Any Mortgage Loan evidenced by a Mortgage
Note that according to its terms is convertible at the option of the Mortgagor
from a variable Mortgage Rate to a fixed Mortgage Rate, subject to satisfaction
of the conditions set forth in such note.

                                        9

<PAGE>

         "Corporate Trust Office": With respect to the Trustee, the principal
corporate trust office at which at any particular time its corporation trust
business shall be administered, which office at the date of execution of this
Agreement is located at 450 West 33rd Street, 14th Floor, New York, New York
10001, Attention: Institutional Trust Services, NovaStar Mortgage Funding Trust,
Series 2002-3. With respect to the Certificate Administrator, the Paying Agent
and the Certificate Registrar, the principal corporate trust office at which at
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at 401 S.
Tryon Street, NC 1179, 12th Floor, Charlotte, North Carolina 28288-1179,
Attention: Structured Finance Trust Services (NovaStar Mortgage Funding Trust,
Series 2002-3).

         "Credit Enhancement Percentage": For any Distribution Date, the
percentage equivalent of a fraction, (x) the numerator of which is the sum of
the aggregate Certificate Principal Balances of the Mezzanine Certificates, the
Class B Certificates, and the Class O Certificates, and (y) the denominator of
which is the sum of (i) the Pool Balance and (ii) for any Distribution Date
occurring before the expiration of the Funding Period, the Pre-Funded Amount, in
each case calculated prior to taking into account the distribution of the
Principal Distribution Amount to the Holders of the Certificates then entitled
to distributions of principal on such Distribution Date.

         "Crossover Date": The earlier to occur of (i) the Distribution Date on
which the aggregate Certificate Principal Balance of the Class A Certificates is
reduced to zero; and (ii) the later to occur of (x) the Distribution Date
occurring in the 37th period and (y) the first Distribution Date on which the
Credit Enhancement Percentage for the Class A Certificates (calculated for this
purpose only after taking into account distributions of principal on the
mortgage loans but prior to the principal distributions to the certificates) is
greater than or equal to 12.50%.

         "Cumulative Loss Percentage": As to any Distribution Date, the
percentage equivalent of the fraction obtained by dividing (i) the aggregate
amount of Realized Losses on the Mortgage Loans (after giving effect to coverage
provided by any MI Policy) from the Cut-off Date through such Distribution Date
by (ii) the sum of the aggregate Principal Balance of the Initial Mortgage Loans
as of the Cut-off Date plus the Original Pre-Funded Amount.

         "Cut-off Date": With respect to each Initial Mortgage Loan, the later
of (i) September 1, 2002 and (ii) the date of origination of such Initial
Mortgage Loan.

         "Cut-off Date Aggregate Principal Balance": With respect to the
Mortgage Pool, the aggregate of the Cut-off Date Principal Balances of the
Initial Mortgage Loans of $403,959,621.37.

         "Cut-off Date Principal Balance": With respect to any Mortgage Loan,
the unpaid principal balance thereof as of the applicable Cut-off Date or
Subsequent Cut-off Date, as the case may be (or as of the applicable date of
substitution with respect to an Eligible Substitute Mortgage Loan).

                                       10

<PAGE>

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

         "Deferred Interest": With respect to any REO Property, the current
portion of interest not currently paid by the Mortgagor that is added to the
principal balance of such REO Property.

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

         "Definitive Certificates": The Class O, Class I and Class R
Certificates, and such other Classes of Certificates as become Definitive
Certificates pursuant to Section 5.02(c) hereof.

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

         "30-Day Delinquency Percentage": As of the last day of any Due Period,
the percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 30 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

         "60-Day Delinquency Percentage": As of the last day of any Due Period,
the percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 60 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

         "90-Day Delinquency Percentage": As of the last day of any Due Period,
the percentage equivalent of a fraction, (i) the numerator of which equals the
aggregate Principal Balance of the Mortgage Loans that are 90 or more days
delinquent, in foreclosure or converted to REO Properties as of such last day of
such Due Period, and (ii) the denominator of which is the Pool Balance as of the
last day of such Due Period.

         "Delinquent": Any Mortgage Loan, the Monthly Payment due on a Due Date
which is not made by the Close of Business on the next scheduled Due Date for
such Mortgage Loan.

         "Depository": The initial Depository shall be The Depository Trust
Company, whose nominee is Cede & Co., or any other organization registered as a
"clearing agency" pursuant to Section 17A of the Securities Exchange Act of
1934, as amended. The Depository shall initially be the registered Holder of the
Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.

                                       11

<PAGE>

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

         "Determination Date": With respect to any Distribution Date, the 15th
day of the calendar month in which such Distribution Date occurs or, if such
15th day is not a Business Day, the Business Day immediately preceding such 15th
day.

         "Determination Date Report": The meaning specified in Section 3.23
hereof.

         "Disqualified Organization": "Disqualified Organization" shall have the
meaning set forth from time to time in the definition thereof at Section
860E(e)(5) of the Code and applicable to the Trust.

         "Distribution Account": The trust account or accounts created and
maintained by the Trustee or the Certificate Administrator pursuant to Section
4.02 hereof, which must be an Eligible Account.

         "Distribution Date": The 25th day of any calendar month, or if such
25th day is not a Business Day, the Business Day immediately following such 25th
day, commencing in October, 2002.

         "Due Date": The first day of the month of the related Distribution
Date.

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

         "Eligible Account": An account that is either: (A) a segregated account
or accounts maintained with an institution whose deposits are insured by the
FDIC, the unsecured and uncollateralized long-term debt obligations of which
institution shall be rated AA or higher by Standard & Poor's and Aa2 or higher
by Moody's and in the highest short-term rating category by each of the Rating
Agencies, and which is (i) a federal savings and loan association duly
organized, validly existing and in good standing under the federal banking laws,
(ii) an institution duly organized, validly existing and in good standing under
the applicable banking laws of any state, (iii) a national banking association
duly organized, validly existing and in good standing under the federal banking
laws, or (iv) a principal subsidiary of a bank holding company or (B) a
segregated trust account or accounts maintained with the trust department of a
federal or state chartered depository institution acceptable to each Rating
Agency, having capital and surplus of not less than $100,000,000, acting in its
fiduciary capacity.

         "Eligible Investments": One or more of the following:

         (i) direct obligations of, and obligations fully guaranteed by, the
United States of America, any of the Federal Home Mortgage Corporation, the
Federal National Mortgage Association, the Federal Home Loan Banks or any agency
or instrumentality of the United States of America the obligations of which are
backed by the full faith and credit of the United States of America;

                                       12

<PAGE>

         (ii)  (A) demand and time deposits in, Certificates of deposit of,
banker's acceptances issued by or federal funds sold by any depository
institution or trust company (including the Trustee, the Certificate
Administrator 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 has a
short-term unsecured debt rating in the highest available rating category of
each of the Rating Agencies and provided that each such investment has an
original maturity of no more than 365 days, and (B) any other demand or time
deposit or deposit which is fully insured by the Federal Deposit Insurance
Corporation;

         (iii) repurchase obligations with a term not to exceed 30 days with
respect to any security described in clause (i) above and entered into with a
depository institution or trust company (acting as a principal) rated "A-1+" or
higher by S&P and A2 or higher by Moody's; provided, however, that collateral
transferred pursuant to such repurchase obligation must (A) be valued daily at
current market price plus accrued interest, (B) pursuant to such valuation,
equal, at all times, 105% of the cash transferred in exchange for such
collateral and (C) be delivered in such a manner as to accomplish perfection of
a security interest in the collateral by possession of certificated securities.

         (iv)  securities bearing interest or sold at a discount issued by any
corporation incorporated under the laws of the United States of America or any
State thereof which has a long-term unsecured debt rating in the highest
available rating category of each of the Rating Agencies at the time of such
investment;

         (v)   commercial paper having an original maturity of less than 365
days and issued by an institution having a short-term unsecured debt rating in
the highest available rating category of each of the Rating Agencies at the time
of such investment;

         (vi)  a guaranteed investment contract approved by each of the Rating
Agencies and issued by an insurance company or other corporation having a
long-term unsecured debt rating in the highest available rating category of each
of the Rating Agencies at the time of such investment; and

         (vii) money market funds having ratings in the highest available
long-term rating category of each of the Rating Agencies at the time of such
investment; any such money market funds which provide for demand withdrawals
being conclusively deemed to satisfy any maturity requirement for Eligible
Investments set forth in the Agreement;

         provided, however, that each such instrument shall be acquired in an
arm's-length transaction and no such instrument shall be an Eligible Investment
if it represents, either (1) the right to receive only interest payments with
respect to the underlying debt instrument or (2) the right to receive both
principal and interest payments derived from obligations underlying such
instrument and the principal and interest payments with respect to such
instrument provide a yield to maturity greater than 120% of the yield to
maturity at par of such underlying obligations; provided, further, however, that
each such instrument acquired shall not be acquired at a price in

                                       13

<PAGE>

excess of par. The Trustee or Certificate Administrator may purchase from or
sell to itself or an affiliate, as principal or agent, the Eligible Investments
listed above.

         "Eligible Substitute Mortgage Loan": A Mortgage Loan substituted by the
Seller for a Deleted Mortgage Loan which must, on the date of such substitution,
as confirmed in an Officer's Certificate delivered to the Certificate
Administrator, (i) have an outstanding principal balance, after deduction of the
principal portion of the monthly payment due in the month of substitution (or in
the case of a substitution of more than one Mortgage Loan for a Deleted Mortgage
Loan, an aggregate outstanding principal balance, after such deduction), not in
excess of the outstanding principal balance of the Deleted Mortgage Loan (the
amount of any shortfall to be deposited by the Seller in the Collection Account
in the month of substitution); (ii) comply in all material respects with each
representation and warranty set forth in clauses (ii) through (lxviii) of
Section 3.01(b) of the Purchase Agreement other than clauses (iii), (v)-(xiv),
(xli), (lv) and (lvi); (iii) have a Mortgage Rate and, with respect to an
Adjustable Rate Mortgage Loan, a Gross Margin no lower than and not more than 1%
per annum higher than the Mortgage Rate and Gross Margin, respectively, of the
Deleted Mortgage Loan as of the date of substitution; (iv) have a Loan-to-Value
Ratio, at the time of substitution no higher than that of the Deleted Mortgage
Loan at the time of substitution; (v) have a remaining term to stated maturity
not greater than (and not more than one year less than) that of the Deleted
Mortgage Loan; (vi) not be 30 days or more delinquent; (vii) not be a negative
amortization loan; (viii) have a lien priority equal to or superior to the lien
priority of the Deleted Mortgage Loan; and (ix) be a Qualified Replacement
Mortgage.

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

         "Expense Adjusted Mortgage Rate": With respect to any Mortgage Loan, as
of any date of determination, a per annum rate of interest equal to the then
applicable Mortgage Rate for such Mortgage Loan minus the Administrative Fee
Rate.

         "Fannie Mae": Federal National Mortgage Association or any successor
thereto.

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

         "Fixed Rate Mortgage Loan": A first lien Mortgage Loan which provides
for a fixed Mortgage Rate payable with respect thereto. The Fixed Rate Mortgage
Loans are identified as such on the Mortgage Loan Schedule.

         "Foreclosure Profit": With respect to a Liquidated Mortgage Loan, the
amount, if any, by which (i) the aggregate of its Net Liquidation Proceeds
exceeds (ii) the related Principal Balance (plus accrued and unpaid interest
thereon at the applicable Mortgage Rate from the date interest was last paid
through the date of receipt of the final Liquidation Proceeds) of such
Liquidated Mortgage Loan immediately prior to the final recovery of its
Liquidation Proceeds.

         "Formula Rate": For any Distribution Date and the Class A Certificates,
the Mezzanine Certificates, and the Class B Certificates, LIBOR plus the related
Certificate Margin.

         "Freddie Mac": The Federal Home Loan Mortgage Corporation, or any
successor thereto.

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<PAGE>

         "Funding Period": The period beginning on the Closing Date and ending
on the earlier to occur of the date upon which (a) the amount on deposit in the
Pre-Funding Account (exclusive of investment income) has been reduced to less
than $10,000 or (b) December 25, 2002.

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

         "Group I Cross Collateralization Amount": For any Distribution Date,
the portion of the Group I Interest Remittance Amount remaining after payment of
the REMIC Monthly Interest Distributable Amount on the Class A-1 Certificates.

         "Group I Interest Remittance Amount": For any Distribution Date, the
portion of the Interest Remittance Amount that was collected or advanced on the
Group I Mortgage Loans.

         "Group I Mortgage Loans": The Mortgage Loans allocated to Group I which
primarily support the Class A-1 Certificates.

         "Group I Principal Remittance Amount": For any Distribution Date, the
portion of the Principal Remittance Amount that was collected or advanced on the
Group I Mortgage Loans.

         "Group II Cross Collateralization Amount": For any Distribution Date,
the portion of the Group II Interest Remittance Amount remaining after payment
of the REMIC Monthly Interest Distributable Amounts on the Class A-2
Certificates.

         "Group II Interest Remittance Amount": For any Distribution Date, the
portion of the Interest Remittance Amount that was collected or advanced on the
Group II Mortgage Loans.

         "Group II Mortgage Loans:" The Mortgage Loans allocated to Group II
which primarily support the Class A-2 Certificates.

         "Group II Principal Remittance Amount": For any Distribution Date, the
portion of the Principal Remittance Amount that was collected or advanced on the
Group II Mortgage Loans.

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

         "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.

                                       15

<PAGE>

         "Initial Certificate Principal Balance": With respect to any Regular
Certificate (other than a Class AIO Certificate or Class I Certificate), the
amount designated "Initial Certificate Principal Balance" on the face thereof.

         "Initial Mortgage Loan": The Mortgage Loans which are described (with
complete statistical information included) in the Prospectus Supplement.

         "Insurance Proceeds": Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Loan which are required to be remitted to
the Servicer, including MI Insurance Proceeds in the case of Mortgage Loans
covered under a MI Policy, or amounts required to be paid by the Servicer
hereunder, net of any component thereof (i) covering any expenses incurred by or
on behalf of the Servicer in connection with obtaining such proceeds, (ii) that
is applied to the restoration or repair of the related Mortgaged Property or
(iii) released to the Mortgagor in accordance with the Servicer's normal
servicing procedures.

         "Interest Coverage Account": The account established and maintained
pursuant to Section 4.06 , as defined therein, which must be an Eligible
Account.

         "Interest Coverage Amount": The amount to be paid by the Company to the
Certificate Administrator for deposit in the Interest Coverage Account on the
Closing Date pursuant to Section 4.06, which amount is $100,000.

         "Interest Determination Date": With respect to each Accrual Period, the
second LIBOR Business Day preceding the commencement of such Accrual Period.

         "Interest Remittance Amount": With respect to any Distribution Date,
that portion of the REMIC Available Funds for such Distribution Date allocable
to interest.

         "Interest Remittance Formula Amount": As of any Distribution Date is an
amount equal to (1) the product of (x) 1/12 of the Weighted Average Mortgage
Rate of the Mortgage Pool as of the beginning of the prior Due Period and (y)
the aggregate Principal Balances of the Mortgage Loans as of the beginning of
the prior Due Period minus (2) the aggregate amount of Relief Act Shortfalls and
Net Prepayment Interest Shortfalls for the prior period.

         "Lender Letter": The lender letter #LL03-00 dated April 11, 2000 for
Fannie Mae Sellers.

         "LIBOR": All references to LIBOR herein are references to One-Month
LIBOR. With respect to any Accrual Period, the rate determined by the
Certificate Administrator on the related Interest Determination Date on the
basis of the offered rates of the Reference Banks for one-month United States
dollar deposits, as such rates appear on the Telerate Page 3750, as of 11:00
a.m. (London time) on such Interest Determination Date. If such rate does not
appear on Telerate Page 3750, the rate for that day will be determined on the
basis of the rates at which deposits in United States dollars are offered by the
Reference Banks at approximately 11:00 a.m., London time, on that day to prime
banks in the London interbank market for a period equal to the relevant Accrual
Period (commencing on the first day of such Accrual Period). The Certificate
Administrator will request the principal London office of each of the Reference
Banks to provide a quotation of its rate. If at least two such quotations are
provided, the rate for

                                       16

<PAGE>

that day will be the arithmetic mean of the quotations. If fewer than two
quotations are provided as requested, the rate for that day will be the
arithmetic mean of the rates quoted by major banks in New York City, selected by
the Certificate Administrator, at approximately 11:00 a.m., New York City time,
on that day for loans in United States dollars to leading European banks for a
period equal to the relevant Accrual Period (commencing on the first day of such
Accrual Period).

         The establishment of LIBOR on each Interest Determination Date by the
Certificate Administrator and the Certificate Administrator's calculation of the
rate of interest applicable to the Certificates for the related Accrual Period
shall (in the absence of manifest error) be final and binding.

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

         "Lifetime Rate Cap": With respect to each Adjustable Rate Mortgage Loan
with respect to which the related Mortgage Note provides for a lifetime rate
cap, the maximum Mortgage Rate permitted over the life of such Mortgage Loan
under the terms of such Mortgage Note, as set forth on the Mortgage Loan
Schedule.

         "Liquidated Mortgage Loan": With respect to any Distribution Date, any
Mortgage Loan in respect of which the Servicer has determined, in accordance
with the servicing procedures specified in Article III hereof, as of the end of
the related Prepayment Period that substantially all Liquidation Proceeds which
it reasonably expects to recover with respect to the disposition of the related
Mortgaged Property or REO Property have been recovered.

         "Liquidation Expenses": Out-of-pocket expenses (exclusive of overhead)
which are incurred by or on behalf of the Servicer in connection with the
liquidation of any Mortgage Loan and not recovered under any insurance policy,
such expenses, including, without limitation, legal fees and expenses, any
unreimbursed amount expended respecting the related Mortgage Loan and any
related and unreimbursed expenditures for real estate property taxes or for
property restoration, preservation or insurance against casualty loss or damage.

         "Liquidation Proceeds": Proceeds (including Insurance Proceeds)
received in connection with the liquidation of any Mortgage Loan or related REO
Property.

         "Loan-to-Value Ratio": With respect to any Mortgage Loan, as of any
date of determination, a fraction expressed as a percentage, the numerator of
which is the then current principal amount of the Mortgage Loan, and the
denominator of which is the lesser of the purchase price or the Appraised Value
of the related Mortgaged Property.

         "Loan Year": With respect to any Mortgage Loan, the one year period
commencing on the day succeeding the origination of such Mortgage Loan and
ending on the anniversary date of such Mortgage Loan, and each annual period
thereafter.

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

                                       17

<PAGE>

         "Master REMIC": The REMIC established pursuant to Section 2.09 hereof.
The assets of the Master REMIC shall be the REMIC III Regular Interests.

         "Master REMIC Balance": As to each Class of Master REMIC Interests and
any Distribution Date, the Initial Master REMIC Balance as set forth in Section
2.09 minus all amounts distributed as principal of such Class on previous
Distribution Dates.

         "Master REMIC Regular Interests": As defined in Section 2.09 hereof.

         "Maximum Collateral Amount": The sum of the Principal Balance as of the
Cut-off Date of the Initial Mortgage Loans and the Principal Balance of each
Subsequent Mortgage Loan as of its respective Subsequent Cut-off Date.

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

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

         "MERS System": The system of recording transfers of Mortgages
electronically maintained by MERS.

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

         "MI Insurance Agreement": A private mortgage insurance agreement issued
by the MI Insurer pursuant to which MI Policies are issued on individual
Mortgage Loans.

         "MI Insurance Proceeds": Proceeds paid by the MI Insurer pursuant to an
MI Policy.

         "MI Insurer": Each of (i) PMI Mortgage Insurance Co., an Arizona
mortgage insurance company, (ii) Mortgage Guaranty Insurance Corporation, a
Wisconsin private mortgage insurance company and (iii) Radian Guaranty, Inc., a
Pennsylvania private mortgage insurance company, and their successors and
assigns.

         "MI Insurer Insolvency Event": (A) The determination by the applicable
regulatory or supervisory agency having jurisdiction over the MI Insurer that
such MI Insurer is insolvent or unable to pay its obligations as they mature,
(B) following the failure of the MI Insurer to pay under the related MI Policy,
the determination by the Servicer that such MI Insurer is insolvent or unable to
pay its obligations as they become due, (C) the long-term rating on the claims
paying ability of the MI Insurer shall be lowered by Moody's below A-2, if such
MI Insurer is then rated by Moody's, or shall be lowered by S&P below AA, if
such MI Insurer is then rated by S&P.

         "MI Policy": A private mortgage insurance policy underwritten by the MI
Insurer with respect to an individual Mortgage Loan, issued pursuant to the MI
Insurance Agreement.

                                       18

<PAGE>

         "MI Premium": The primary mortgage insurance premium for each MI
Policy, payable annually to an MI Insurer, as specified in the MI Insurance
Agreement, and with respect to each monthly premium payment, 1/12 of the annual
premium.

         "MIN": The Mortgage Identification Number for Mortgage Loans registered
with MERS on the MERS System.

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

         "MOM Loan": With respect to any Mortgage Loan, MERS acting as the
mortgagee of such Mortgage Loan, solely as nominee for the originator of such
Mortgage Loan and its successors and assigns, at the origination thereof.

         "Monthly Payment": With respect to any Mortgage Loan (including any REO
Property) and any Due Date, the payment of principal and interest due thereon in
accordance with the amortization schedule at the time applicable thereto (after
adjustment, if any, for partial Principal Prepayments and for Deficient
Valuations occurring prior to such Due Date but before any adjustment to such
amortization schedule by reason of any bankruptcy, other than a Deficient
Valuation, or similar proceeding or any moratorium or similar waiver or grace
period).

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

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

         "Mortgage File": The mortgage documents listed in Section 2.01
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.

         "Mortgage Loan Schedule": With respect to any date, the schedule of
Mortgage Loans subject to this Agreement on such date. The schedule of Initial
Mortgage Loans as of the Cut-off Date is the schedule set forth in Exhibit B
hereto and the schedule or schedules of Subsequent Mortgage Loans, if any, as of
the Subsequent Cut-off Date, which schedules set forth as to each Mortgage Loan:

         (i)    the loan number and name of the Mortgagor;

         (ii)   the street address, city, state and zip code of the Mortgaged
Property;

         (iii)  the Mortgage Rate at origination;

         (iv)   with respect to an Adjustable Rate Mortgage Loan, the Maximum
Rate and the Minimum Rate;

         (v)    the maturity date;

         (vi)   the original principal balance;

                                       19

<PAGE>

         (vii)    the first Distribution Date;

         (viii)   the type of Mortgaged Property;

         (ix)     the Monthly Payment in effect as of the Cut-off Date (with
respect to an Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to
a Subsequent Mortgage Loan);

         (x)      the Principal Balance as of the Cut-off Date (with respect to
an Initial Mortgage Loan) or Subsequent Cut-off Date (with respect to a
Subsequent Mortgage Loan);

         (xi)     with respect to an Adjustable Rate Mortgage Loan, the Index,
the Gross Margin; the Lifetime Rate Cap and the Periodic Rate Cap;

         (xii)    with respect to an Adjustable Rate Mortgage Loan, the first
Adjustment Date and next Adjustment Date, if any;

         (xiii)   with respect to an Adjustable Rate Mortgage Loan, the
Adjustment Date frequency and Distribution Date frequency;

         (xiv)    the occupancy status;

         (xv)     the purpose of the Mortgage Loan;

         (xvi)    the Appraised Value of the Mortgaged Property;

         (xvii)   the original term to maturity;

         (xviii)  the paid-through date of the Mortgage Loan;

         (xix)    the Loan-to-Value Ratio;

         (xx)     whether the Mortgage Loan is an Adjustable Rate Mortgage Loan
or a Fixed Rate Mortgage Loan;

         (xxi)    whether or not the Mortgage Loan was underwritten pursuant to
a limited documentation program;

         (xxii)   whether or not the Mortgage Loan is a Convertible Mortgage
Loan;

         (xxiii)  whether the Mortgage Loan is covered by an MI Policy; and

         (xxiv)   if the Mortgage Loan is registered with MERS on the MERS
System, the MIN.

         The Mortgage Loan Schedule shall set forth the total of the amounts
described under (x) above for all of the Mortgage Loans.

         "Mortgage Loans": At any time, collectively, all Mortgage Loans that
have been transferred and conveyed to the Trust, in each case together with the
Related Documents, and that remain subject to the terms of the Agreement. As
applicable, Mortgage Loan shall be

                                       20

<PAGE>

deemed to refer to the related REO Property and both Initial Mortgage Loans and
Subsequent Mortgage Loans.

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

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

         "Mortgage Pool": The pool of Mortgage Loans, identified on Exhibit B
from time to time, and any REO Properties acquired in respect thereof and as
supplemented by any Subsequent Mortgage Loans identified on each schedule of
Subsequent Mortgage Loans attached to a Subsequent Transfer Instrument.

         "Mortgaged Property": The underlying property, including real property
and improvements thereon, securing a Mortgage Loan.

         "Mortgagor": The obligor on a Mortgage Note.

         "Net Liquidation Proceeds": With respect to any Liquidated Mortgage
Loan, Liquidation Proceeds net of Liquidation Expenses.

         "Net Mortgage Rate": With respect to any Mortgage Loan and any day, the
related Mortgage Rate less the Administrative Fee Rate.

         "Net Prepayment Interest Shortfall": On any Distribution Date, the
excess, if any of (i) any Prepayment Interest Shortfall and (ii) any payments of
Compensating Interest made by the Servicer.

         "Net WAC": The weighted average interest rate on the Mortgage Loans,
net of Administrative Fees.

         "NFI": NovaStar Financial, Inc., a Maryland corporation, and its
successors and assigns.

         "Non-REMIC Accounts" The Pre-Funding Account, the Interest Coverage
Account and the Supplemental Interest Account held by the Supplemental Interest
Trust.

         "Nonrecoverable Advance": With respect to any Mortgage Loan, any
Advance (i) which was previously made or is proposed to be made by the Servicer;
and (ii) which, in the good faith judgment of the Servicer, will not or, in the
case of a proposed Advance, would not, be ultimately recoverable by the Servicer
from Liquidation Proceeds, Repurchase Price or future payments on such Mortgage
Loan.

         "Notional Amount Test Event": Occurs when the Certificate Administrator
determines, pursuant to Section 4.03(f), that the scheduled notional amount that
would be used to calculate the Class I Monthly Interest Distributable Amount
exceeds the aggregate Certificate Principal Balance of the Underwritten
Certificates (and the Class B Certificates if held by an entity unrelated to the
Seller) on such Distribution Date.

                                       21

<PAGE>

         "NRFC": NovaStar REMIC Financing Corporation, a Delaware corporation,
and its successors and assigns.

         "Offered Certificates": Collectively, the Class A Certificates, the
Class AIO Certificates, the Mezzanine Certificates and the Class P Certificates.

         "Officer's Certificate": A Certificate signed by the Chairman of the
Board, the Vice Chairman of the Board, the President or any vice president
(however denominated), and by the Treasurer, the Secretary, or any assistant
treasurer or assistant secretary of the applicable Person.

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

         "Optional Termination Date": The first Distribution Date on which the
Servicer may opt to terminate the Trust Fund pursuant to Section 11.01.

         "Original Pre-Funded Amount": The amount deposited by the Company in
the Pre-Funding Account on the Closing Date, which amount is approximately
$346,040,479.

         "Original Value": Except in the case of a refinanced Mortgage Loan, the
lesser of the Appraised Value or sales price of the Mortgaged Property at the
time a Mortgage Loan is closed, and for a refinanced Mortgage Loan, the Original
Value is the value of such property set forth in an appraisal acceptable to the
Servicer.

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

         "Paying Agent": Any paying agent appointed pursuant to Section 5.05.

         "Percentage Interest": With respect to any Underwritten Certificate or
the Class B Certificates, a fraction, expressed as a percentage, the numerator
of which is the Initial Certificate Principal Balance represented by such
Certificate and the denominator of which is the Initial Certificate Principal
Balance of the related Class. With respect to a Class I Certificate, Class AIO
Certificate, Class P Certificate, Class O Certificate or Residual Certificate,
the portion of the Class evidenced thereby, expressed as a percentage, as stated
on the face of such Certificate; provided, however, that the sum of all such
percentages for each such Class totals 100%.

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

                                       22

<PAGE>

         "Permitted Transferee": Any transferee of a Residual Certificate other
than a Disqualified Organization or a non-U.S. Person.

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

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

         "Pool Balance": As of any date of determination, the aggregate unpaid
principal balance of the Mortgage Loans as of such date.

         "Pre-Funded Amount": With respect to any date of determination, the
amount on deposit in the Pre-Funding Account.

         "Pre-Funding Account": The account established and maintained pursuant
to Section 4.05, as defined herein, and which must be an Eligible Account.

         "Prepayment Assumption": As defined in the Prospectus Supplement.

         "Prepayment Charge": With respect to any Mortgage Loan, the charges or
premiums, if any, due in connection with a full or partial Principal Prepayment
of such Mortgage Loan in accordance with the terms thereof.

         "Prepayment Interest Shortfall": As to any Distribution Date and any
Mortgage Loan (other than a Mortgage Loan relating to an REO Property) that was
the subject of (a) a Principal Prepayment in full during the related Prepayment
Period, an amount equal to the excess of interest accrued during the related
Prepayment Period at the Mortgage Rate (net of the Servicing Fee) on the
Principal Balance of such Mortgage Loan over the amount of interest (adjusted to
the Mortgage Rate (net of the Servicing Fee)) paid by the Mortgagor for such
Prepayment Period to the date of such Principal Prepayment in full or (b) a
partial Principal Prepayment during the prior calendar month, an amount equal to
interest accrued during the related Prepayment Period at the Mortgage Rate (net
of the Servicing Fee) on the amount of such partial Principal Prepayment.

         "Prepayment Period": For any Distribution Date, the period commencing
on the day after the Determination Date in the month preceding the month in
which such Distribution Date falls (or, in the case of the first Distribution
Date, from the Cut-off Date) and ending on the Determination Date of the
calendar month in which such Distribution Date falls.

         "Principal Balance": With respect to any Mortgage Loan or related REO
Property, at any given time, (i) the Principal Balance of the Mortgage Loan as
of the Cut-off Date or Subsequent Cut-off Date, as applicable, minus (ii) the
sum of (a) the principal portion of the Monthly Payments due with respect to
such Mortgage Loan or REO Property during each Due Period ending prior to the
most recent Distribution Date which were received or with respect to which

                                       23

<PAGE>

an Advance was made, and (b) all Principal Prepayments with respect to such
Mortgage Loan or REO Property, and all Insurance Proceeds, Liquidation Proceeds
and REO Proceeds, to the extent applied by the Servicer as recoveries of
principal in accordance with Section 3.13 hereof with respect to such Mortgage
Loan or REO Property, and (c) the principal portion of any Realized Loss with
respect thereto for any previous Distribution Date.

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

         "Principal Remittance Amount": With respect to any Distribution Date,
the sum of (i) each scheduled payment of principal collected or advanced on the
Mortgage Loans by the Servicer that were due during the related Due Period, (ii)
the principal portion of all partial and full Principal Prepayments of the
Mortgage Loans applied by the Servicer during the related Prepayment Period,
(iii) the principal portion of all related Net Liquidation Proceeds and
Insurance Proceeds received during such Prepayment Period, (iv) that portion of
the Repurchase Price, representing principal of any repurchased Mortgage Loan,
deposited to the Collection Account during such Prepayment Period, (v) the
principal portion of any related Substitution Adjustment Amounts deposited in
the Collection Account during such Prepayment Period, (vi) in the case of the
Distribution Date immediately following the end of the Funding Period but no
later than the Distribution Date in December 2002, any amount remaining in the
Pre-Funding Account not used by the Trustee to purchase Subsequent Mortgage
Loans and (vii) on the Distribution Date on which the Trust Fund is to be
terminated pursuant to Section 11.01, that portion of the Termination Price, in
respect of principal.

         "Prospectus": The Prospectus Supplement together with the Base
Prospectus attached thereto with respect to the Offered Certificates.

         "Prospectus Supplement": That certain Prospectus Supplement dated
September 24, 2002 relating to the public offering of the Offered Certificates.

         "Purchase Agreement": The agreement, dated as of September 1, 2002,
between the Seller, the Company, the Trustee and the Certificate Administrator,
regarding the transfer of the Mortgage Loans by the Seller to or at the
direction of the Company.

         "Qualified Liquidation": The meaning set forth from time to time in the
definition thereof at Section 860F(a)(4) of the Code and applicable to the
Trust.

         "Qualified Mortgage": The meaning set forth from time to time in the
definition thereof at Section 860G(a)(3) of the Code and applicable to the
Trust.

         "Qualified Replacement Mortgage": A Mortgage Loan substituted for
another pursuant to Section 3.01 of the Purchase Agreement and that satisfies
all of the criteria set forth from time to time in the definition thereof at
Section 860G(a)(4) of the Code and applicable to the Trust, all as evidenced by
an Officer's Certificate of the Seller delivered to the Certificate
Administrator on behalf of the Trustee prior to any such substitution.

                                       24

<PAGE>

         "Rate Step-up Date": The first Distribution Date to occur after the
Optional Termination Date has occurred.

         "Rating Agency": Any nationally recognized statistical rating
organization, or its successor, that rated the Offered Certificates at the
request of the Company at the time of the initial issuance of the Offered
Certificates. Initially such rating agencies shall consist of Moody's and
Standard & Poor's. If such organization or a successor is no longer in
existence, "Rating Agency" shall be such nationally recognized statistical
rating organization, or other comparable Person, designated by the Company,
notice of which designation shall be given to the Certificate Administrator and
the Trustee. References herein to the highest short-term unsecured rating
category of a Rating Agency shall mean A-1 or better in the case of Standard &
Poor's and P-1 or better in the case of Moody's and in the case of any other
Rating Agency shall mean such equivalent rating. References herein to the
highest long-term rating category of a Rating Agency shall mean "AAA" in the
case of Standard & Poor's and "Aaa" in the case of Moody's and in the case of
any other Rating Agency, such equivalent rating.

         "Realized Loss": With respect to each Mortgage Loan (or REO Property)
as to which a Cash Liquidation or REO Disposition has occurred, an amount (not
less than zero) equal to (i) the Principal Balance of the Mortgage Loan (or REO
Property) as of the date of Cash Liquidation or REO Disposition, plus (ii)
interest (and REO Imputed Interest, if any) at the Net Mortgage Rate from the
Due Date as to which interest was last paid or advanced to Certificateholders up
to the last day of the month in which the Cash Liquidation (or REO Disposition)
occurred on the Principal Balance of such Mortgage Loan (or REO Property)
outstanding during each Due Period that such interest was not paid or advanced,
minus (iii) Net Liquidation Proceeds (after giving effect to coverage provided
by any MI policy), if any, received with respect to such Cash Liquidation (or
REO Disposition), minus the portion thereof reimbursable to the Servicer or any
Subservicer with respect to related Advances or expenses as to which the
Servicer or Subservicer is entitled to reimbursement thereunder but which have
not been previously reimbursed. With respect to each Mortgage Loan which has
become the subject of a Deficient Valuation, the difference between the
principal balance of the Mortgage Loan outstanding immediately prior to such
Deficient Valuation and the principal balance of the Mortgage Loan as reduced by
the Deficient Valuation. With respect to each Mortgage Loan which has become the
object of a Debt Service Reduction, the amount of such Debt Service Reduction.

         "Record Date": With respect to each Distribution Date, the Close of
Business on the Business Day immediately preceding the related Distribution
Date.

         "Reference Banks": Deutsche Bank, Barclay's Bank PLC, The Bank of
Tokyo-Mitsubishi, LTD. and National Westminster Bank PLC and their successors in
interest; provided that if any of the foregoing banks are not suitable to serve
as a Reference Bank, then any leading banks selected by the Certificate
Administrator which are engaged in transactions in Eurodollar deposits in the
international Eurocurrency market (i) with an established place of business in
London, (ii) not controlling, under the control of or under common control with
the Seller or any Affiliate thereof, (iii) whose quotations appear on the
Reuters Screen LIBO Page on the relevant Interest Determination Date and (iv)
which have been designated as such by the Certificate Administrator.

                                       25

<PAGE>

     "Regular Certificate": Any of the Class A Certificates, Mezzanine
Certificates, Class B Certificates, Class I Certificates, Class AIO
Certificates, Class O Certificates or Class P Certificates.

     "Related Documents": With respect to each Mortgage Loan, the documents
specified in Section 2.01 hereof and any documents required to be added to such
documents pursuant to this Agreement, the Purchase Agreement or any Subsequent
Transfer Instrument.

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

     "Relief Act Shortfall": As to any Distribution Date and any Mortgage Loan
(other than a Mortgage Loan relating to an REO Property), any shortfalls
relating to the Relief Act or similar legislation or regulations.

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

     "REMIC Available Funds": As to each Distribution Date, an amount equal to
the amount on deposit in the Distribution Account, representing the sum of (i)
the aggregate amount of scheduled payments on the related Mortgage Loans due on
the related Due Date and received on or prior to the related Determination Date,
(ii) miscellaneous fees and collections, including prepayment penalties with
respect to the Mortgage Loans (but excluding late fees), (iii) any unscheduled
payments and receipts, including Mortgagor prepayments on the related Mortgage
Loans, received during the related Prepayment Period and proceeds of
repurchases, and adjustments in the case of substitutions and terminations, Net
Liquidation Proceeds, Insurance Proceeds, MI Insurance Proceeds and proceeds
from the sale of Converted Mortgage Loans, and (iv) all Advances made for such
Distribution Date in respect of the related Mortgage Loans, (v) on the
Distribution Date following the termination of the Funding Period but no later
than the Distribution Date in December 2002, the amount on deposit in the
Pre-Funding Account at such time, and (vi) on each Payment Date on or prior to
the Distribution Date in December 2002, the amount, if any, withdrawn from the
Interest Coverage Account for such Class.

     "REMIC Available Funds Cap": With respect to any Distribution Date, the
Interest Remittance Formula Amount for that Distribution Date less the Class I
Monthly Interest Distributable Amount and Administrative Fees for that
Distribution Date.

     "REMIC Available Funds Cap Shortfall Amount": With respect to any
Distribution Date, Class of Underwritten Certificates and the Class B
Certificates, the excess, if any, of (1) the interest due on such Class
calculated using the Formula Rate applicable to such Class (less any Net
Prepayment Interest Shortfalls and Relief Act Shortfalls allocable to that
Class) over (2) the interest due on such Class, calculated using the REMIC
Pass-Through Rate applicable to such Class (less any Net Prepayment Interest
Shortfalls and Relief Act Shortfalls allocable to that Class).

     "REMIC I Balance": As to each Class of REMIC I Interests and any
Distribution Date, the Initial REMIC I Balance as set forth in Section 2.09
hereof, minus all amounts distributed as principal of such Class on previous
Distribution Dates.

                                       26

<PAGE>

     "REMIC II Balance": As to each Class of REMIC II Interests and any
Distribution Date, the Initial REMIC II Balance as set forth in Section 2.09
hereof, minus all amounts distributed as principal of such Class on previous
Distribution Dates.

     "REMIC III Balance": As to each Class of REMIC III Interests and any
Distribution Date, the Initial REMIC III Balance as set forth in Section 2.09
hereof, minus all amounts distributed as principal of such Class on previous
Distribution Dates.

     "REMIC Current Interest": For any Distribution Date and each Class of
Underwritten Certificates and Class B Certificates, the amount of interest
accrued during the related Accrual Period at the related REMIC Pass-Through Rate
on the Certificate Principal Balance of such Class immediately prior to such
Distribution Date, in each case, reduced by any Net Prepayment Interest
Shortfalls and any Relief Act Shortfalls allocated to that Class (allocated to
each Certificate based on its respective entitlements to interest irrespective
of any Net Prepayment Interest Shortfalls or Relief Act Shortfalls for that
Distribution Date).

     "REMIC I Interests": As defined in Section 2.09 hereof.

     "REMIC II Interests": As defined in Section 2.09 hereof.

     "REMIC III Interests": As defined in Section 2.09 hereof.

     "REMIC Interests Sale Agreement": The REMIC Interests Sale Agreement, dated
as of September 1, 2002, between the Company and NRFC.

     "REMIC Monthly Interest Distributable Amount": For any Distribution Date
and any Class of Underwritten Certificates and the Class B Certificates, the sum
of (1) the Unpaid Interest Shortfall Amount for that Class and Distribution Date
and (2) the REMIC Current Interest for that Class and Distribution Date. In the
event of a shortfall in the full amount necessary to pay both the Unpaid
Interest Shortfall Amount and the REMIC Current Interest for a Class, the money
will first be applied to the Unpaid Interest Shortfall Amount and then to the
REMIC Current Interest.

     "REMIC Pass-Through Rate": As defined in Section 2.09 hereof.

     "REMIC I Pass-Through Rate": As to each of the respective REMIC I
Interests, the applicable "REMIC I Pass-Through Rate" set forth in Section 2.09
hereof.

     "REMIC II Pass-Through Rate": As to each of the respective REMIC II
Interests, the applicable "REMIC II Pass-Through Rate" set forth in Section 2.09
hereof.

     "REMIC III Pass-Through Rate": As to each of the respective REMIC III
Interests, the applicable "REMIC III Pass-Through Rate" set forth in Section
2.09 hereof.

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

                                       27

<PAGE>

     "REMIC Regular Interests": The REMIC I Regular Interests, the REMIC II
Regular Interests, the REMIC III Regular Interests and the Master REMIC Regular
Interests.

     "REMIC I Regular Interests": As defined in Section 2.09 hereof.

     "REMIC II Regular Interests": As defined in Section 2.09 hereof.

     "REMIC III Regular Interests": As defined in Section 2.09 hereof.

     "REMIC Trust": The segregated pool of assets containing the Trust Fund, but
excluding the Non-REMIC Accounts.

     "REO Acquisition": The acquisition by the Servicer on behalf of the Trustee
for the benefit of the Certificateholders of any REO Property pursuant to
Section 3.13 hereof.

     "REO Disposition": As to any REO Property, a determination by the Servicer
that it has received substantially all Insurance Proceeds, Liquidation Proceeds,
REO Proceeds and other payments and recoveries (including proceeds of a final
sale) which the Servicer expects to be finally recoverable from the sale or
other disposition of the REO Property.

     "REO Imputed Interest": As to any REO Property, for any period, an amount
equivalent to interest (at the Net Mortgage Rate that would have been applicable
to the related Mortgage Loan had it been outstanding net, with respect to a
negative amortization loan, of amounts that would have been Deferred Interest,
if any) on the unpaid principal balance of the Mortgage Loan as of the date of
acquisition thereof for such period as such balance is reduced pursuant to
Section 3.13 hereof by any income from the REO Property treated as a recovery of
principal and with respect to a negative amortization loan, as such balance is
increased by the addition of Deferred Interest.

     "REO Proceeds": Proceeds, net of expenses, received in respect of any REO
Property (including, without limitation, proceeds from the rental of the related
Mortgaged Property), which proceeds are required to be deposited into the
Collection Account within two days of receipt by the Servicer.

     "REO Property": A Mortgaged Property that is acquired by the Trust by
foreclosure or by deed in lieu of foreclosure.

     "Repurchase Event": With respect to any Mortgage Loan, either (i) a
discovery that, as of the Closing Date the related Mortgage was not a valid lien
on the related Mortgaged Property subject only to (A) the lien of real property
taxes and assessments not yet due and payable, (B) covenants, conditions, and
restrictions, rights of way, easements and other matters of public record as of
the date of recording of such Mortgage and such other permissible title
exceptions as are permitted and (C) other matters to which like properties are
commonly subject which do not materially adversely affect the value, use,
enjoyment or marketability of the related Mortgaged Property or (ii) with
respect to any Mortgage Loan as to which the Seller delivers an affidavit
certifying that the original Mortgage Note has been lost or destroyed, a
subsequent default on such Mortgage Loan if the enforcement thereof or of the
related Mortgage is materially and adversely affected by the absence of such
original Mortgage Note.

                                       28

<PAGE>

     "Repurchase Price": With respect to any Mortgage Loan (i) required to be
repurchased on any date by the Seller pursuant to the Purchase Agreement, (ii)
permitted to be purchased by the Servicer pursuant to Article III hereof or
(iii) required to be purchased by the Converted Loan Purchaser pursuant to the
Converted Loan Purchase Agreement, an amount equal to the sum, without
duplication, of (i) 100% of the Principal Balance thereof (without reduction for
any amounts charged off) and (ii) unpaid accrued interest at the Mortgage Rate
on the outstanding principal balance thereof from the Due Date to which interest
was last paid by the Mortgagor (or with respect to which an Advance was last
made by the Servicer) to the first day of the month following the month of
purchase plus (iii) the amount of any unreimbursed Servicing Advances or
unreimbursed Advances made with respect to such Mortgage Loan plus (iv) any
other amounts owed to the Servicer or the Subservicer pursuant to Section 3.07
hereof and not included in clause (iii) of this definition.

     "Request for Release": A request for release in substantially the form of
Exhibit E hereto.

     "Residual Certificate": The Class R Certificates representing beneficial
ownership of the Class R-I, Class R-II, Class R-III and Class R-IV Interests.

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

     "Responsible Officer": With respect to the Trustee or the Certificate
Administrator, any officer thereof with direct responsibility for the
administration of this Agreement and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject.

     "Retained Certificates": The Class I Certificates, Class O Certificates,
the Class P Certificates, the Class R Certificates and the Class AIO
Certificates.

     "Rolling 60-Day Delinquency Percentage": For any Distribution Date, the
average of the 60-Day Delinquency Percentages for the Mortgage Loans as of the
last day of each of the three (or 1 and 2 in the case of the first two
Distribution Dates, as applicable) most recently ended Due Periods.

     "Rolling 90-Day Delinquency Percentage": For any Distribution Date, the
average of the 90-Day Delinquency Percentages for the Mortgage Loans as of the
last day of each of the three (or 1 and 2 in the case of the first two
Distribution Dates, as applicable) most recently ended Due Periods.

     "Seller": NovaStar Mortgage, Inc., a Virginia corporation, and its
successors and assigns.

     "Servicer": NovaStar Mortgage, Inc., a Virginia corporation, and its
successors and assigns.

     "Servicer Remittance Date": The third Business Day prior to each
Distribution Date.

                                       29

<PAGE>

     "Servicing Account": The separate trust account created and maintained by
the Servicer or each Subservicer with respect to the Mortgage Loans or REO
Property, which shall be an Eligible Account, for collection of taxes,
assessments, insurance premiums and comparable items as described in Section
3.08 hereof.

     "Servicing Advances": All customary, reasonable and necessary "out of
pocket" costs and expenses incurred in connection with a default, delinquency or
other unanticipated event in the performance by the Servicer of its servicing
obligations, including, without duplication, but not limited to, the cost of (i)
the preservation, restoration and protection of a Mortgaged Property, (ii) any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property, (iv) compliance with the
obligations under Section 3.13 hereof, and (v) expenses incurred in connection
with any Mortgage Loan being registered on the MERS System.

     "Servicing Default": The meaning assigned in Section 7.01 hereof.

     "Servicing Fee": With respect to the Mortgage Loans and any Distribution
Date, the product of (i) the Servicing Fee Rate divided by 12 and (ii) the Pool
Balance as of the first day of the related Due Period.

     "Servicing Fee Rate": With respect to any Mortgage Loan, 0.50% per annum.

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

     "Servicing Transfer Costs": Reasonable and necessary costs and expenses
incurred, by or on behalf of the Trustee, Certificate Administrator or successor
Servicer in connection with the transfer of servicing in the event of
termination of the Servicer as servicer hereunder and the resulting transfer to
the successor Servicer.

     "Standard & Poor's": Standard & Poor's Ratings Services, a division of The
McGraw Hill Companies, Inc., or its successor in interest.

     "Startup Day": As defined in Section 10.01(a) hereof.

     "Subsequent Cut-off Date": With respect to those Subsequent Mortgage Loans
which are sold to the Trust pursuant to a Subsequent Transfer Instrument, the
first day of the month in which the Subsequent Transfer Date occurs.

     "Subsequent Mortgage Loan": A Mortgage Loan sold by the Company to the
Trust Fund pursuant to Section 2.08, such Mortgage Loan being identified on the
Mortgage Loan Schedule attached to a Subsequent Transfer Instrument.

     "Subsequent Transfer Date": With respect to each Subsequent Transfer
Instrument, the date on which the related Subsequent Mortgage Loans are sold to
the Trust Fund.

                                       30

<PAGE>

     "Subsequent Transfer Instrument": Each Subsequent Transfer Instrument,
dated as of a Subsequent Transfer Date, executed by the Trustee and the Company
substantially in the form attached hereto as Exhibit D, by which Subsequent
Mortgage Loans are transferred to the Trust Fund.

     "Subservicer": Any Person with which either Servicer has entered into a
Subservicing Agreement and which meets the qualifications of a Subservicer
pursuant to Section 3.02 hereof.

     "Subservicing Account": An account established by a Subservicer which meets
the requirements set forth in Section 3.06(e) and is otherwise acceptable to the
Servicer.

     "Subservicing Agreement": The written contract between either Servicer and
a Subservicer relating to servicing and administration of certain Mortgage Loans
as provided in Section 3.02 hereof.

     "Subservicing Fee": With respect to each Mortgage Loan and any Distribution
Date, the portion of the Servicing Fee paid to a Subservicer.

     "Substitution Adjustment Amount": As defined in Section 2.03 hereof.

     "Supplemental Interest Account": An account established by the Certificate
Administrator pursuant to Section 4.04 and is otherwise acceptable to the
applicable Servicer.

     "Supplemental Interest Trust": The trust established and maintained
pursuant to Section 4.04.

     "Supplemental Interest Amount Due": With respect to any Class of
Underwritten Certificates and Class B Certificates and any Distribution Date,
the sum of (x) the REMIC Available Funds Cap Shortfall Amount for such Class of
Certificates and such Payment Date and (y) the Available Funds Cap Carryforward
Amount for such Class and Distribution Date.

     "Supplemental Interest Payment": With respect to any Distribution Date:

     (i)   for the Class A-1 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-1 Certificates and (y) the amounts on
deposit and available for distribution in the Supplemental Interest Trust on
that Distribution Date;

     (ii)  for the Class A-2 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class A-2 Certificates and (y) the amounts on
deposit and available for distribution in the Supplemental Interest Trust on
that Distribution Date;

     (iii) for the Class M-1 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class M-1 Certificates and (y) any remaining amounts
on deposit and available for distribution in the Supplemental Interest Trust
after giving effect to the payment of the Supplemental Interest Payment Amount
for the Class A-1 and Class A-2 Certificates on that Distribution Date;

                                       31

<PAGE>

     (iv)  for the Class M-2 Certificates, the lesser of (x) the Supplemental
Interest Amount Due for the Class M-2 Certificates and (y) any remaining amounts
on deposit and available for distribution in the Supplemental Interest Trust
after giving effect to the payment of the Supplemental Interest Amount Due for
the Class A-1, Class A-2, and the Class M-1 Certificates on that Distribution
Date; and

     (v)   for the Class M-3 Certificates, the lesser of (x) the Supplemental
Interest Payment Amount Due for the Class M-3 Certificates and (y) any remaining
amounts on deposit and available for distribution in the Supplemental Interest
Trust after giving effect to the payment of the Supplemental Interest Amounts
Due for the Class A-1, Class A-2, Class M-1 and Class M-2 Certificates on that
Distribution Date.

     (vi)  for the Class B Certificates, the lesser of (x) the Supplemental
Interest Payment Amount Due for the Class B Certificates and (y) any remaining
amounts on deposit and available for distribution in the Supplemental Interest
Trust after giving effect to the payment of the Supplemental Interest Amount Due
for the Class A-1, Class A-2, Class M-1, Class M-2 and Class M-3 Certificates on
that Distribution Date.

     "Swap Agreement": Any of the six interest rate Swap Agreements between the
Trustee, on behalf of the Trust and a Swap Counterparty which are deemed to be
assets of the Supplemental Interest Trust and not an asset of any one of the
REMICs created hereunder.

     "Swap Amount": The calculation of the Swap Amount is subject to the
verification and confirmation of the Swap Counterparties who are calculation
agents for the Swap Agreements. Swap Amount shall mean, on each Distribution
Date prior to the Class I Termination Date, the excess of (x) the product of (i)
the related fixed rate of interest, (ii) 30 divided by 360 and (iii) the related
notional amount over (y) the product of (i) LIBOR, (ii) the actual number of
days elapsed in the related Accrual Period divided by 360 and (iii) the related
notional amount (so long as such calculation results in a positive number) which
after the occurrence of a Notional Amount Test Event, shall be calculated
pursuant to Section 4.03(f).

     "Swap Counterparty": Shall mean Citibank, N.A.

     "Tax Matters Person": The tax matters person appointed pursuant to Section
10.01(e) hereof.

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

     "Termination Price": As defined in Section 11.01(a) hereof.

                                       32

<PAGE>

     "Telerate Page 3750": The display page currently so designated on the Dow
Jones Telerate Service (or such other page as may replace that page on that
service for the purpose of displaying comparable rates or prices) and "Reference
Banks" means leading banks selected by the Certificate Administrator and engaged
in transactions in European deposits in the international Eurocurrency market.

     "Treasury Regulations": Regulations, including proposed or temporary
Regulations, promulgated under the Code. References herein to specific
provisions of proposed or temporary regulations shall include analogous
provisions of final Treasury Regulations or other successor Treasury
Regulations.

     "Trigger Event": A Trigger Event is in effect with respect to any
Distribution Date if either (i) the Rolling 60-Day Delinquency Average exceeds
15% of the Pool Balance at the end of the related Due Period, or (ii) the
Cumulative Loss Percentage for such Distribution Date is greater than the
applicable percentage set forth below with respect to such Distribution Date:

               Distribution Date Occurring In:       Percentage
               -------------------------------       ----------

               October 2005                             1.35%
               November 2005                            1.38%
               December 2005                            1.42%
               January 2006                             1.45%
               February 2006                            1.48%
               March 2006                               1.52%
               April 2006                               1.55%
               May 2006                                 1.58%
               June 2006                                1.62%
               July 2006                                1.65%
               August 2006                              1.68%
               September 2006                           1.72%
               October 2006                             1.75%
               November 2006                            1.77%
               December 2006                            1.80%
               January 2007                             1.82%
               February 2007                            1.84%
               March 2007                               1.86%
               April 2007                               1.89%
               May 2007                                 1.91%
               June 2007                                1.93%
               July 2007                                1.95%
               August 2007                              1.98%
               September 2007 and thereafter            2.00%

     "Trust": NovaStar Mortgage Funding Trust 2002-3, the trust created
hereunder.

     "Trust Fund": All of the assets of the Trust, which is the trust created
hereunder consisting of the REMIC I, REMIC II, REMIC III, the Master REMIC, the
Interest Coverage Account, the Pre-Funding Account and the Supplemental Interest
Trust.

                                       33

<PAGE>

     "Trustee": JPMorgan Chase Bank, a New York banking corporation, and its
successors and assigns or any successor Agreement trustee appointed pursuant to
the terms of the Agreement.

     "Underwriters": Wachovia Securities, Inc., Morgan Stanley & Co.
Incorporated, Greenwich Capital Markets, Inc. and their successors and assigns.

     "Underwriting Agreement": The Underwriting Agreement dated September 24,
2002 among the Underwriters, the Company and the Seller with respect to the
offer and sale of the Underwritten Certificates, as the same may be amended from
time to time.

     "Underwriting Guidelines": The underwriting guidelines set forth in the
Prospectus Supplement under the heading "Description of the Mortgage
Pool--Underwriting Standards for Mortgage Loans".

     "Underwritten Certificates" means, collectively, the Class A Certificates
and Mezzanine Certificates.

     "United States Person" or "U.S. Person": A citizen or resident of the
United States, a corporation, partnership or other entity treated as a
corporation or partnership for federal income tax purposes (other than a
partnership that is not treated as a U.S. Person pursuant to any applicable
Treasury regulations) created or organized in, or under the laws of, the United
States, any state thereof or the District of Columbia, or an estate the income
of which from sources without the United States is includible in gross income
for United States federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, or a trust if a
court within the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have authority
to control all substantial decisions of the trust.

     "Unpaid Interest Shortfall Amount": With respect to each Class of
Underwritten Certificates and the Class B Certificates and (i) the first
Distribution Date, zero, and (ii) any Distribution Date after the first
Distribution Date, the sum of (a) the Unpaid Interest Shortfall Amount for that
Class as of the prior Distribution Date, (b) the excess of the amount of the
REMIC Current Interest due with respect to that Class on the prior Distribution
Date over the amount actually distributed to the Holders of that Class on
account of the REMIC Current Interest on the prior Distribution Date and (c)
interest on the sum of (a) and (b) to the extent permitted by law, at the
Formula Rate for such Class for the related Accrual Period.

     "Voting Rights": The portion of the voting rights of all of the
Certificates which is allocated to any Certificate. At all times the Class A
Certificates, the Mezzanine Certificates and Class B Certificates shall have 95%
of the Voting Rights (allocated among the Holders of the Class A Certificates
and the Mezzanine Certificates in proportion to the then outstanding Certificate
Principal Balances of their respective Certificates), the Class AIO Certificates
shall have 1% of the Voting Rights, the Class O Certificates shall have 1% of
the Voting Rights, the Class I Certificates shall have 1% of the Voting Rights,
the Class P Certificates shall have 1% of the Voting Rights and the Class R
Certificates shall have 1% of the Voting Rights. The Voting Rights allocated to
any Class of Certificates (other than the Class AIO Certificates, Class O

                                       34

<PAGE>

Certificates, Class P Certificates, Class I Certificates and the Class R
Certificates) shall be allocated among all Holders of each such Class in
proportion to the outstanding Certificate Principal Balance of such Certificates
and the Voting Rights allocated to the Class AIO Certificates, Class O
Certificates, Class I Certificates, Class P Certificates and the Class R
Certificates shall be allocated among all Holders of each such Class in
proportion to such Holders' respective Percentage Interest; provided, however
that when none of the Regular Certificates are outstanding, 100% of the Voting
Rights shall be allocated among Holders of the Class R Certificates in
accordance with such Holders' respective Percentage Interests in the
Certificates of such Class.

     "Weighted Average Mortgage Rate": With respect to any Distribution Date,
the weighted average of the Mortgage Rates of the Mortgage Loans (weighted by
the Principal Balances of the Mortgage Loans).

                                       35

<PAGE>

                                                                     Exhibit A-1

                          Form of Class A-1 Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-1 CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

<TABLE>
<S>                            <C>                          <C>
No.:  A-1-1                    Date: September 27, 2002     CUSIP:  66987XBU8

Original Principal Balance:    Registered Owner:            Final Scheduled Distribution Date:
$597,700,000                   CEDE & CO.                   July 25, 2033

Percentage Interest:  100%
</TABLE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group I Mortgage Loan identified on the Mortgage
Loan Schedule attached as Exhibit B to that certain Pooling and Servicing
Agreement dated as of September 1, 2002 (the "Pooling and Servicing Agreement")
by and among NovaStar Mortgage Funding Corporation, as the company (the
"Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the certificate administrator (the "Certificate
Administrator"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property

<PAGE>

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

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-1 Certificates on September
27, 2002 which aggregate amount was $597,700,000. The owner hereof is entitled
to principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-1 Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to October 25, 2002 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

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

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

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

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

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class A-1 Certificates (the "Class A-1 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class AIO Certificates, Class A-2 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates." Terms capitalized herein and not otherwise defined herein
shall have the respective meanings set forth in the Pooling and Servicing
Agreement.

                                     A-1-2

<PAGE>

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class A-1 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available fluids to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-1 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-1 Certificates. The Percentage
Interest of each Class A-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-1 Certificate by $597,700,000.

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

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

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

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

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

                                      A-1-3

<PAGE>

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and the REMIC I, REMIC II and REMIC III is effected pursuant to the
Pooling and Servicing Agreement. In addition, under certain circumstances
relating to the qualification of either the Master REMIC or any of REMIC I,
REMIC II or REMIC III as a REMIC under the Code, the Mortgage Loans may be sold,
thereby affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

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

          Each of the Trustee, the Certificate Administrator and any agent
thereof may treat the person in whose name this Certificate is registered as the
owner hereof for all purposes, and

                                     A-1-4

<PAGE>

none of the Trustee, the Certificate Administrator or any such agent shall be
affected by notice to the contrary.

                                     A-1-5

<PAGE>

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

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

                                              By: ______________________________
                                                  Name:
                                                  Title:

Trustee Authentication

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

By: _______________________________
    Name:
    Title:

                                     A-1-6

<PAGE>

                                                                     Exhibit A-2

                          Form of Class A-2 Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS A-2 CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

<TABLE>
<S>                            <C>                          <C>
No.:  A-2-1                    Date:  September 27, 2002    CUSIP: 66987XBV6

Original Principal Balance:    Registered Owner:            Final Scheduled Distribution Date:
$105,425,000                   CEDE & CO.                   July 25, 2033

Percentage Interest:  100%
</TABLE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Group II Mortgage Loan identified on the
Mortgage Loan Schedule attached as Exhibit B to that certain Pooling and
Servicing Agreement dated as of September 1, 2002 (the "Pooling and Servicing
Agreement") by and among NovaStar Mortgage Funding Corporation, as the company
(the "Company"), JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank,
National Association, as the certificate administrator (the "Certificate
Administrator"), and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as
seller (the "Seller"), including the related Cut-off Date Principal Balance, all
interest accruing thereon on and after the Cut-off Date and all collections in
respect of interest and principal due after the Cut-off Date; (ii) property
which secured each such Mortgage Loan and which has been acquired by foreclosure
or deed in

<PAGE>

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

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class A-2 Certificates on September
27, 2002 which aggregate amount was $105,425,000. The owner hereof is entitled
to principal payments on each Distribution Date, which will fully amortize such
Original Principal Amount over the period from the date of initial delivery
hereof to the final Distribution Date of the Class A-2 Certificates. Therefore,
the actual outstanding principal amount of this Certificate, on any date
subsequent to October 25, 2002 (the first Distribution Date) will be less than
the Original Principal Amount set forth above.

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

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

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

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

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class A-2 Certificates (the "Class A-2 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class AIO Certificates, Class A-1 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

                                      A-2-2

<PAGE>

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

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class A-2 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to the distribution
described in Article IV of the Pooling and Servicing Agreement, relating to such
Distribution Date. Distributions will be made in immediately available funds to
such owners, by wire transfer or by check mailed to the address of the person
entitled thereto as it appears on the Certificate Register.

          Each owner of record of a Class A-2 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class A-2 Certificates. The Percentage
Interest of each Class A-2 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class A-2 Certificate by $105,425,000.

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

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

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

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

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

                                      A-2-3

<PAGE>

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

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II or
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

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

                                     A-2-4

<PAGE>

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

                                     A-2-5

<PAGE>

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

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

                                        By:_____________________________________
                                           Name:
                                           Title:

Trustee Authentication

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

By:______________________________________
   Name:
   Title:

                                     A-2-6

<PAGE>

                                                                     Exhibit A-3

                          Form of Class M-1 Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-1 CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

<TABLE>
<S>                           <C>                          <C>
No.: M-1-1                    Date: September 27, 2002     CUSIP: 66987XBW4

Original Principal Balance:   Registered Owner:            Final Scheduled Distribution
$15,000,000                   CEDE & CO.                   Date: July 25, 2033

Percentage Interest: 100%
</TABLE>

               The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company, (the "Company"),
JPMorgan Chase Bank, as trustee (the "Trustee"), Wachovia Bank, National
Association, as the certificate administrator (the "Certificate Administrator"),
and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as seller (the
"Seller"), including the related Cut-off Date Principal Balance, all interest
accruing thereon on and after the Cut-off Date and all collections in respect of
interest and principal due after the Cut-off Date; (ii) property which secured
each such Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure; (iii) the Company's interest in any insurance policies in
respect of the Mortgage Loans; (iv) all proceeds of any of the foregoing; (v)
the rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust fund. Such

<PAGE>

assignment includes all interest and principal due to the Company or the
Servicer after the Cut-off Date with respect to the Mortgage Loans.

               The Original Principal Amount set forth above is equal to the
product of (i) the Percentage Interest represented by this Certificate and (ii)
the aggregate Original Principal Amount of the Class M-1 Certificates on
September 27, 2002 which aggregate amount was $15,000,000. The owner hereof is
entitled to principal payments on each Distribution Date, as hereinafter
described, which will fully amortize such Original Principal Amount over the
period from the date of initial delivery hereof to the final Distribution Date
of the Class M-1 Certificates. Therefore, the actual outstanding principal
amount of this Certificate, on any date subsequent to October 25, 2002 (the
first Distribution Date) will be less than the Original Principal Amount set
forth above.

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

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

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

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

               This Certificate is one of a Class of duly-authorized
Certificates designated as NovaStar Home Equity Loan Asset-Backed Certificates,
Series 2002-3, Class M-1 Certificates (the "Class M-1 Certificates") and issued
under and subject to the terms, provisions and conditions of the Pooling and
Servicing Agreement, to which the owner of this Certificate, by virtue of
acceptance hereof assents, and is bound. Also issued under the Pooling and
Servicing Agreement are the Class AIO Certificates, Class A-1 Certificates,
Class A-2 Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

                                     A-3-2

<PAGE>

               On the 25th day of each month, or, if such day is not a Business
Day, then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class M-1 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

               Each owner of record of a Class M-1 Certificate will be entitled
to receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-1 Certificates. The Percentage
Interest of each Class M-1 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-1 Certificate by $15,000,000.

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

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

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

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

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

                                     A-3-3

<PAGE>

               The Pooling and Servicing Agreement will terminate upon notice to
the Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

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

               Each of the Trustee, the Certificate Administrator and any agent
thereof may treat the person in whose name this Certificate is registered as the
owner hereof for all purposes, and

                                     A-3-4

<PAGE>

none of the Trustee, the Certificate Administrator or any such agent shall be
affected by notice to the contrary.

                                     A-3-5

<PAGE>

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

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

                                        By:_____________________________________
                                           Name:
                                           Title:

Trustee Authentication

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

By:_____________________________________
   Name:
   Title:

                                     A-3-6

<PAGE>

                                                                     Exhibit A-4

                          Form of Class M-2 Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-2 CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

<TABLE>
<S>                           <C>                          <C>
No.: M-2- 1                   Date: September 27, 2002     CUSIP: 66987XBX2

Original Principal Balance:   Registered Owner:            Final Scheduled Distribution
$11,250,000                   CEDE & CO.                   Date: July 25, 2033

Percentage Interest: 100%
</TABLE>

               The registered owner named above is the registered owner of a
fractional interest in (I) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the

<PAGE>

foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

               The Original Principal Amount set forth above is equal to the
product of (i) the Percentage Interest represented by this Certificate and (ii)
the aggregate Original Principal Amount of the Class M-2 Certificates on
September 27, 2002 which aggregate amount was $11,250,000. The owner hereof is
entitled to principal payments on each Distribution Date, as hereinafter
described, which will fully amortize such Original Principal Amount over the
period from the date of initial delivery hereof to the final Distribution Date
of the Class M-2 Certificates. Therefore, the actual outstanding principal
amount of this Certificate, on any date subsequent to October 25, 2002 (the
first Distribution Date) will be less than the Original Principal Amount set
forth above.

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

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

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

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

               This Certificate is one of a Class of duly-authorized
Certificates designated as NovaStar Home Equity Loan Asset-Backed Certificates,
Series 2002-3, Class M-2 Certificates (the "Class M-2 Certificates") and issued
under and subject to the terms, provisions and conditions of the Pooling and
Servicing Agreement, to which the owner of this Certificate, by virtue of
acceptance hereof assents, and is bound. Also issued under the Pooling and
Servicing Agreement are the Class AIO Certificates, Class A-1 Certificates,
Class A-2 Certificates, Class M-1 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

                                     A-4-2

<PAGE>

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class M-2 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class M-2 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-2 Certificates. The Percentage
Interest of each Class M-2 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-2 Certificate by $11,250,000.

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

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

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

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

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

                                     A-4-3

<PAGE>

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

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

          Each of the Trustee, the Certificate Administrator and any agent
thereof may treat the person in whose name this Certificate is registered as the
owner hereof for all purposes, and

                                     A-4-4

<PAGE>

none of the Trustee, the Certificate Administrator or any such agent shall be
affected by notice to the contrary.

                                     A-4-5

<PAGE>

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

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

                                                 By: ___________________________
                                                     Name:
                                                     Title:

Trustee Authentication

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

By: ______________________________
    Name:
    Title:

                                     A-4-6

<PAGE>

                                                                     Exhibit A-5

                          Form of Class M-3 Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS M-3 CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

<TABLE>
<S>                            <C>                          <C>
No.:  M-3-1                    Date:  September 27, 2002    CUSIP: 66987XBY0

Original Principal Balance:    Registered Owner:            Final Scheduled Distribution Date:
$7,500,000                     CEDE & CO.                   July 25, 2033

Percentage Interest:  100%
</TABLE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the

<PAGE>

foregoing; (v) the rights of the Company under the Purchase Agreement and (vi)
all other assets included or to be included in the Trust fund. Such assignment
includes all interest and principal due to the Company or the Servicer after the
Cut-off Date with respect to the Mortgage Loans.

          The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class M-3 Certificates on September
27, 2002 which aggregate amount was $7,500,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class M-3
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to October 25, 2002 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

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

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

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

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

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class M-3 Certificates (the "Class M-3 Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class AIO Certificates, Class A-1 Certificates, Class A-2
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

                                     A-5-2

<PAGE>

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class M-3 Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

          Each owner of record of a Class M-3 Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class M-3 Certificates. The Percentage
Interest of each Class M-3 Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class M-3 Certificate by $7,500,000.

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

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

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

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

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

                                     A-5-3

<PAGE>

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

          The Class M-3 Certificates are issuable only as registered
Certificates in denominations of $25,000 Original Principal Amount and integral
multiples of $1,000. As provided in the Pooling and Servicing Agreement and
subject to certain limitations therein set forth, Class M-3 Certificates are
exchangeable for new Class M-3 Certificates of authorized denominations
evidencing the same aggregate principal amount.

          Each of the Trustee, the Certificate Administrator and any agent
thereof may treat the person in whose name this Certificate is registered as the
owner hereof for all purposes, and

                                     A-5-4

<PAGE>

none of the Trustee, the Certificate Administrator or any such agent shall be
affected by notice to the contrary.

                                     A-5-5

<PAGE>

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

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

                                                 By: ___________________________
                                                     Name:
                                                     Title:

Trustee Authentication

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

By: ______________________________
    Name:
    Title:

                                     A-5-6

<PAGE>

                                                                     Exhibit A-6

                           Form of Class B Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS B CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

           THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

           NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<PAGE>

<TABLE>
<S>                             <C>                           <C>
No.: B-1                        Date: September 27, 2002      CUSIP: 66987XCB9

Original Principal Balance:     Registered Owner:             Final Scheduled Distribution
$3,750,000                      Cede & Co.                    Date: July 25, 2033

Percentage Interest: 100%
</TABLE>

           The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

           The Original Principal Amount set forth above is equal to the product
of (i) the Percentage Interest represented by this Certificate and (ii) the
aggregate Original Principal Amount of the Class B Certificates on September 27,
2002 which aggregate amount was $3,750,000. The owner hereof is entitled to
principal payments on each Distribution Date, as hereinafter described, which
will fully amortize such Original Principal Amount over the period from the date
of initial delivery hereof to the final Distribution Date of the Class B
Certificates. Therefore, the actual outstanding principal amount of this
Certificate, on any date subsequent to October 25, 2002 (the first Distribution
Date) will be less than the Original Principal Amount set forth above.

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

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

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

                                      A-6-2

<PAGE>

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

           This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class B Certificates (the "Class B Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class AIO Certificates, Class A-1 Certificates, Class A-2
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

           On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class B Certificates as of
the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

           Each owner of record of a Class B Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class B Certificates. The Percentage
Interest of each Class B Certificate as of any date of determination will be
equal to the percentage obtained by dividing the Original Principal Amount set
forth on such Class B Certificate by $3,750,000.

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

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

           This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or

                                      A-6-3

<PAGE>

any of their subsidiaries and affiliates and are not insured or guaranteed by
the Federal Deposit Insurance Corporation, the Government National Mortgage
Association, or any other governmental agency. This Certificate is limited in
right of payment to certain collections and recoveries relating to the Mortgage
Loans and amounts on deposit in the Accounts (except as otherwise provided in
the Pooling and Servicing Agreement) all as more specifically set forth
hereinabove and in the Pooling and Servicing Agreement.

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

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

           The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

           As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is

                                      A-6-4

<PAGE>

registerable in the Certificate Register upon surrender of this Certificate for
registration of transfer at the office designated as the location of the
Certificate Register, and thereupon one or more new certificates of like class,
tenor and Percentage Interest will be issued to the designated transferee or
transferees.

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

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

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

                                      A-6-5

<PAGE>

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

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

                                        By: ____________________________________
                                            Name:
                                            Title:

Trustee Authentication

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

By: ___________________________________
    Name:
    Title:

                                      A-6-6

<PAGE>

                                                                     Exhibit A-7

                           Form of Class I Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS I CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

           Unless this certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Trust or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, JPMorgan Chase Bank, in its capacity as trustee of the NovaStar Mortgage
Funding Trust, Series 2002-3, has an interest herein.

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

           THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

           NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<PAGE>

<TABLE>
<S>                          <C>                            <C>
No.: I-1                     Date: September 27, 2002       Final Scheduled Distribution
                                                            Date: May 25, 2005

Percentage Interest: 100%    Registered Owner:
                             JPMorgan Chase Bank, not in
                             its individual capacity but
                             solely as Trustee for the
                             NovaStar Mortgage Funding
                             Trust, Series 2002-3
</TABLE>

           The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

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

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

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

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

                                      A-7-2

<PAGE>

           THIS CERTIFICATE IS AN INTEREST ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF PRINCIPAL WITH RESPECT
TO THE MORTGAGE LOANS.

           This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class I Certificates (the "Class I Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class AIO Certificates, Class A-1 Certificates, Class A-2
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
Certificates, Class B Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

           On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class I Certificates as of
the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

           Each owner of record of a Class I Certificate will be entitled to
receive such owner's Percentage Interest in the amounts distributed on such
Distribution Date to the owners of the Class I Certificates.

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

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

           This Certificate does not represent a deposit or other obligation of,
or an interest in, nor are the underlying Mortgage Loans insured or guaranteed
by, NovaStar Mortgage, Inc., NovaStar Mortgage Funding Corporation, NovaStar
Capital, Inc., NovaStar Financial Inc., or any of their subsidiaries and
affiliates and are not insured or guaranteed by the Federal Deposit Insurance
Corporation, the Government National Mortgage Association, or any other
governmental agency. This Certificate is limited in right of payment to certain
collections and

                                      A-7-3

<PAGE>

recoveries relating to the Mortgage Loans and amounts on deposit in the Accounts
(except as otherwise provided in the Pooling and Servicing Agreement) all as
more specifically set forth hereinabove and in the Pooling and Servicing
Agreement.

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

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

           The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

           As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth and referred to on the face hereof, the
transfer of this Certificate is registerable in the Certificate Register upon
surrender of this Certificate for registration of transfer at the office
designated as the location of the Certificate Register, and thereupon one or

                                      A-7-4

<PAGE>

more new certificates of like class, tenor and Percentage Interest will be
issued to the designated transferee or transferees.

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

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

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

                                      A-7-5

<PAGE>

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

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

                                By: ____________________________________________
                                    Name:
                                    Title:

Trustee Authentication

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

By: ________________________________
    Name:
    Title:

                                      A-7-6

<PAGE>

                                                                     Exhibit A-8

                          Form of Class AIO Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                             CLASS AIO CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<TABLE>
<S>                           <C>                            <C>
No.: AIO-1                    Date: September 27, 2002       CUSIP: 66987XBZ7

Notional Amount:              Registered Owner:              Final Scheduled Distribution
                              Cede & Co.                     Date: July 25, 2033
$750,000,100

Percentage Interest: 100%
</TABLE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to

<PAGE>

that certain Pooling and Servicing Agreement dated as of September 1, 2002 (the
"Pooling and Servicing Agreement") by and among NovaStar Mortgage Funding
Corporation as the company (the "Company"), the Trustee, Wachovia Bank, National
Association, as the certificate administrator (the "Certificate Administrator"),
and NovaStar Mortgage, Inc. as servicer (the "Servicer") and as seller (the
"Seller"), including the related Cut-off Date Principal Balance, all interest
accruing thereon on and after the Cut-off Date and all collections in respect of
interest and principal due after the Cut-off Date; (ii) property which secured
each such Mortgage Loan and which has been acquired by foreclosure or deed in
lieu of foreclosure; (iii) the Company's interest in any insurance policies in
respect of the Mortgage Loans; (iv) all proceeds of any of the foregoing; (v)
the rights of the Company under the Purchase Agreement and (vi) all other assets
included or to be included in the Trust Fund. Such assignment includes all
interest and principal due to the Company or the Servicer after the Cut-off Date
with respect to the Mortgage Loans.

          Each owner of record of a Class AIO Certificate will be entitled to
interest payments only on each Distribution Date, which shall be calculated
based on a notional principal balance equal to the aggregate outstanding
principal balance of the Mortgage Loans. The owner hereof will not receive any
distributions of principal.

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

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

          DISTRIBUTIONS ON THIS CERTIFICATE WILL BE MADE TO THE OWNER HEREOF
FOLLOWING THE PRIOR FUNDING OF AMOUNTS OWED TO CERTAIN SWAP COUNTERPARTIES, AND
FOLLOWING THE FUNDING OF SUPPLEMENTAL INTEREST PAYMENTS TO CERTAIN OTHER CLASSES
OF CERTIFICATES.

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

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

                                      A-8-2

<PAGE>

          THIS CERTIFICATE IS AN INTEREST ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF PRINCIPAL WITH RESPECT
TO THE MORTGAGE LOANS.

          This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class AIO Certificates (the "Class AIO Certificates") and issued under
and subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2 Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

          On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class AIO Certificates as
of the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive Class AIO
Distribution Amount relating to such Distribution Date. Distributions will be
made in immediately available funds to such owners, by wire transfer or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

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

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

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

                                      A-8-3

<PAGE>

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

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

          The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

                                      A-8-4

<PAGE>

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

          As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class AIO Certificates are exchangeable
for new Class AIO Certificates of authorized denominations evidencing the same
aggregate principal amount.

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

                                      A-8-5

<PAGE>

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

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

                                By: ____________________________________________
                                    Name:
                                    Title:

Trustee Authentication

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

By: _____________________________________
    Name:
    Title:

                                      A-8-6

<PAGE>

                                                                     Exhibit A-9

                           Form of Class P Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS P CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

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

          NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<TABLE>
<S>                           <C>                            <C>
No.: P-1                      Date: September 27, 2002       CUSIP: 66987XCA1

Original Principal Balance:   Registered Owner:              Final Scheduled Distribution
$  100                        Cede & Co.                     Date: July 25, 2033

Percentage Interest: 100%
</TABLE>

<PAGE>

          The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust Fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

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

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

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

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

          THE HOLDER OF THIS CERTIFICATE IS ENTITLED TO PREPAYMENT CHARGES
COLLECTED WITH RESPECT TO THE MORTGAGE LOANS AND A SINGLE PRINCIPAL PAYMENT OF
$100 ON THE EARLIER OF (1) THE DISTRIBUTION DATE ON WHICH THE AGGREGATE
CERTIFICATE PRINCIPAL BALANCE IS REDUCED TO ZERO, OR (2) THE 35/TH/ DISTRIBUTION
DATE. THE HOLDERS OF THIS CERTIFICATE ARE NOT ENTITLED TO ANY DISTRIBUTIONS OF
INTEREST WITH RESPECT TO THE MORTGAGE LOANS.

                                      A-9-2

<PAGE>

           This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class P Certificates (the "Class P Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2 Certificates, Class AIO
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
Certificates, Class B Certificates, Class I Certificates, Class O Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

           On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class P Certificates as of
the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the Prepayment
Charges relating to such Distribution Date. Furthermore, on the earlier of (i)
the distribution date on which the aggregate certificate principal balance is
reduced to zero, or (ii) the 35th Distribution Date, the owner of the Class P
Certificates on the Record Date will be entitled to the Certificate Principal
Balance on the Class P Certificates. Distributions will be made in immediately
available funds to such owners, by wire transfer or by check mailed to the
address of the person entitled thereto as it appears on the Certificate
Register.

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

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

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

                                      A-9-3

<PAGE>

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

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

           The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

                                      A-9-4

<PAGE>

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

           As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class P Certificates are exchangeable for
new Class P Certificates of authorized denominations evidencing the same
aggregate principal amount.

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

                                      A-9-5

<PAGE>

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

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

                                          By: _________________________________
                                              Name:
                                              Title:

Trustee Authentication

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

By: __________________________________
    Name:
    Title:

                                      A-9-6

<PAGE>

                                                                    Exhibit A-10

                           Form of Class O Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS O CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

           THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

           NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<TABLE>
<S>                               <C>                                   <C>
No.: O-1                          Date: September 27, 2002              Final Scheduled Distribution
                                                                        Date: July 25, 2033
Original Principal Balance:       Registered Owner:
$9,375,000                        NovaStar Certificates
                                  Financing Corporation

Percentage Interest: 100%
</TABLE>

<PAGE>

           The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust Fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

           Each owner of record of a Class O Certificate will be entitled to
certain distributions, as described under Article IV of the Pooling and
Servicing Agreement.

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

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

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

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

           THIS CERTIFICATE IS A PRINCIPAL ONLY CERTIFICATE. THE HOLDER OF THIS
CERTIFICATE SHALL NOT BE ENTITLED TO ANY DISTRIBUTIONS OF INTEREST WITH RESPECT
TO THE MORTGAGE LOANS.

                                     A-10-2

<PAGE>

           This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series
2002-3, Class O Certificates (the "Class O Certificates") and issued under and
subject to the terms, provisions and conditions of the Pooling and Servicing
Agreement, to which the owner of this Certificate, by virtue of acceptance
hereof assents, and is bound. Also issued under the Pooling and Servicing
Agreement are the Class A-1 Certificates, Class A-2 Certificates, Class AIO
Certificates, Class M-1 Certificates, Class M-2 Certificates, Class M-3
Certificates, Class B Certificates, Class I Certificates, Class P Certificates,
and Class R Certificates, and all such Certificates are collectively referred to
as the "Certificates."

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

           On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class O Certificates as of
the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the Class O
Distribution Amount relating to such Distribution Date. Distributions will be
made in immediately available funds to such owners, by wire transfer or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register.

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

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

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

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

                                     A-10-3

<PAGE>

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

           The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in July 2033 and (v) at any time when a Qualified Liquidation of the Master
REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the Pooling
and Servicing Agreement. In addition, under certain circumstances relating to
the qualification of either the Master REMIC or any of REMIC I, REMIC II and
REMIC III as a REMIC under the Code, the Mortgage Loans may be sold, thereby
affecting the early retirement of the Certificates. Notwithstanding the
foregoing, in no event shall the Trust hereby continue beyond the expiration of
21 years from the death of the last survivor of the descendants of Joseph P.
Kennedy, the late ambassador of the United States to the Court of St. James,
living on the date of the Pooling and Servicing Agreement.

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

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

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

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

           As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class O Certificates are exchangeable for
new Class O Certificates of authorized denominations evidencing the same
aggregate principal amount.

                                     A-10-4

<PAGE>

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

                                     A-10-5

<PAGE>

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

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

                                         By: __________________________________
                                             Name:
                                             Title:

Trustee Authentication

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

By: ________________________________
    Name:
    Title:

                                     A-10-6

<PAGE>

                                                                    Exhibit A-11

                           Form of Class R Certificate

                 NOVASTAR MORTGAGE FUNDING TRUST, SERIES 2002-3
                    HOME EQUITY LOAN ASSET-BACKED CERTIFICATE
                              CLASS R CERTIFICATES

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

                      NOVASTAR MORTGAGE, INC., as Servicer

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

           THIS CERTIFICATE HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"), OR THE SECURITIES LAW OF
ANY STATE. ANY RESALE, TRANSFER OR OTHER DISPOSITION OF THIS CERTIFICATE WITHOUT
SUCH REGISTRATION OR QUALIFICATION MAY BE MADE ONLY IN A TRANSACTION WHICH DOES
NOT REQUIRE SUCH REGISTRATION OR QUALIFICATION AND IN ACCORDANCE WITH THE
PROVISIONS OF THE POOLING AND SERVICING AGREEMENT.

           NO TRANSFER OF THIS CERTIFICATE OR ANY INTEREST THEREIN SHALL BE MADE
TO ANY EMPLOYEE BENEFIT PLAN OR OTHER RETIREMENT ARRANGEMENT, INCLUDING
INDIVIDUAL RETIREMENT ACCOUNTS AND ANNUITIES AND KEOGH PLANS, THAT IS SUBJECT TO
TITLE I OF THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED
("ERISA"), OR SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986 (EACH, A "PLAN")
OR TO ANY ENTITY THE ASSETS OF WHICH CONSTITUTE ASSETS OF A PLAN.

<TABLE>
<S>                           <C>                                 <C>
No.: R-[I/II/III/IV]          Date: September 27, 2002            Final Scheduled Distribution
                                                                  Date: July 25, 2033

Percentage Interest: 100%     Registered Owner:
                              NovaStar REMIC Financing
                              Corporation
</TABLE>

<PAGE>

           The registered owner named above is the registered owner of a
fractional interest in (i) each Mortgage Loan identified on the Mortgage Loan
Schedule attached as Exhibit B to that certain Pooling and Servicing Agreement
dated as of September 1, 2002 (the "Pooling and Servicing Agreement") by and
among NovaStar Mortgage Funding Corporation as the company (the "Company"), the
Trustee, Wachovia Bank, National Association, as the certificate administrator
(the "Certificate Administrator"), and NovaStar Mortgage, Inc. as servicer (the
"Servicer") and as seller (the "Seller"), including the related Cut-off Date
Principal Balance, all interest accruing thereon on and after the Cut-off Date
and all collections in respect of interest and principal due after the Cut-off
Date; (ii) property which secured each such Mortgage Loan and which has been
acquired by foreclosure or deed in lieu of foreclosure; (iii) the Company's
interest in any insurance policies in respect of the Mortgage Loans; (iv) all
proceeds of any of the foregoing; (v) the rights of the Company under the
Purchase Agreement and (vi) all other assets included or to be included in the
Trust Fund. Such assignment includes all interest and principal due to the
Company or the Servicer after the Cut-off Date with respect to the Mortgage
Loans.

           Each owner of record of a Class R Certificate will be entitled to
certain distributions as described in Section 2.09 of the Pooling and Servicing
Agreement.

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

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

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

           TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS SET FORTH IN
THE POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R CERTIFICATE MAY
BE MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION 860 E (5) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUCH TERM INCLUDES THE
UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY FOREIGN
GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR INSTRUMENTALITY OF ANY
OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE INSTRUMENTALITIES), ANY COOPERATIVE
ORGANIZATION FURNISHING ELECTRIC ENERGY OR PROVIDING THEREOF SERVICE TO PERSONS
IN RURAL AREAS, OR ANY ORGANIZATION (OTHER THAN A FARMERS' COOPERATIVE) THAT IS
EXEMPT FROM FEDERAL INCOME TAX UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON
UNRELATED BUSINESS INCOME. NO TRANSFER OF THIS CLASS R

                                     A-11-2

<PAGE>

CERTIFICATE WILL BE REGISTERED BY THE TRUSTEE UNLESS THE PROPOSED TRANSFEREE HAS
DELIVERED AN AFFIDAVIT AFFIRMING, AMONG OTHER THINGS, THAT THE PROPOSED
TRANSFEREE IS NOT A DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING THE CLASS R
CERTIFICATE FOR THE ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY OF THE FORM
OF AFFIDAVIT REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND AVAILABLE FROM
THE TRUSTEE.

           A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE
TO A SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT
ACTING FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS R
CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER IN ANY
TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL TO THE
PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE PORTION OF
THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY SUCH DISQUALIFIED
ORGANIZATION AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON CORPORATIONS. FOR
PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THRU" ENTITY INCLUDES
REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS, COMMON TRUST
FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I OF SUBCHAPTER
T, CHAPTER 1 OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS,
NOMINEES.

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

           This Certificate is one of a Class of duly-authorized Certificates
designated as NovaStar Home Equity Loan Asset-Backed Certificates, Series 2002-3
Class R Certificates (the "Class R Certificates") and issued under and subject
to the terms, provisions and conditions of the Pooling and Servicing Agreement,
to which the owner of this Certificate, by virtue of acceptance hereof assents,
and is bound. Also issued under the Pooling and Servicing Agreement are Class
A-1 Certificates, Class A-2 Certificates, Class AIO Certificates, Class M-1
Certificates, Class M-2 Certificates, Class M-3 Certificates, Class B
Certificates, Class I Certificates, Class P Certificates and Class O
Certificates, and all such Certificates are collectively referred to as the
"Certificates."

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

           On the 25th day of each month, or, if such day is not a Business Day,
then the next succeeding Business Day (each such day being a "Distribution
Date") commencing October 25, 2002, the owners of the Class R Certificates as of
the close of business on the business day immediately preceding such
Distribution Date (the "Record Date") will be entitled to receive the
distribution described in Article IV of the Pooling and Servicing Agreement
relating to such Distribution Date. Distributions will be made in immediately
available funds to such owners, by

                                     A-11-3

<PAGE>

wire transfer or by check mailed to the address of the person entitled thereto
as it appears on the Certificate Register.

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

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

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

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

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

           The Pooling and Servicing Agreement will terminate upon notice to the
Trustee or the Certificate Administrator upon the earliest of (i) the
Distribution Date on which the Certificate Principal Balances of the Regular
Certificates have been reduced to zero, (ii) the final payment or other
liquidation of the last Mortgage Loan in the Trust, (iii) the optional purchase
by the Servicer of the Mortgage Loans as described below, (iv) the Distribution
Date in January 2033 and (v) at any time when a Qualified Liquidation of the
Master REMIC and REMIC I, REMIC II and REMIC III is effected pursuant to the
Pooling and Servicing Agreement. In addition, under certain circumstances
relating to the qualification of either the Master REMIC or any of REMIC I,
REMIC II and REMIC III as a REMIC under the Code, the Mortgage Loans may be
sold, thereby affecting the early retirement of the Certificates.
Notwithstanding the foregoing, in no event shall the Trust hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the

                                     A-11-4

<PAGE>

United States to the Court of St. James, living on the date of the Pooling and
Servicing Agreement.

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

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

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

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

           As provided in the Pooling and Servicing Agreement and subject to
certain limitations therein set forth, Class R Certificates are exchangeable for
new Class R Certificates of authorized denominations evidencing the same
aggregate principal amount.

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

                                     A-11-5

<PAGE>

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

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

                                        By: ____________________________________
                                            Name:
                                            Title:

Trustee Authentication

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

By: __________________________________
    Name:
    Title:

                                     A-11-6

<PAGE>

                                                                       Exhibit B

                             Mortgage Loan Schedule

                       On File with Dewey Ballantine LLP

<PAGE>

                                                                       Exhibit C

                             Form of Addition Notice

                              ______________, 2002

VIA FEDERAL EXPRESS

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn: NovaStar Mortgage Funding Trust,
       Series 2002-3

       Re:  Mortgage Loan Purchase Agreement, dated as of September 1, 2002 (the
            "Purchase Agreement"), among NovaStar Mortgage, Inc. (the "Seller"),
            NovaStar Mortgage Funding Corporation (the "Company"), Wachovia
            Bank, National Association, as certificate administrator (the
            "Certificate Administrator") and JPMorgan Chase Bank, as trustee
            (the "Trustee"), relating to NovaStar Home Equity Loan Asset-Backed
            Certificates, Series 2002-3

Ladies and Gentlemen:

            Pursuant to Section 2.02(b)(i) of the above-captioned Purchase
Agreement, the Seller has designated the Subsequent Mortgage Loans (see
subsequent mortgage loan schedule attached hereto) to be sold to the Company,
and then sold by the Company to the Trust, on _____________, 2002, with an
aggregate principal balance of $______________. Capitalized terms not otherwise
defined herein have the meaning set forth in the Purchase Agreement.

            Please acknowledge your receipt of this notice by countersigning the
enclosed copy in the space indicated below and returning it to the attention of
the undersigned.

                                                Very truly yours,

                                                NOVASTAR MORTGAGE, INC.

                                                By: ____________________________
                                                    Matt Kaltenrieder
                                                    Vice President

Acknowledged and agreed:

WACHOVIA BANK, NATIONAL ASSOCIATION
solely in its capacity as
Certificate Administrator

By: ________________________

<PAGE>

                                                                       Exhibit D

                     Form of Subsequent Transfer Instrument

      [See Exhibits 2(A) and 2(B) to the Mortgage Loan Purchase Agreement]

<PAGE>

                                                                       Exhibit E

                               Request for Release

                                                                  [date]

To:    Wachovia Bank, National Association,
       as Certificate Administrator

       Re:   Pooling and Servicing Agreement, dated as of September 1, 2002
             NovaStar Home Equity Loan Asset-Backed Certificates, Series 2002-3

             In connection with the administration of the pool of Mortgage Loans
held by you as Certificate Administrator, we request the release, and
acknowledge receipt, of the (Mortgage File/[specify document]) for the Mortgage
Loan described below, for the reason indicated.

Mortgagor's Name, Address & Zip Code:

Mortgage Loan Number:

Reason for Requesting Documents (check one)

--------------------------------------------------------------------------------
____  1.    Mortgage Loan Paid in Full
            (Servicer hereby certifies that all amounts received in connection
            therewith have been credited to the Collection Account and remitted
            to the Certificate Administrator for deposit into the Payment
            Account pursuant to the Pooling and Servicing Agreement.)

--------------------------------------------------------------------------------
____  2.    Mortgage Loan Liquidated
            (Servicer hereby certifies that all proceeds of foreclosure,
            insurance or other liquidation have been finally received and
            credited to the Collection Account and remitted to the Certificate
            Administrator for deposit into the Payment Account pursuant to the
            Pooling and Servicing Agreement.)

--------------------------------------------------------------------------------
____  3.    Mortgage Loan in Foreclosure

--------------------------------------------------------------------------------
____  4.    Mortgage Loan Purchased Pursuant to Section 11.01 of the Pooling and
            Servicing Agreement.

--------------------------------------------------------------------------------
____  5.    Mortgage Loan Repurchased or Substituted pursuant to Article II or
            III of the Pooling and Servicing Agreement (Seller hereby certifies
            that the repurchase price or Substitution Adjustment has been
            credited to the Collection Account and that the substituted mortgage
            loan is a Qualified Substitute Mortgage Loan.)

--------------------------------------------------------------------------------
____  6.    Other
            (explain) ___________________________________________________

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

<PAGE>

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

          If box 3, 4, 5 or 6 above is checked, upon our return of all of the
above documents to you as Certificate Administrator, please acknowledge your
receipt by signing in the space indicated below, and returning this form.

                                        NovaStar Mortgage, Inc.,
                                        as [Servicer][Seller]

                                        By: ___________________________
                                            Name:
                                            Title:

Documents returned to Certificate Administrator:

Wachovia Bank, National Association,
as Certificate Administrator

By:__________________________
   Name:
   Title:

Date:________________________

                                      E-2

<PAGE>

                                                                     Exhibit F-1

                     Form of Trustee's Initial Certification

                                                      [Date]

NovaStar Mortgage, Inc.
1900 W. 47th Place, Suite 205
Westwood, Kansas 66205
Attention: Chris Miller, Senior Vice President

NovaStar Mortgage Funding Corporation
1900 W. 47th Place, Suite 205
Westwood, Kansas 66205
Attention: Chris Miller, Senior Vice President

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn: NovaStar Mortgage Funding Trust,
      Series 2002-3

      Re:  Pooling and Servicing Agreement, dated as of September 1, 2002 (the
           "Agreement"), among NovaStar Mortgage, Inc., NovaStar Mortgage
           Funding Corporation, Wachovia Bank, National Association (the
           "Certificate Administrator") and JPMorgan Chase Bank (the "Trustee"),
           relating to the NovaStar Mortgage Funding Trust, Series 2002-3 Home
           Equity Loan Asset-Backed Certificates

Gentlemen:

           In accordance with Section 2.03 of the above-captioned Agreement, and
Section 2.01(c) of the Mortgage Loan Purchase Agreement, dated as of September
1, 2002 (the "Purchase Agreement" and, together with the Agreement, the
"Agreements"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
Corporation, the Certificate Administrator, the Trustee and Wachovia Bank,
National Association, the undersigned, as Certificate Administrator, on behalf
of the Trustee, hereby certifies that as to each Mortgage Loan listed in the
Mortgage Loan Schedule (other than any Mortgage Loan paid in full or listed on
the attachment hereto) it has reviewed the Mortgage File and the Mortgage Loan
Schedule and has determined that: (i) all documents required to be included in
the Mortgage File are in its possession; (ii) such documents have been reviewed
by it and appear regular on their face and relate to such Mortgage Loan; and
(iii) based on examination by it, and only as to such documents, the information
set forth in items (i) - (vii) and (xiv) of the definition or description of
"Mortgage Loan Schedule" is correct.

           The Certificate Administrator, on behalf of the Trustee, has made no
independent examination of any documents contained in each Mortgage File beyond
the review specifically required in the above-referenced Agreements. The
Certificate Administrator, on behalf of the

<PAGE>

Trustee, makes no representation that any documents specified in clause (vi) of
Section 2.01(c) of the Purchase Agreement should be included in any Mortgage
File. The Certificate Administrator, on behalf of the Trustee, makes no
representations as to and shall not be responsible to verify: (i) the validity,
legality, sufficiency, enforceability, due authorization, recordability or
genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan, or (iii) the existence of any assumption, modification, written assurance
or substitution agreement with respect to any Mortgage File if no such documents
appear in the Mortgage File delivered to the Certificate Administrator, on
behalf of the Trustee.

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

                             WACHOVIA BANK, NATIONAL
                             ASSOCIATION, not in its
                             individual capacity but solely as Certificate
                             Administrator

                             By: _________________________________________
                             Name:
                             Title:

                                      F-2

<PAGE>

                                                                     Exhibit F-2

                      Form of Trustee's Final Certification

                                                     [Date]

NovaStar Mortgage, Inc.
1900 W. 47th Place, Suite 205
Westwood, Kansas 66205
Attention: Chris Miller, Senior Vice President

NovaStar Mortgage Funding Corporation
1900 W. 47th Place, Suite 205
Westwood, Kansas 66205
Attention: Chris Miller, Senior Vice President

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn: NovaStar Mortgage Funding Trust,
      Series 2002-3

      Re:  Pooling and Servicing Agreement, dated as of September 1, 2002 (the
           "Agreement"), among NovaStar Mortgage, Inc., NovaStar Mortgage
           Funding Corporation, Wachovia Bank, National Association (the
           "Certificate Administrator") and JPMorgan Chase Bank (the "Trustee")
           relating to the NovaStar Mortgage Funding Trust, Series 2002-3 Home
           Equity Loan Asset-Backed Certificates

Gentlemen:

           In accordance with Section 2.03 of the above-captioned Agreement, and
Section 2.01(c) of the Mortgage Loan Purchase Agreement, dated as of September
1, 2002 (the " Purchase Agreement" and, together with the Agreement, the
"Agreements"), among NovaStar Mortgage, Inc., NovaStar Mortgage Funding
Corporation, the Certificate Administrator and the Trustee, the undersigned, as
Certificate Administrator, on behalf of the Trustee, hereby certifies that as to
each Mortgage Loan listed in the Mortgage Loan Schedule (other than any Mortgage
Loan paid in full or listed on the attachment hereto) it has received the
documents set forth in Section 2.01(c) of the Mortgage Loan Purchase Agreement.

           The Certificate Administrator, on behalf of the Trustee, has made no
independent examination of any documents contained in each Mortgage File beyond
the review specifically required in the Agreements. The Certificate
Administrator, on behalf of the Trustee, makes no representation that any
documents specified in clause (vi) of Section 2.01(c) should be included in any
Mortgage File. The Certificate Administrator, on behalf of the Trustee, makes no
representations as to and shall not be responsible to verify: (i) the validity,
legality, sufficiency, enforceability, due authorization, recordability or
genuineness of any of the documents contained in each Mortgage File of any of
the Mortgage Loans identified on the Mortgage Loan Schedule, (ii) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan or (iii) the existence of any assumption, modification, written assurance
or substitution agreement with

<PAGE>

respect to any Mortgage File if no such documents appear in the Mortgage File
delivered to the Certificate Administrator, on behalf of the Trustee.

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

                                 WACHOVIA BANK, NATIONAL
                                 ASSOCIATION, not in its
                                 individual capacity but solely as Certificate
                                 Administrator

                                 By:__________________________________________
                                 Name:
                                 Title:

                                     F-2-2

<PAGE>

                                                                       Exhibit G

                            Form of Investment Letter

NovaStar Mortgage, Inc.
1900 W. 47th Place, Suite 205
Westwood, Kansas 66205
Attention: Chris Miller, Senior Vice President

Wachovia Bank, National Association
401 South Tryon Street, 12th Floor
Charlotte, North Carolina 28202
Attn: NovaStar Mortgage Funding Trust,
      Series 2002-3

Ladies and Gentlemen:

               The undersigned (the "Transferee") has agreed to purchase from
________ (the "Transferor") the following certificates:

               Class                   Number

               --
               --
               --
               --
               --

               I.  The Transferee is (check one):

--------------------------------------------------------------------------------
               __   (i) An  insurance  company,  as defined in Section  2(13) of
                    the Securities Act of 1933, as amended (the "Securities
                    Act"), (ii) an investment company registered under the
                    Investment Company Act of 1940, as amended (the "Investment
                    Company Act"), (iii) a business development company as
                    defined in Section 2(a)(48) of the Securities Act, (iv) a
                    Small Business Investment Company licensed by the U.S. Small
                    Business Administration under Section 301(c) or (d) of the
                    Small Business Investment Act of 1958, as amended, (v) a
                    plan established and maintained by a state, its political
                    subdivisions, or any agency or instrumentality of a state or
                    its political subdivisions, for the benefit of its
                    employees, (vi) an employee benefit plan within the meaning
                    of Title I of the Employee Retirement Income Security Act of
                    1974, as amended ("ERISA"), (vii) a business development
                    company as defined in Section 202(a)(22) of the Investment
                    Advisors Act of 1940, as amended, (viii) an organization
                    described in Section 501(c)(3) of the Internal Revenue Code,
                    corporation (other than a bank as defined in Section 3(a)(2)
                    of the Securities Act or a savings and
--------------------------------------------------------------------------------

<PAGE>

--------------------------------------------------------------------------------
                                 loan association or other institution
                                 referenced in Section 3(a)(2) of the Securities
                                 Act or a foreign bank or savings and loan
                                 association or equivalent institution),
                                 partnership, or Massachusetts or similar
                                 business trust; or (ix) an investment advisor
                                 registered under the Investment Advisors Act of
                                 1940, as amended, which, for each of (i)
                                 through (ix), owns and invests on a
                                 discretionary basis at least $100 million in
                                 securities other than securities of issuers
                                 affiliated with the Transferee, securities
                                 issued or guaranteed by the United States or a
                                 person controlled or supervised by and acting
                                 as an instrumentality of the government of the
                                 United States pursuant to authority granted by
                                 the Congress of the United States, bank deposit
                                 notes and certificates of deposit, loan
                                 participations, repurchase agreements,
                                 securities owned but subject to a repurchase
                                 agreement, and currency, interest rate and
                                 commodity swaps (collectively, "Excluded
                                 Securities");

--------------------------------------------------------------------------------
                  __             a dealer registered pursuant to Section 15 of
                                 the Securities Exchange Act of 1934, as amended
                                 (the "Exchange Act") that in the aggregate owns
                                 and invests on a discretionary basis at least
                                 $10 million of securities other than Excluded
                                 Securities and securities constituting the
                                 whole or part of an unsold allotment to, or
                                 subscription by, Transferee as a participant in
                                 a public offering;

--------------------------------------------------------------------------------
                  __             an investment company registered under the
                                 Investment Company Act that is part of a family
                                 of investment companies (as defined in Rule
                                 144A of the Securities and Exchange Commission)
                                 which own in the aggregate at least $100
                                 million in securities other than Excluded
                                 Securities and securities of issuers that are
                                 part of such family of investment companies;

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

                  __             an entity, all of the equity owners of which
                                 are entities described in this Paragraph A(I);

--------------------------------------------------------------------------------
                  __             a bank as defined in Section 3(a)(2) of the
                                 Securities Act, any savings and loan
                                 association or other institution as referenced
                                 in Section 3(a)(5)(A) of the Securities Act, or
                                 any foreign bank or savings and loan
                                 association or equivalent institution that in
                                 the aggregate owns and invests on a
                                 discretionary basis at least $100 million in
                                 securities other than Excluded Securities and
                                 has an audited net worth of at least $25
                                 million as demonstrated in its latest annual
                                 financial statements, as of a date not more
                                 than 16 months preceding the date of transfer
                                 of the Certificates to the Transferee in the
                                 case of a U.S. Bank or savings and loan
                                 association, and not more than 18 months
                                 preceding such date in the case of a foreign
                                 bank or savings association or equivalent
                                 institution.

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

                                      G-2

<PAGE>

          II. The Transferee is acquiring such Certificates solely for its own
account, for the account of one or more others, all of which are "Qualified
Institutional Buyers" within the meaning of Rule 144A, or in its capacity as a
dealer registered pursuant to Section 15 of the Exchange Act acting in a
riskless principal transaction on behalf of a "Qualified Institutional Buyer".
The Transferee is not acquiring such Certificates with a view to or for the
resale, distribution, subdivision or fractionalization thereof which would
require registration of the Certificates under the Securities Act.

          D. The Transferee represents that either it is not (i) an employee
benefit plan (as defined in section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) subject to the provisions of Title I
of ERISA, (ii) a plan described in section 4975(e)(1) of the Internal Revenue
Code of 1986, or (iii) an entity whose underlying assets are deemed to be assets
of a plan described in (i) or (ii) above by reason of such plan's investment in
the entity.

                                          Very truly yours,

                                          By: _______________________________
                                          Title: ____________________________
Dated: __________

                                      G-3

<PAGE>

                                                                      Exhibit H

                 Form of Residual Certificate Transfer Affidavit

AFFIDAVIT PURSUANT TO SECTION 860E OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED

STATE OF            )
                    ) ss:
COUNTY OF           )

          [NAME OF OFFICER], being first duly sworn, deposes and says:

          1. That he is [Title of Officer] of [Name of Investor] (the
"Investor"), a [savings institution] [corporation] duly organized and existing
under the laws of [the State of_____[the United States], on behalf of which he
makes this affidavit.

          2. That (i) the Investor is not a "disqualified organization" and will
not be a "disqualified organization" as of [date of transfer] (for this purpose,
a "disqualified organization" means the United States, any state or political
subdivision thereof, any foreign government, any international organization, any
agency or instrumentality of any of the foregoing (other than certain taxable
instrumentalities), any cooperative organization furnishing electric energy or
providing telephone service to persons in rural areas, or any organization
(other than a farmers' cooperative) that is exempt from federal income tax
unless such organization is subject to the tax on unrelated business income);
(ii) it is not acquiring the Class R Certificate for the account of a
disqualified organization; (iii) it consents to any amendment of the Pooling and
Servicing Agreement dated as of September 1, 2002 among NovaStar Funding
Corporation, as Company, NovaStar Mortgage, Inc., as Servicer, Wachovia Bank,
National Association, as Certificate Administrator, and JPMorgan Chase Bank, as
Trustee, that shall be deemed necessary by the Trustee (upon advice of counsel)
to constitute a reasonable arrangement to ensure that the Class R Certificates
will not be owned directly or indirectly by a disqualified organization; (iv) no
purpose of the acquisition of the Class R Certificate is to avoid or impede the
assessment or collection of tax; (v) it understands that it may incur tax
liabilities in excess of any cash flows generated by the Class R Certificate;
(vi) it intends to pay taxes associated with holding the Class R Certificate as
they become due; (vii) it will not cause income from the Class R Certificate to
be attributable to a foreign permanent establishment or fixed base (within the
meaning of an applicable income tax treaty) of the Investor or another United
States taxpayer; and (viii) it will not transfer such Class R Certificate unless
(a) it has received from the transferee an affidavit in substantially the same
form as this affidavit containing these same four representations and (b) as of
the time of the transfer, it does not have actual knowledge that such affidavit
is false.

          3. That the Investor is (i) a "United States person" within the
meaning of section 7701(a)(30) of the Code or (ii) a person who would be subject
to United States income taxation on a net basis on income derived from the Class
R Certificate.

          4. That, if the Investor is a partnership for United States income tax
purposes, each person or entity that holds an interest (directly, or indirectly
through a pass-

<PAGE>

through entity) in the partnership is (i) a United States person within the
meaning of section 7701 (a)(30) of the Code or (ii) a person who would be
subject to United States income taxation on a net basis on income derived from
the Class R Certificate.

                                      H-2

<PAGE>

          IN WITNESS WHEREOF, the Investor has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
[Title of Officer] and its corporate seal to be hereunto attached, attested by
its [Assistant] Secretary, this ____ day of ____________, ____.

                                         [NAME OF INVESTOR]

                                         By: _________________________
                                         [Name of Officer]
                                         [Title of Officer]
[Corporate Seal]

Attest:

___________________________
[Assistant] Secretary

          Personally appeared before me the above-named [Name of Officer], known
or proved to be the same person who executed the foregoing instrument and to be
the [Title of Officer] of the Investor, and acknowledged to me that he executed
the same as his free act and deed and the free act and deed of the Investor.

          Subscribed and sworn before me this ____ day of _________, ____.

__________________________
NOTARY PUBLIC

COUNTY OF ________________

STATE OF _________________

          My commission expires the ____ day of ________, ____.

                                      H-3

<PAGE>

                                                                       Exhibit I

                                   [Reserved]

                                      I-1

<PAGE>

                                                                      Exhibit J

                    Form of Notional Amount Test Event Notice

                                      J-1<PAGE>

                                                                  EXECUTION COPY
                                                                    EXHIBIT 10.1

                             NOVASTAR MORTGAGE, INC.
                                   as Seller,

                      NOVASTAR MORTGAGE FUNDING CORPORATION
                                   as Company,

                       WACHOVIA BANK, NATIONAL ASSOCIATION
                          as Certificate Administrator

                                       and

                               JPMORGAN CHASE BANK
                                   as Trustee

                        MORTGAGE LOAN PURCHASE AGREEMENT

                          Dated as of September 1, 2002

                    Fixed and Adjustable Rate Mortgage Loans

                 NovaStar Mortgage Funding Trust, Series 2002-3
        NovaStar Home Equity Loan Asset-Backed Certificate, Series 2002-3

<PAGE>

                                TABLE OF CONTENTS
<TABLE>
<S>                                                                                             <C>
Page(s)

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

Section 1.01    Definitions. .................................................................  1

ARTICLE II      SALE OF MORTGAGE LOANS AND RELATED PROVISIONS ................................  2

Section 2.01    Sale of Initial Mortgage Loans and MI Policies. ..............................  2
Section 2.02    Conveyance of the Subsequent Mortgage Loans
Section 2.03    Pre-Funding Account
Section 2.04    Interest Coverage Account

ARTICLE III     REPRESENTATIONS AND WARRANTIES;  REMEDIES FOR BREACH .........................  9

Section 3.01    Seller Representations and Warranties. .......................................  9
Section 3.02    Company Representations and Warranties. ...................................... 23
Section 3.03    [Reserved] ................................................................... 24

ARTICLE IV      SELLER'S COVENANTS ........................................................... 24

Section 4.01    Covenants of the Seller. ..................................................... 24
Section 4.02    Payment of Expenses. ......................................................... 24

ARTICLE V       CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE ................................. 25

Section 5.01    Conditions of Company's Obligations. ......................................... 25

ARTICLE VI      INDEMNIFICATION BY THE SELLER   WITH RESPECT TO THE MORTGAGE LOANS ........... 26

Section 6.01    Indemnification With Respect to the Mortgage Loans. .......................... 26
Section 6.02    Limitation on Liability of the Seller. ....................................... 26

ARTICLE VII     TERMINATION .................................................................. 26

Section 7.01    Termination. ................................................................. 26

ARTICLE VIII    MISCELLANEOUS PROVISIONS ..................................................... 28

Section 8.01    Amendment. ................................................................... 28
Section 8.02    Governing Law. ............................................................... 28
Section 8.03    Notices. ..................................................................... 28
Section 8.04    Severability of Provisions. .................................................. 29
</TABLE>

                                       i

<PAGE>

<TABLE>
<S>                                                                          <C>
Section 8.05   Relationship of Parties. ....................................  29
Section 8.06   Counterparts. ...............................................  29
Section 8.07   Further Agreements. .........................................  29
Section 8.08   Intention of the Parties. ...................................  30
Section 8.09   Successors and Assigns; Assignment of Purchase Agreement ....  30
Section 8.10   Survival. ...................................................  30
Section 8.11   Liability of the Trustee. ...................................  31
</TABLE>

EXHIBIT 1      Initial Mortgage Loan Schedule
EXHIBIT 2(A)   Seller's Subsequent Transfer Instrument
EXHIBIT 2(B)   Company's Subsequent Transfer Instrument

                                       ii

<PAGE>

     THIS MORTGAGE LOAN PURCHASE AGREEMENT (this "Purchase Agreement"), dated as
of September 1, 2002, is made among NovaStar Mortgage, Inc. (the "Seller"),
NovaStar Mortgage Funding Corporation (the "Company"), Wachovia Bank, National
Association (the "Certificate Administrator") and JPMorgan Chase Bank (the
"Trustee").

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

     WHEREAS, pursuant to the terms of this Purchase Agreement, the Seller will
sell the Initial Mortgage Loans and the related MI Policies to the Company on
the Closing Date;

     WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the
Company will transfer the Initial Mortgage Loans and the related MI Policies,
and assign all of its rights under the Purchase Agreement, to the Trustee,
without recourse, on the Closing Date;

     WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the
Trustee will issue the Certificates;

     WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the
Trustee will transfer to the Company the Certificates;

     WHEREAS, pursuant to the terms of the Underwriting Agreement, the Company
will sell the Underwritten Certificates to the Underwriter;

     WHEREAS, pursuant to the terms of the REMIC Interests Sale Agreement, the
Company will sell the Retained Certificates to NovaStar REMIC Financing
Corporation ("NRFC"), and NRFC will then transfer the Class O Certificates to
NovaStar Certificates Financing Corporation;

     WHEREAS, pursuant to the terms of the Pooling and Servicing Agreement, the
Servicer will service the Mortgage Loans; and

     WHEREAS, pursuant to the terms of the Converted Loan Purchase Agreement,
the Converted Loan Purchaser will purchase the Converted Mortgage Loans from the
Trustee.

                                    ARTICLE I

                                   DEFINITIONS

     Section 1.01 Definitions.

     For all purposes of this Purchase Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in the
Definitions contained in Appendix A to the Pooling and Servicing Agreement,
dated as of September 1, 2002, among the Certificate Administrator, the Trustee,
the Company and NovaStar Mortgage, Inc. as seller and servicer (the "Servicer")
which is incorporated by reference herein. All other capitalized terms used
herein shall have the meanings specified herein.

                                       1

<PAGE>

                                   ARTICLE II

                  SALE OF MORTGAGE LOANS AND RELATED PROVISIONS

     Section 2.01 Sale of Initial Mortgage Loans and MI Policies.

     (a) The Seller hereby sells, and the Company hereby purchases on the
Closing Date the Initial Mortgage Loans identified (and the related MI Policies)
on the Mortgage Loan Schedule annexed hereto as Exhibit 1, the proceeds thereof
and all rights under the Related Documents (including the related Mortgage
Files). The Initial Mortgage Loans consist of two groups of conventional,
residential first lien mortgage loans with fixed and adjustable interest rates,
the Group I Mortgage Loans and the Group II Mortgage Loans. The Initial Mortgage
Loans will have a Principal Balance as of the close of business on the Cut-off
Date, after giving effect to any payments due on or before such date whether or
not received, of approximately $403,959,621.37. The sale of the Initial Mortgage
Loans will take place on the Closing Date, subject to and simultaneously with
the deposit of the Initial Mortgage Loans and the Original Pre-Funded Amount and
the Interest Coverage Account into the Trust Fund, the issuance of the
Securities by the Trustee and the sale of the Underwritten Certificates pursuant
to the Underwriting Agreement. The purchase price (the "Purchase Price") for the
Initial Mortgage Loans to be paid by the Company to the Seller on the Closing
Date shall consist of the following:

         (i)  a payment in an amount equal to $735,032,813 representing the net
proceeds of the sale of the Underwritten Certificates, which payment shall be
paid to the Seller by wire transfer in immediately available funds on the
Closing Date by or on behalf of the Company, or as otherwise agreed by the
Company; and

         (ii) a payment in an amount equal to $20,000 representing the proceeds
of the sale of the Retained Certificates by the Company to NRFC pursuant to the
REMIC Interests Sale Agreement, which payment shall be paid to the Seller by
wire transfer in immediately available funds on the Closing Date by or on behalf
of the Company, or as otherwise agreed by the Company.

     (b) [Reserved]

     (c) In connection with such conveyances by the Seller, the Seller shall on
behalf of and at the direction of the Company deliver to, and deposit with the
Certificate Administrator on behalf of the Trustee, on or before the Closing
Date in the case of an Initial Mortgage Loan and two Business Days prior to the
related Subsequent Transfer Date in the case of a Subsequent Mortgage Loan, the
following documents or instruments with respect to each Mortgage Loan (the
"Mortgage File"):

         (i)  the original Mortgage Note endorsed to "JPMorgan Chase Bank, as
Trustee of the NovaStar Mortgage Funding Trust, Series 2002-3, relating to the
NovaStar Home Equity Loan Asset-Backed Certificates, Series 2002-3";

         (ii) the original Mortgage with evidence of recording thereon, or, if
the original Mortgage has not yet been returned from the public recording
office, a copy of the original Mortgage certified by the Seller or the public
recording office in which such original

                                       2

<PAGE>

Mortgage has been recorded and if the Mortgage Loan is registered on the MERS
System, such Mortgage shall include thereon a statement that it is a MOM Loan
and shall include the MIN for such Mortgage Loan;

         (iii) unless the Mortgage Loan is registered on the MERS System, an
original assignment (which may be included in one or more blanket assignments if
permitted by applicable law) of the Mortgage endorsed to "JPMorgan Chase Bank,
as Trustee of the NovaStar Mortgage Funding Trust, Series 2002-3, relating to
the NovaStar Home Equity Loan Asset-Backed Certificates, Series 2002-3", and
otherwise in recordable form;

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

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

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

         (vii) an executed copy of the notice of assignment and acknowledgement
of assignment with respect to the Mortgage Loans covered by the MI Policies.

     If a material defect in any Mortgage File is discovered which may
materially and adversely affect the value of the related Mortgage Loan, or the
interests of the Trustee (as pledgee of the Mortgage Loans), or the
Certificateholders in such Mortgage Loan, including if any document required to
be delivered to the Certificate Administrator has not been delivered (provided
that a Mortgage File will not be deemed to contain a defect for an unrecorded
assignment under clause (i) above for 180 days following submission of the
assignment if the Seller has submitted such assignment for recording pursuant to
the terms of the following paragraph), the Seller shall cure such defect,
repurchase the related Mortgage Loan at the Repurchase Price or substitute an
Eligible Substitute Mortgage Loan for the related Mortgage Loan upon the same
terms and conditions set forth in Section 3.01 hereof as to the Initial Mortgage
Loans and the Subsequent Mortgage Loans and Section 2.02(c) hereof as to the
Subsequent Mortgage Loans for breaches of representations and warranties.

     Promptly after the Closing Date in the case of an Initial Mortgage Loan or,
in the case of a Subsequent Mortgage Loan, promptly after the Subsequent
Transfer Date (or after the date of transfer of any Eligible Substitute Mortgage
Loan), the Seller at its own expense shall complete and submit for recording in
the appropriate public office for real property records each of the assignments
referred to in clause (i) above, with such assignment completed in favor of the
Trustee, excluding any Mortgage Loan that is registered on the MERS System if
MERS is

                                       3

<PAGE>

identified on the Mortgage or on a properly recorded assignment of Mortgage as
the mortgagee of record. While such assignment to be recorded is being recorded,
the Certificate Administrator shall retain a photocopy of such assignment. If
any assignment is lost or returned unrecorded to the Certificate Administrator
because of any defect therein, the Seller is required to prepare a substitute
assignment or cure such defect, as the case may be, and the Seller shall cause
such substitute assignment to be recorded in accordance with this paragraph.

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

     In connection with the assignment of any Initial Mortgage Loan registered
on the MERS System, promptly after the Closing Date, the Seller further agrees
that it will cause, at the Seller's own expense, the MERS System to indicate
that such Initial Mortgage Loan has been assigned by the Seller to the Trustee
in accordance with this Agreement for the benefit of the Certificateholders by
including in such computer files (a) the applicable Trustee code in the field
"Trustee" which identifies the Trustee and (b) the code "NovaStar 2002-3" (or
its equivalent) in the field "Pool Field" which identifies the series of the
Certificates issued in connection with such Mortgage Loans.

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

     The Trustee, as assignee or transferee of the Company, shall be entitled to
all scheduled principal payments due after the Cut-off Date, all other payments
of principal due and collected after the Cut-off Date, and all payments of
interest on the Initial Mortgage Loans. No scheduled payments of principal due
on or before the Cut-off Date and collected after the Cut-off Date shall belong
to the Company pursuant to the terms of this Purchase Agreement. The Pooling and
Servicing Agreement shall provide that any late payment charges collected in
connection with a Mortgage Loan shall be paid to the Servicer as provided
therein.

     (d) The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Closing Date of all the
Seller's right, title and interest in and to the Initial Mortgage Loans and
other property as and to the extent described above. In the event the
transactions set forth herein shall be deemed not to be a sale, the Seller
hereby grants to the Company as of the Closing Date a security interest in all
of the Seller's right, title and interest in, to and under the Initial Mortgage
Loans and such other property, to secure all of the Seller's obligations
hereunder and this Purchase Agreement shall constitute a security agreement
under applicable law and in such event, the parties hereto acknowledge that the
Certificate Administrator, in addition to holding the Closing Mortgage Loans on
behalf of the Trustee for the benefit of the Certificateholders, holds the
Initial Mortgage Loans as designee of the Company. The Seller agrees to take or
cause to be taken such actions and to execute such

                                       4

<PAGE>

documents, including without limitation the filing of all necessary UCC-1
financing statements filed in the Commonwealth of Virginia (which shall have
been submitted for filing as of the Closing Date and each Subsequent Transfer
Date, as applicable), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate
structure of the Seller, as are necessary to perfect and protect the interests
of the Company and their respective assignees in each Initial Mortgage Loan and
the proceeds thereof and the interests of the Trustee and its assignees in each
Subsequent Mortgage Loan and the proceeds thereof. The Company agrees to take or
cause to be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements, and
continuation statements with respect thereto and any amendments thereto as are
necessary to perfect and protect the interests of the Trustee and its assignees
in each Initial Mortgage Loan.

          Section 2.02 Conveyance of the Subsequent Mortgage Loans.

          (a) Subject to the conditions set forth in paragraph (b) below in
consideration of the Trustee's delivery on the related Subsequent Transfer Dates
of all or a portion of the balance of funds in the Pre-Funding Account, the
Seller shall on any Subsequent Transfer Date sell, transfer, assign, set over
and convey, without recourse, to the Company, who shall then sell, transfer,
assign, set over and convey, without recourse, to the Trustee, but subject to
the other terms and provisions of this Purchase Agreement, all of the right,
title and interest of the Seller in and to (i) the Subsequent Mortgage Loans
(and the related MI Policies) identified on the related Mortgage Loan Schedule
attached to the related Subsequent Transfer Instrument delivered by the Seller
on such Subsequent Transfer Date, (ii) principal due and interest accruing on
the Subsequent Mortgage Loans after the related Subsequent Cut-off Date and (i)
with respect to such Subsequent Mortgage Loans all items to be delivered
pursuant to Section 2.01(c) above and the other items in the related Mortgage
Files; provided, however, that the Seller reserves and retains all right, title
and interest in and to principal received and interest accruing on the
Subsequent Mortgage Loans prior to the related Subsequent Cut-off Date. The
transfer by the Seller to the Company, and by the Company to the Trustee, of the
Subsequent Mortgage Loans identified on each Mortgage Loan Schedule attached to
the related Subsequent Transfer instrument shall be absolute and is intended by
the Trustee, the Company and the Seller to constitute and to be treated as a
sale of the Subsequent Mortgage Loans by the Seller to the Company, and a sale
of the Subsequent Mortgage Loans by the Company to the Trustee.

          In the event such transactions shall be deemed not to be a sale, the
Seller hereby grants to the Company as of each Subsequent Transfer Date a
security interest in all of the Seller's right, title and interest in, to and
under the related Subsequent Mortgage Loans and such other property, to secure
all of the Seller's obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable law, and in such event, the
parties hereto acknowledge that the Certificate Administrator, in addition to
holding the Subsequent Mortgage Loans and the related MI Policies on behalf of
the Trustee for the benefit of the Certificateholders, holds the Subsequent
Mortgage Loans and the related MI Policies as designee of the Company. The
Seller agrees to take or cause to be taken such actions and to execute such
documents, including without limitation the filing of all necessary UCC-1
financing statements filed in the Commonwealth of Virginia (which shall be
submitted for filing as of the related Subsequent Transfer Date), any
continuation statements with respect thereto and any

                                        5

<PAGE>

amendments thereto required to reflect a change in the name or corporate
structure of the Seller or the filing of any additional UCC-1 financing
statements due to a change in the state of incorporation of the Seller as are
necessary to perfect and protect the interests of the Company and its assignees
in the Subsequent Mortgage Loans.

          In the event such transactions shall be deemed not to be a sale, the
Company hereby grants to the Trustee as of each Subsequent Transfer Date a
security interest in all of the Company's right, title and interest in, to and
under the related Subsequent Mortgage Loans and such other property, to secure
all of the Company's obligations hereunder, and this Purchase Agreement shall
constitute a security agreement under applicable law, and in such event, the
parties hereto acknowledge that the Certificate Administrator, in addition to
holding the Subsequent Mortgage Loans and the related MI Policies on behalf of
the Trustee for the benefit of the Certificateholders, holds the Subsequent
Mortgage Loans and the related MI Policies as designee of the Trustee. The
Company agrees to take or cause to be taken such actions and to execute such
documents, including without limitation, the filing of all necessary UCC-1
financing statements filed in the State of Delaware (which shall be submitted
for filing as of the related Subsequent Transfer Date), any continuation
statements with respect thereto and any amendments thereto required to reflect a
change in the name or corporate structure of the Company or the filing of any
additional UCC-1 financing statements due to a change in the state of
incorporation of the Company as are necessary to perfect and protect the
interests of the Trustee and its assignees in Subsequent Mortgage Loans.

          The related Mortgage File for each Subsequent Mortgage Loan shall be
delivered to the Certificate Administrator, on behalf of the Trustee, prior to
the related Subsequent Transfer Date.

          The Trustee on each Subsequent Transfer Date shall acknowledge by
signing receipt thereof its acceptance of all right, title and interest to the
related Subsequent Mortgage Loans and other property, existing on the Subsequent
Transfer Date and thereafter created, conveyed to it pursuant to this Section
2.02.

          The Trustee, as trustee of the Trust Fund, shall be entitled to all
scheduled principal payments due after each Subsequent Cut-off Date, all other
payments of principal due and collected after each related Subsequent Cut-off
Date, and all payments of interest on the Subsequent Mortgage Loans, minus that
portion of any such payment which is allocable to the period prior to the
related Subsequent Cut-off Date. No scheduled payments of principal due on or
before the related Subsequent Cut-off Date and collected after the related
Subsequent Cut-off Date shall belong to the Trust Fund pursuant to the terms of
this Purchase Agreement.

          The purchase price paid by the Certificate Administrator, at the
direction of the Servicer and on behalf of the Trustee, from amounts released
from the Pre-Funding Account shall be one-hundred percent (100%) of the
aggregate Principal Balances of the Subsequent Mortgage Loans so transferred (as
identified on the Mortgage Loan Schedule attached to the related Subsequent
Transfer Instrument provided by the Seller).

          (b) The Seller shall transfer to the Company, who shall transfer to
the Trustee, the Subsequent Mortgage Loans and the other property and rights
related thereto described in

                                        6

<PAGE>

Section 2.02(a) above, and the Certificate Administrator shall cause to be
released funds from the related Pre-Funding Account, only upon the satisfaction
of each of the following conditions on or prior to the related Subsequent
Transfer Date:

               (i)    the Seller shall have provided the Company, who shall have
provided the Certificate Administrator, and the Certificate Administrator shall
have provided the Trustee, with a timely Addition Notice, which notice shall be
given no fewer than four Business Days prior to the related Subsequent Transfer
Date and shall designate the Subsequent Mortgage Loans to be sold to the Company
and then to the Trustee and the aggregate Principal Balances of such Subsequent
Mortgage Loans as of the related Subsequent Cut-off Date and any other
information reasonably requested by the Certificate Administrator with respect
to the Subsequent Mortgage Loans;

               (ii)   the Seller shall have delivered to the Company, who shall
have delivered to the Trustee, who shall have delivered to the Certificate
Administrator, a duly executed Subsequent Transfer Instrument substantially in
the form of Exhibit 2(A) or 2(B), as applicable, (A) confirming the satisfaction
of each condition precedent and representations specified in this Section
2.02(b), Section 2.02(c) and in the related Subsequent Transfer Instrument and
(B) including a Mortgage Loan Schedule attached thereto listing the Subsequent
Mortgage Loans;

               (iii)  as of each Subsequent Transfer Date, as evidenced by
delivery of the Seller's Subsequent Transfer Instrument in the form of Exhibit
2(A) and the Company's Subsequent Transfer Instrument is the form of Exhibit
2(B), neither the Seller nor the Company shall be insolvent or have been made
insolvent by such transfers, nor shall they be aware of any pending insolvency;

               (iv)   such sale and transfer (i) does not cause the REMIC to
fail to qualify as a REMIC and (ii) is not a prohibited transaction within the
meaning of Section 860F(a)(2) of the Code, as evidenced by an Opinion of Counsel
provided for the Trustee at the expense of the Seller;

               (v)    the Funding Period shall not have terminated; and

               (vi)   the Seller shall have delivered to the Certificate
Administrator, the Trustee, and the Rating Agencies Opinions of Counsel
addressed to the Rating Agencies, the Trustee and the Certificate Administrator
with respect to the transfers of the Subsequent Mortgage Loans substantially in
the form of the Opinion of Counsel delivered to the Certificate Administrator,
the Trustee and the Rating Agencies on the Closing Date (1) regarding certain
corporate matters and (2) confirming the existence of a true sale.

          (c)  The obligation of the Trustee to purchase a Subsequent Mortgage
Loan on any Subsequent Transfer Date is subject to the following conditions: (1)
each such Subsequent Mortgage Loan shall satisfy the representations and
warranties specified in the related Subsequent Transfer Instrument and this
Purchase Agreement; (2) the Seller shall not select such Subsequent Mortgage
Loans in a manner that it reasonably believes is adverse to the interests of the
Majority Certificateholders; (3) the Seller shall have delivered certain
Opinions of Counsel

                                        7

<PAGE>

required pursuant to Section 2.02(b)(iv) and (vi) hereof; (4) as of the related
Subsequent Cut-off Date, the Subsequent Mortgage Loans shall satisfy the
following criteria: (i) each Subsequent Mortgage Loan shall not be 30 or more
days contractually delinquent as of the related Subsequent Cut-off Date; (ii)
the remaining stated term to maturity of each Subsequent Mortgage Loan shall not
exceed 360 months; (iii) the lien securing each Subsequent Mortgage Loan shall
be first priority; (iv) each Subsequent Mortgage Loan shall have an outstanding
Principal Balance of at least $10,000; (v) each Subsequent Mortgage Loan shall
be underwritten in accordance with the Underwriting Guidelines; (vi) each
Subsequent Mortgage Loan shall have a Loan-to-Value Ratio of no more than 100%;
(vii) each Subsequent Mortgage Loan shall have a stated maturity of no later
than January 1, 2033; (viii) no Subsequent Mortgage Loan shall permit negative
amortization; (ix) each Subsequent Mortgage Loan shall either have a fixed
Mortgage Rate of at least 5.00% or, if an adjustable loan, a Gross Margin of at
least 2.75%; (x) a minimum of 60% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall have an adjustable Mortgage
Rate; (xi) the weighted average Loan-to-Value Ratio of the Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall be no more than 87%;
(xii) substantially all of the Subsequent Mortgage Loans shall either (A) have a
Loan-to Value Ratio of no more than 60% or (B) have a Loan-to-Value Ratio of
greater than 60% and be covered by an MI Policy which will insure losses to the
extent that the uninsured exposure of the related Subsequent Mortgage Loan is
reduced to an amount equal to 51%, 55% or 50% of the lesser of the appraised
value or purchase price, as the case may be, of the related Mortgaged Property,
in each case, at the time of the applicable effective date of the MI Policy;
(xiii) the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall have a weighted average coupon of at least 7.0%; (xiv) pursuant
to the Underwriting Guidelines, no fewer than 40% of the Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall be AAA, A+, ALT-A and
AA credit risks, no fewer than 10% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall be A and A- credit risks, and
no more than 15% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date
Principal Balance) shall be B, B-, C, and C- credit risks; (xv) no greater than
20% of such Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall be FICO Enhanced loans pursuant to the Underwriting Guidelines;
(xvi) no more than 15% of such Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be FICO only loans; (xvii) the Subsequent Mortgage
Loans (by Subsequent Cut-off Date Principal Balance) shall have a weighted
average FICO score issued by a consumer credit rating agency of at least 600;
(xviii) at least 85% of such Subsequent Mortgage Loans (by Subsequent Cut-off
Date Principal Balance) shall be loans for primary residences; (xix) no more
than 50% of the Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal
Balance) shall have stated loan documentation, and no more than 15% of the
Subsequent Mortgage Loans (by Subsequent Cut-off Date Principal Balance shall
have no loan documentation; (xx) at least 70% of the Subsequent Mortgage Loans
(by Subsequent Cut-off Date Principal Balance) shall be loans for single family
residences; (xxi) no more than 75% of the Subsequent Mortgage Loans (by
Subsequent Cut-off Date Principal Balance) shall be loans that are the subject
of cash-out refinances; and (xxii) the ratings agencies shall have consented in
writing to the transfer of the Subsequent Mortgage Loans.

          The acceptance of the Subsequent Mortgage Loans by the Trustee is
subject to the Seller receiving and providing to the Trustee a written consent
from each of the Rating Agencies that states that the addition of such
Subsequent Mortgage Loans will not cause the Rating Agencies to downgrade any of
their ratings on the Underwritten Certificates.

                                        8

<PAGE>

          Notwithstanding the foregoing, Subsequent Mortgage Loans with
characteristics varying from those set forth above may be purchased by the
Trustee and included in the Trust Fund, if (i) the Trustee is provided with
written confirmation that the aggregate credit risk of such Subsequent Mortgage
Loans is similar to that of the Initial Mortgage Loans and (ii) the Seller
receives and provides to the Trustee a written consent from each of the Rating
Agencies that states that the addition of such Subsequent Mortgage Loans will
not cause the Rating Agencies to downgrade any of their ratings of the
Underwritten Certificates.

          (d) Within five Business Days after the end of the Funding Period, the
Seller shall deliver to the Rating Agencies, the Trustee and the Certificate
Administrator a copy of the updated Mortgage Loan Schedule including the
Subsequent Mortgage Loans in electronic format.

          Section 2.03 Pre-Funding Account.

          (a) No later than the Closing Date, the Certificate Administrator will
establish and maintain, on behalf of the Trustee, pursuant to the Pooling and
Servicing Agreement the Pre-Funding Account. On the Closing Date, the Seller
will deposit in the Pre-Funding Account the Original Pre-Funding Amount from the
net proceeds of the sale of the Underwritten Certificates.

          Section 2.04 Interest Coverage Account.

          (a) No later than the Closing Date, the Certificate Administrator will
establish and maintain, on behalf of the Trustee, pursuant to the Pooling and
Servicing Agreement the Interest Coverage Account. On the Closing Date, the
Seller will deposit in the Interest Coverage Account the Interest Coverage
Amount from the net proceeds of the sale of the Underwritten Certificates.

                                  ARTICLE III

                         REPRESENTATIONS AND WARRANTIES;
                               REMEDIES FOR BREACH

          Section 3.01 Seller Representations and Warranties.

          The Seller hereby represents and warrants to the Company and the
Trustee as of the date hereof, as of the Closing Date (or if otherwise specified
below, as of the date so specified) and as of each Subsequent Transfer Date:

          (a) As to the Seller:

              (i) The Seller (i) is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia and
(ii) is qualified and in good standing as a foreign corporation to do business
in each jurisdiction where such qualification is necessary, except where the
failure so to qualify would not have a material adverse effect on the Seller's
ability to enter into this Purchase Agreement and each Seller's

                                        9

<PAGE>

Subsequent Transfer Instrument and to consummate the transactions contemplated
hereby and thereby;

               (ii)  The Seller has the power and authority to make, execute,
deliver and perform its obligations under this Purchase Agreement and each
Seller's Subsequent Transfer Instrument and all of the transactions contemplated
under this Purchase Agreement and each Seller's Subsequent Transfer Instrument,
and has taken all necessary corporate action to authorize the execution,
delivery and performance of this Purchase Agreement each Seller's Subsequent
Transfer Instrument;

               (iii) The Seller is not required to obtain the consent of any
other Person or any consent, approval or authorization from, or registration or
declaration with, any governmental authority, bureau or agency in connection
with the execution, delivery, performance, validity or enforceability of this
Purchase Agreement or any Seller's Subsequent Transfer Instrument, except for
such consents, approvals or authorization, or registration or declaration, as
shall have been obtained or filed, as the case may be;

               (iv)  The execution and delivery of this Purchase Agreement and
each Seller's Subsequent Transfer Instrument and the performance of the
transactions contemplated hereby by the Seller will not violate any provision of
any existing law or regulation or any order or decree of any court applicable to
the Seller or any provision of the certificate of incorporation or bylaws of the
Seller, or constitute a material breach of any mortgage, indenture, contract or
other agreement to which the Seller is a party or by which the Seller may be
bound;

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

               (vi)  This Purchase Agreement and each Seller's Subsequent
Transfer Instrument constitute the legal, valid and binding obligations of the
Seller, enforceable against the Seller in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
affecting the enforcement of creditors' rights in general and except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);

               (vii) This Purchase Agreement constitutes a valid transfer and
assignment to the Company of all right, title and interest of the Seller in and
to the Cut-off Date Principal Balance of the Initial Mortgage Loans, all monies
due or to become due with respect thereto, and all proceeds of such Cut-off Date
Principal Balance of the Initial Mortgage Loans, and this Purchase Agreement and
the related Seller's Subsequent Transfer Instrument constitutes a valid transfer
and assignment to the Trustee of all right, title and interest of the Seller in
and to the Subsequent Cut-off Date Principal Balance of the Subsequent Mortgage
Loans, all monies

                                       10

<PAGE>

due or to become due with respect thereto, and all proceeds of such Subsequent
Cut-off Date Principal Balance of the Subsequent Mortgage Loans;

               (viii) The Seller is not in default with respect to any order or
decree of any court or any order or regulation of any federal, state or
governmental agency, which default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of the
Seller or its properties or might have consequences that would materially
adversely affect its performance hereunder; and

               (ix)   The Servicer or any Subservicer who will be servicing any
Mortgage Loan pursuant to the Pooling and Servicing Agreement or a Subservicing
Agreement is qualified to do business in all jurisdictions in which its
activities as Servicer or Subservicer of the Mortgage Loans serviced by it
require such qualifications except where failure to be so qualified will not
have a material adverse effect on such servicing activities.

          (b)  As to each Initial Mortgage Loan as of the Closing Date and with
respect to each Subsequent Mortgage Loan as of the Subsequent Transfer Date,
except as otherwise expressly stated:

               (i)    The information set forth on the Mortgage Loan Schedule
with respect to each Initial Mortgage Loan is true and correct in all material
respects as of the Closing Date, and with respect to each Subsequent Mortgage
Loan is true and correct in all material respects as of the related Subsequent
Transfer Date, and the information regarding the Initial Mortgage Loans and the
Subsequent Mortgage Loans on the computer diskette or tape delivered to the
Trustee prior to the Closing Date or Subsequent Transfer Date, as applicable, is
true and accurate in all material respects and describes the same Mortgage Loans
as the Mortgage Loans on the Mortgage Loan Schedule;

               (ii)   The Mortgage Loans are not being transferred with any
intent to hinder, delay or defraud any creditors;

               (iii)  No more than 4.99% and 5.14% of the Group I Mortgage Loans
and Group II Initial Mortgage Loans, respectively, (by Cut-off Date Principal
Balance) were secured by condominium units; and no more than 15.40% and 19.10%
of the Group I Mortgage Loans and the Group II Initial Mortgage Loans,
respectively, (by Cut-off Date Principal Balance) were secured by properties in
planned unit developments;

               (iv)   As of the Cut-off Date, the remaining term of each Group I
Mortgage Loan is not more than 360 months and not less than 118 months and the
remaining term of each Group II Initial Mortgage Loan is not more than 360
months and not less than 178 months;

               (v)    No more than 49.90% and 50.98% of the Group I Mortgage
Loans and Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) have been the subject of cash-out refinances;

                                       11

<PAGE>

               (vi)   No more than 9.31% and 11.16% of the Group I Mortgage
Loans and Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) respectively, have been the subject of rate and term (no
cash-out) refinances;

               (vii)  No fewer than 40.79% and 37.86% of the Group I Mortgage
Loans and Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) are purchase money loans;

               (viii) No more than 12.94% and 14.88% of the Group I Mortgage
Loans and the Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) are secured by Mortgaged Properties located in the State of
Florida; no more than 19.98% and 24.72% of the Group I Mortgage Loans and the
Group II Initial Mortgage Loans, respectively, (by Cut-off Date Principal
Balance) are secured by Mortgaged Properties located in the State of California;
no more than 5.57% and 5.28% of the Group II Initial Mortgage Loans are secured
in the State of Texas and the State of Colorado, respectively; and no more than
4.44% and 3.09% of the Group I Mortgage Loans and the Group II Initial Mortgage
Loans, respectively, (by Cut-off Date Principal Balance) are located in any
other state;

               (ix)   The outstanding Principal Balances of the Group I Mortgage
Loans (by Cut-off Date Principal Balance) ranged from $33,750.00 to $347,735.20,
respectively; the average outstanding Principal Balance of the Group I Mortgage
Loans is approximately $131,224.87; the original Principal Balances of the Group
II Initial Mortgage Loans (by Cut-off Date Principal Balance) ranged from
$42,347.77 to $799,489.87, respectively; the average outstanding Principal
Balance of the Group II Initial Mortgage Loans is approximately $202,953.69;

               (x)    All of the Group I Mortgage Loans and the Group II Initial
Mortgage Loans (by Cut-off Date Principal Balance) were secured by a first lien
on a parcel of real property improved by a detached single family residence; no
more than 5.80% and 2.99% of the Group I Mortgage Loans and the Group II Initial
Mortgage Loans, respectively, (by Cut-off Date Principal Balance) were secured
by a first lien on a parcel of real estate improved by a multi-unit single
family residence;

               (xi)   All points and fees related to each Mortgage Loan were
disclosed in writing to the borrower in accordance with applicable state and
federal law. Except in the case of a Mortgage Loan in an original principal
amount of less than $60,000 which would have resulted in an unprofitable
origination, no borrower was charged "points and fees" (whether or not financed)
in an amount greater than 5% of the principal amount of such loan, such 5%
limitation calculated in accordance with the Lender Letter. All fees and charges
(including finance charges) and whether or not financed, assessed, collected or
to be collected with the origination and servicing of each Mortgage Loan has
been disclosed in writing to the borrower in accordance with applicable state
and federal law and regulation;

               (xii)  The Mortgage Rates borne by the adjustable rate Group I
Mortgage Loans as of the Cut-off Date range from 4.990% and per annum to 11.750%
per annum, and the weighted average Mortgage Rate (by Cut-off Date Principal
Balance) of the adjustable rate Group I Mortgage Loans was 8.346%, per annum;
the Mortgage Rates borne by

                                       12

<PAGE>

fixed rate Group I Mortgage Loans as of the Cut-off Date range from 5.990% per
annum to 12.250% per annum, and the weighted average Mortgage Rate (by Cut-off
Date Principal Balance) of the Group I Mortgage Loans was 8.616% per annum; the
Mortgage Rates borne by adjustable rate Group II Initial Mortgage Loans as of
the Cut-off Date range from 6.250% per annum to 11.750% per annum, and the
weighted average Mortgage Rate (by Cut-off Date Principal Balance) of the
adjustable rate Group II Initial Mortgage Loans was 7.978%, per annum; the
Mortgage Rates borne by fixed rate Group II Initial Mortgage Loans as of the
Cut-off Date range from 6.250% per annum to 12.125% per annum, and the weighted
average Mortgage Rate (by Cut-off Date Principal Balance) of the Group II
Initial Mortgage Loans was 7.940% per annum;

               (xiii)  Approximately 45.31% and 43.32% of the Group I Mortgage
Loans and the Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) have a Loan-to-Value Ratio in excess of 80.00%; no Group I
Mortgage Loan or Group II Initial Mortgage Loan in the Mortgage Pool had a
Loan-to-Value Ratio at origination in excess of 100%; and the weighted average
Loan-to-Value Ratio (by Cut-off Date Principal Balance) of the Group I Mortgage
Loans and the Group II Mortgage Initial Mortgage Loans was equal to or less than
81.18% and 79.84%, respectively;

               (xiv)   All of the Initial Mortgage Loans are secured by first
liens on the related Mortgaged Property;

               (xv)    [Reserved]

               (xvi)   There is no valid offset, right of rescission, defense,
claim or counterclaim of any obligor under any Mortgage Note or Mortgage,
including the obligation of the Mortgagor to pay the unpaid principal of or
interest on such Mortgage Note, and any applicable right of rescission has
expired, nor will the operation of any of the terms of such Mortgage Note or
Mortgage, or the exercise of any right thereunder, render either the Mortgage
Note or the Mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, recoupment, counterclaim or defense, including, without
limitation, the defense of usury, and no such right of rescission, set-off,
recoupment, counterclaim or defense has been asserted with respect thereto, and,
to the best of Seller's knowledge, no Mortgagor of the applicable Mortgage was a
debtor in any state or federal bankruptcy or insolvency proceeding;

               (xvii)  There are no mechanics' liens or claims for work, labor
or material affecting any Mortgaged Property which are or may be a lien prior
to, or equal with, the lien of such Mortgage, except those which are insured
against by the title insurance policy referred to in clause (xix) below;

               (xviii) As of the Cut-off Date in the case of an Initial Mortgage
Loan or as of the related Subsequent Cut-off Date in the case of a Subsequent
Mortgage Loan, each Mortgaged Property is free of material damage and is in good
repair and there is no proceeding pending or threatened for the total or partial
condemnation of any Mortgage Property;

                                       13

<PAGE>

               (xix)  Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property securing the related Mortgage Note and each Mortgaged
Property is owned by the Mortgagor in fee simple (except with respect to common
areas in the case of condominiums, PUDs and de minimis PUTDs) subject only to
(1) the lien of nondelinquent current real property taxes and assessments, (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of public record as of the date of recording of such Mortgage, such
exceptions appearing of record being acceptable to mortgage lending institutions
generally or specifically reflected in the appraisal made in connection with the
origination of the related Mortgage Loan or referred to in the lender's title
insurance policy delivered to the originator of the related Mortgage Loan and
(3) other matters to which like properties are commonly subject that do not
materially interfere with the benefits of the security intended to be provided
by such Mortgage. Immediately prior to the sale of such Mortgage Loan to the
Company in the case of an Initial Mortgage Loan and to the Trustee in the case
of a Subsequent Mortgage Loan pursuant to this Purchase Agreement, the Seller
had full right to sell and assign the same to the Company or the Trustee, as the
case may be. Immediately following the sale of such Mortgage Loan to the Company
and the Company's assignment and sale thereof of such Mortgage Loan to the
Trustee in the case of an Initial Mortgage Loan, the Trustee will have good
title thereto subject to no claims or liens, including delinquent tax or
assessment liens. Immediately following the sale of such Mortgage Loan to the
Company and the Company's assignment and sale thereof to the Trustee in the case
of a Subsequent Mortgage Loan, the Trustee will have good title thereto subject
to no claims or liens;

               (xx)   Each Mortgage Loan at origination complied in all material
respects with applicable state and federal laws, including, without limitation,
usury, equal credit opportunity, real estate settlement procedures, the Truth In
Lending Act of 1968, as amended, and disclosure laws and consummation of the
transactions contemplated hereby, including without limitation, the receipt of
interest by the owner of such Mortgage Loan or the Holders of Certificates
secured thereby, will not violate any such laws. Each Mortgage Loan is being
serviced in all material respects in accordance with applicable state and
federal laws, including, without limitation, the Truth In Lending Act of 1968,
as amended, and other consumer protection laws, real estate settlement
procedures, usury, equal credit opportunity and disclosure laws;

               (xxi)  Neither the Seller nor any prior holder of any Mortgage
has impaired, waived, altered or modified the Mortgage or Mortgage Notes in any
material respect (except that a Mortgage Loan may have been modified by a
written instrument which has been recorded, if necessary to protect the
interests of the owner of such Mortgage Loan or the Certificates, and which has
been delivered to the Trustee); satisfied, canceled or subordinated such
Mortgage in whole or in part; released the applicable Mortgaged Property in
whole or in part from the lien of such Mortgage; or executed any instrument of
release, cancellation or satisfaction with respect thereto;

               (xxii) A lender's policy of title insurance (on an ALTA or CLTA
form) or binder, or other assurance of title customary in the relevant
jurisdiction insuring the first lien priority of the Mortgage Loan in an amount
at least equal to the original Principal Balance of each such Mortgage Loan or a
commitment binder or commitment to issue the same was effective on the date of
the origination of each Mortgage Loan, each such policy is valid and remains in
full force and effect, and each such policy was issued by a title insurer
qualified to do

                                       14

<PAGE>

business in the jurisdiction where the Mortgaged Property is located, which
policy insures the Seller and successor owners of indebtedness secured by the
insured Mortgage as to the first priority lien of the Mortgage as applicable.
The Seller is, and such successor owners will be, the sole insured under such
lender's title insurance policy; no claims have been made under such mortgage
title insurance policy; no prior holder of the applicable Mortgage, including
the Seller, has done, by act or omission, anything which would impair the
coverage of such mortgage title insurance policy; and each such policy, binder
or assurance contains all applicable endorsements;

               (xxiii) All of the improvements which were included for the
purpose of determining the Appraised Value of the Mortgaged Property lie wholly
within the boundaries and building restriction lines of such property and no
improvements on adjoining properties encroach upon the Mortgaged Property;

               (xxiv)  No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation, subdivision
law or ordinance, except where the failure to comply would not have a material
adverse effect on the market value of the Mortgaged Property. All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy and fire underwriting certificates, have been made or obtained from
the appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law except where the failure to comply would not have a
material adverse effect on the market value of the Mortgaged Property;

               (xxv)   Each Mortgage Note and the applicable Mortgage are
genuine, and each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency, reorganization, moratorium, receivership and other
similar laws relating to creditors' rights generally or by equitable principles
(regardless of whether such enforcement is considered in a proceeding in equity
or at law). All parties to the Mortgage Note and the Mortgage had legal capacity
to execute the Mortgage Note and the Mortgage and each Mortgage Note and
Mortgage has been duly and properly executed by such parties;

               (xxvi)  The proceeds of the Mortgage Loans have been fully
disbursed, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursement of any escrow funds therefor have been complied with. All costs,
fees and expenses incurred in making, closing or recording the Mortgage Loans
were paid and the Mortgagor is not entitled to any refund of amounts paid or due
under the Mortgage Note;

               (xxvii) Each Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including (i) in the case of a Mortgage designated as a deed of trust,
by trustee's sale, and (ii) otherwise by judicial foreclosure or if applicable,
non-judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and
foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the
proper procedures, the holder of the Mortgage Loan will be able to deliver good
and merchantable title to the property, subject to any applicable rights of
redemption;

                                       15

<PAGE>

               (xxviii) With respect to each Mortgage constituting a deed of
trust, either a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in such
Mortgage or if no duly qualified trustee has been properly designated and so
serves, the Mortgage contains satisfactory provisions for the appointment of
such trustee by the holder of the Mortgage at no cost or expense to such holder,
and no fees or expenses are or will become payable by the Certificateholders to
the trustee under the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor;

               (xxix)   There exist no deficiencies with respect to escrow
deposits and payments, if such are required, for which customary arrangements
for repayment thereof cannot be made, and no escrow deficits or payments of
other charges or payments due the Seller have been capitalized under the
Mortgage or the applicable Mortgage Note;

               (xxx)    The Mortgage Note is not and has not been secured by any
collateral, pledged account or other security other than real estate securing
the Mortgagor's obligations and no Mortgage Loan is secured by more than one
Mortgaged Property;

               (xxxi)   As of the Closing Date in the case of an Initial
Mortgage Loan and as of the related Subsequent Transfer Date in the case of a
Subsequent Mortgage Loan, the improvements upon each Mortgaged Property are
covered by a valid and existing hazard insurance policy substantially acceptable
to FNMA and acceptable to the Seller which policy provides for fire extended
coverage and such other hazards as are customary in the area where the Mortgaged
Property is located representing coverage in an amount not less than the lesser
of (A) the maximum insurable value of the improvements securing such Mortgage
Loan and (B) the outstanding Principal Balance of the related Mortgage Loan; if
the improvement on the Mortgaged Property is a condominium unit, it is included
under the coverage afforded by a blanket policy for the condominium project. All
individual insurance policies contain a standard mortgagee clause naming the
Seller or the original holder of the Mortgage, and its successors in interest,
as mortgagee, and the Seller has received no notice that any premiums due and
payable thereon have not been paid; the Mortgage obligates the Mortgagor
thereunder to maintain all such insurance at the Mortgagor's cost and expense,
and upon the Mortgagor's failure to do so, authorizes the holder of the Mortgage
to obtain and maintain such insurance at the Mortgagor's cost and expense and to
seek reimbursement therefor from the Mortgagor. There has been no act or
omission which would impair the coverage of any such policy, the benefits of the
endorsement provided for herein, or the validity and binding effect of either;

               (xxxii)  If the Mortgaged Property is in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards, a flood insurance policy in a form meeting the
requirements of the current guidelines of the Flood Insurance Administration is
in effect with respect to such Mortgaged Property with a generally acceptable
carrier in an amount representing coverage not less than the least of (A) the
outstanding Principal Balance of the Mortgage Loan, (B) the minimum amount
required to compensate for damage or loss on a replacement cost basis and (C)
the maximum amount of flood coverage that is available under federal law;

               (xxxiii) Except for the Mortgage Loan referred to in clause (xii)
as being delinquent, there is no material monetary default, breach, violation or
event of acceleration

                                       16

<PAGE>

existing under the Mortgage or the applicable Mortgage Note; and no material
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a material default, breach, violation or
event of acceleration, and neither the Seller, any of its affiliates nor any
servicer or subservicer of any related Mortgage Loan has waived any default,
breach, violation or event of acceleration; no foreclosure action is threatened
or has been commenced with respect to the Mortgage Loan;

               (xxxiv)   Each Mortgage Loan is being serviced by the Servicer;

               (xxxv)    There is no obligation on the part of the Seller or any
other party to make any payments with respect to the related Mortgage Loan in
addition to the Monthly Payments required to be made by the applicable
Mortgagor;

               (xxxvi)   Any future advances made prior to the Cut-off Date in
the case of an Initial Mortgage Loan and as of the related Subsequent Transfer
Date in the case of a Subsequent Mortgage Loan, with respect to any Mortgage
Loan have been consolidated with the outstanding principal amount secured by
such Mortgage, and the secured principal amount, as consolidated, bears a single
interest rate and single repayment term reflected on the Mortgage Loan Schedule.
The consolidated principal amount does not exceed the original principal amount
of the Mortgage Loan. The Mortgage Note with respect to any Mortgage Loan does
not permit or obligate the Servicer to make future advances to the Mortgagor at
the option of the Mortgagor;

               (xxxvii)  The Seller has caused or will cause to be performed any
and all acts required to preserve the rights and remedies of the Company and the
Trustee evidencing an interest in the Mortgage Loans in any insurance policies
applicable to the Mortgage Loans including, without limitation, any necessary
notifications of insurers, assignments of policies or interests therein, and
establishments of coinsured, joint loss payee and mortgagee rights in favor of
Trustee;

               (xxxviii) Except as set forth in clause (xlii), there are no
defaults by the Mortgagor in complying with the terms of any Mortgage, and all
taxes, governmental assessments, insurance premiums, water, sewer and municipal
charges which previously became due and owing have been paid, or, if required by
the terms of the Mortgage Loan, an escrow of funds has been established in an
amount sufficient to pay for every such item which remains unpaid and which has
been assessed, but is not yet due and payable. Except for (A) payments in the
nature of escrow payments and (B) interest accruing from the date of the
Mortgage Note or date of disbursement of the Mortgage proceeds to the day which
precedes by one month the Due Date of the first installment of principal and
interest, including, without limitation, taxes and insurance payments, the
Servicer has not advanced funds, or induced, solicited or knowingly received any
advance of funds by a party other than the Mortgagor, directly or indirectly,
for the payment of any amount required by the Mortgage;

               (xxxix)   At the time of origination, each Mortgaged Property was
the subject of an appraisal which conforms to the underwriting requirements of
the related originator; and the Mortgage File contains an appraisal of the
applicable Mortgaged Property;

                                       17

<PAGE>

               (xl)    None of the Mortgage Loans are graduated payment Mortgage
Loans or growth equity Mortgage Loans;

               (xli)   66.71% and 63.21% of the adjustable rate Group I Initial
ARM Mortgage Loans and the adjustable rate Group II Initial ARM Mortgage Loans,
respectively, (by Cut-off Date Principal Balance) are Convertible Mortgage
Loans;

               (xlii)  Except with respect to no more than 0.19% of the Initial
Mortgage Loans (by Cut-off Date Principal Balance), none of the payments of
principal of or interest on or in respect of any Initial Mortgage Loans shall be
30 days or more but less than 60 days past due as of the Cut-off Date; none of
the payments of principal or interest on or in respect of any Initial Mortgage
Loans shall be 60 days or more but less than 90 days past due as of the Cut-off
Date; and no Initial Mortgage Loan was 90 days or more past due as of the
Cut-off Date (except that one Initial Mortgage Loan was past 90 days due as of
the Cut-off Date, such loan having been repurchased by the Seller); (b) except
as set forth in clause (a) above, no Initial Mortgage Loan has been
contractually delinquent for more than one monthly installment period during the
twelve months preceding the Cut-off Date; (c) except as set forth in clause (a)
above, all payments required to be made by the Mortgagor under the terms of the
Mortgage Note have been made and credited; and (d) to the Seller's knowledge,
there was no delinquent recording, tax or assessment lien against the property
subject to any Mortgage, except where such lien was being contested in good
faith and a stay had been granted against levying on the property;

               (xliii) Upon payment of the Purchase Price for the Mortgage Loans
by the Company or the Trustee, as applicable, pursuant to this Purchase
Agreement, the Seller has transferred to the Company in the case of an Initial
Mortgage Loan and to the Trustee in the case of a Subsequent Mortgage Loan, good
and marketable title to each Mortgage Note and Mortgage free and clear of any
and all liens, claims, encumbrances, participation interests, equities, pledges,
charges or security interests of any nature and has or had full right and
authority, subject to no participation of or agreement with any other person, to
sell and assign the same, and following the sale of each Initial Mortgage Loan,
the Company or the Trustee, as applicable, will own such Mortgage Loan free and
clear of any encumbrance, equity interest, participation interest, lien, pledge,
charge, claim or security interest;

               (xliv)  The Seller acquired any right, title and interest in and
to the Mortgage Loans in good faith and without notice of any adverse claim;

               (xlv)   The Mortgage Note, the Mortgage, the related Assignment
of Mortgage and any other documents required to be delivered by the Seller have
been delivered to the Certificate Administrator. The Certificate Administrator
is in possession of a complete, true and accurate Mortgage File in accordance
with Section 2.01 hereof. Substantially all Mortgage Loans have monthly payments
due on the first day of each month and each Mortgage Loan had an original term
to maturity of no greater than 30 years;

               (xlvi)  Each Mortgage Loan contains a due-on-sale provision,
although each Mortgage Loan may be assumable if permitted by the Servicer under
certain circumstances;

                                       18

<PAGE>

               (xlvii)  Each of the Mortgage and the Assignment of Mortgage is
in recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located;

               (xlviii) The Mortgagor has not notified the Seller, and the
Seller has no knowledge of any relief requested or allowed to the Mortgagor
under the Soldiers' and Sailors' Civil Relief Act of 1940;

               (xlix)   To the best of the Seller's knowledge, there exists no
violation of any local, state, or federal environmental law, rule or regulation
in respect of the Mortgaged Property which violation has or could have a
material adverse effect on the market value of such Mortgaged Property. The
Seller has no knowledge of any pending action or proceeding directly involving
the related Mortgaged Property in which compliance with any environmental law,
rule or regulation is in issue; and, to the best of the Seller's knowledge,
nothing further remains to be done to satisfy in full all requirements of each
such law, rule or regulation constituting a prerequisite to the use and
employment of such Mortgaged Property;

               (l)      Each Mortgage Loan conforms, and all such Mortgage Loans
in the aggregate conform, to the description thereof set forth in the Prospectus
and Prospectus Supplement in all material respects;

               (li)     Immediately prior to the transfer to the Company or the
Trustee, as applicable, the Seller had good and marketable title thereto, and
the Seller is the sole owner of beneficial title to and holder of the Mortgage
Loan. The Seller is conveying the same to the Company or the Trustee, as
applicable, free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security interests of any
nature and has full right and authority to sell and assign the same pursuant to
this Purchase Agreement, except for liens which will be released simultaneously
with such conveyance;

               (lii)    For each Mortgage Loan, the related Mortgage File
contains a true, accurate and correct copy of each of the documents and
instruments required to be included therein;

               (liii)   The Servicer meets all applicable requirements under the
Pooling and Servicing Agreement, is properly qualified to service each Mortgage
Loan and has been servicing each Mortgage Loan prior to the Cut-off Date or the
related Subsequent Cut-off Date, as the case may be;

               (liv)    No instrument of release or waiver has been executed in
connection with the Mortgage Loans, and no Mortgagor has been released, in whole
or in part from its obligations in connection with a Mortgage Loan except in
connection with an assumption agreement which has been delivered to the Trustee;

               (lv)     On the basis of a representation by the Mortgagor at the
time of origination of the Mortgage Loans, at least 92.71% and 98.14% of the
Group I Mortgage Loans and Group II Initial Mortgage Loans, respectively, (by
Cut-off Date Principal Balance) will be secured by Mortgages on owner-occupied
primary residence properties;

                                       19

<PAGE>

               (lvi)   11.27% and 7.89% of the Group I Initial Mortgage Loans
and the Group II Initial Mortgage Loans, respectively, (by Cut-off Date
Principal Balance) provide for a balloon payment and each Mortgage Note with
respect to each such Mortgage Loan requires monthly payments of principal based
on 30 year amortization schedules and have scheduled maturity dates of 15 years
from the due date of the first monthly payment;

               (lvii)  No Mortgage Loan was originated based on an appraisal of
the related Mortgaged Property made prior to completion of construction of the
improvements thereon;

               (lviii) None of the Mortgage Loans is a "buy down" mortgage loan;

               (lix)   None of the Group I Mortgage Loans are subject to the
Home Ownership and Equity Protection Act of 1994, as amended, or any comparable
state law; no proceeds from any Group I Mortgage Loan were used to finance any
single premium credit insurance policies; none of the Group I Mortgage Loans (by
Cut-off Date Principal Balance) require a mortgagor to pay a Prepayment Charge
if the mortgagor prepays a Mortgage Loan more than five years after the date the
Mortgage Loan was originated.

               (lx)    No selection procedure reasonably believed by the Seller
to be adverse to the interests of the Certificateholders was utilized in
selecting the Mortgage Loans;

               (lxi)   The terms of the Mortgage Note related to each Adjustable
Rate Mortgage Loan provide that, following an initial period of two or three
years following the month in which such Mortgage Loan was originated and
semiannually or annually thereafter (each such date, an "Adjustment Date"), the
Mortgage Rate on such Mortgage Loan will be adjusted to equal the sum of (a) the
related Index and (b) a fixed percentage amount specified in the related
Mortgage Note (each, a "Gross Margin"); provided, however, that the Mortgage
Rate generally will not increase or decrease by the related Periodic Rate Cap,
and will not increase above a specified maximum Mortgage Rate over the life of
the Adjustable Rate Mortgage Loan (the "Maximum Mortgage Rate") or decrease
below a specified minimum Mortgage Rate over the life of the Adjustable Rate
Mortgage Loan (the "Minimum Mortgage Rate");

               (lxii)  None of the Initial Mortgage Loans (by Cut-off Date
Principal Balance) are negative amortization loans, and none of the Subsequent
Mortgage Loans shall be negative amortization loans;

               (lxiii) No material misrepresentation, fraud or similar
occurrence with respect to a Mortgage Loan has taken place on the part of the
Seller, its affiliates or employees or any other person involved in the
origination of the Mortgage Loan or in the application for any insurance,
including, but not limited to the MI Policy, in relation to such Mortgage Loan;

               (lxiv)  Each Mortgage Loan was originated by a mortgagee approved
by the Secretary of Housing and Urban Development pursuant to Sections 203 and
211 of the Act, a savings and loan association, a savings bank, a commercial
bank, credit union,

                                       20

<PAGE>

insurance company or similar institution which is supervised and examined by a
federal or state authority;

               (lxv)    With respect to each Mortgage Loan secured by
manufactured housing, such manufactured housing is permanently affixed to a
foundation and constitutes real estate under applicable state law;

               (lxvi)   No Mortgage Loans are date of payment or simple interest
loans;

               (lxvii)  The sale, transfer, assignment and conveyance of
Mortgage Loans by the Seller pursuant to this Purchase Agreement is not subject
to and will not result in any tax, fee or governmental charge payable by the
Company, the Trustee, the Certificate Administrator or the Trustee to any
federal, state or local government ("Transfer Taxes") other than Transfer Taxes
which have or will be paid by the Seller as due; and

               (lxviii) [Reserved]

               (lxix)   Approximately 99.74% of the Initial Mortgage Loans (by
Cut-Off Date Principal Balance) with a Loan-to-Value Ratio greater than 60% are
covered by an MI Policy issued by an MI Insurer;

               (lxx)    Approximately 93.57% of the Initial Mortgage Loans that
is identified on Schedule 1 hereto is covered by a MI Policy issued by the MI
Insurer;

               (lxxi)   All requirements for the valid transfer of each MI
Policy, including any assignments or notices required in each MI Policy, have
been satisfied; and

               (lxxii)  As of the Closing Date with respect to each Initial
Mortgage Loan that is subject to a MI Policy and as of each Subsequent Transfer
Date with respect to each Subsequent Mortgage Loan that is subject to a MI
Policy, the Seller is unaware of any existing circumstances which would cause
the MI Insurer to deny a claim with respect to such Mortgage Loan.

          Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Certificate Administrator, as applicable, of a breach of any
representation or warranty in subsection (a) of this Section which materially
and adversely affects the interests of the Certificateholders the Seller shall,
within 45 days of its discovery or its receipt of notice of such breach, either
(i) cure such breach in all material respects or (ii) to the extent that such
breach is with respect to a Mortgage Loan or a Related Document, either (A)
repurchase such Mortgage Loan from the Trustee at the Repurchase Price, or (B)
substitute one or more Eligible Substitute Mortgage Loans for such Mortgage
Loan, in each case in the manner and subject to the conditions and limitations
set forth below.

          Upon discovery by the Seller or upon notice from the Company, the
Trustee, or the Certificate Administrator, as applicable, of a breach of any
representation or warranty in this subsection (b) with respect to any Mortgage
Loan or upon the occurrence of a Repurchase Event, which materially and
adversely affects the value of the related Mortgage Loan or the interests of

                                       21

<PAGE>

any Certificateholders or of the Company or the Trustee in such Mortgage Loan
(notice of which shall be given to the Company and the Trustee by the Seller, if
it discovers the same) the Seller shall, within 90 days after the earlier of its
discovery or receipt of notice thereof, either cure such breach or Repurchase
Event in all material respects or either (i) repurchase such Mortgage Loan from
the Trustee at the Repurchase Price, or (ii) substitute one or more Eligible
Substitute Mortgage Loans for such Mortgage Loan, in each case in the manner and
subject to the conditions set forth below. The Repurchase Price for any such
Mortgage Loan repurchased by the Seller shall be deposited or caused to be
deposited by the Servicer in the Collection Account maintained by it pursuant to
Section 3.06 of the Pooling and Servicing Agreement.

          In the event that the Seller elects to substitute an Eligible
Substitute Mortgage Loan or Loans for a Deleted Mortgage Loan pursuant to this
Section 3.01, the Seller shall deliver to the Certificate Administrator on
behalf of the Trustee, with respect to such Eligible Substitute Mortgage Loan or
Loans, the original Mortgage Note and all other documents and agreements as are
required by Section 2.01 hereof, with the Mortgage Note endorsed as required by
such Section 2.01 hereof. No substitution will be made in any calendar month
after the Determination Date for such month. Monthly Payments due with respect
to Eligible Substitute Mortgage Loans in the month of substitution shall not be
part of the Trust Fund and will be retained by the Servicer and remitted by the
Servicer to the Seller on the next succeeding Payment Date. For the month of
substitution, distributions to the Payment Account pursuant to the Pooling and
Servicing Agreement will include the Monthly Payment due on a Deleted Mortgage
Loan for such month and thereafter the Seller shall be entitled to retain all
amounts received in respect of such Deleted Mortgage Loan. The Servicer shall
amend or cause to be amended the Mortgage Loan Schedule to reflect the removal
of such Deleted Mortgage Loan and the substitution of the Eligible Substitute
Mortgage Loan or Loans and the Servicer shall deliver the amended Mortgage Loan
Schedule to the Certificate Administrator and the Trustee. Upon such
substitution, the Eligible Substitute Mortgage Loan or Loans shall be subject to
the terms of this Purchase Agreement and the Pooling and Servicing Agreement in
all respects, the Seller shall be deemed to have made the representations and
warranties with respect to the Eligible Substitute Mortgage Loan contained
herein set forth in this Section 3.01(b), to the extent set forth in the
definition of "Eligible Substitute Mortgage Loan", as of the date of
substitution, and the Seller shall be obligated to repurchase or substitute for
any Eligible Substitute Mortgage Loan as to which a Repurchase Event has
occurred as provided herein. In connection with the substitution of one or more
Eligible Substitute Mortgage Loans for one or more Deleted Mortgage Loans, the
Servicer will determine the amount (such amount, a "Substitution Adjustment
Amount"), if any, by which the aggregate principal balance of all such Eligible
Substitute Mortgage Loans as of the date of substitution is less than the
aggregate principal balance of all such Deleted Mortgage Loans (after
application of the principal portion of the Monthly Payments due in the month of
substitution that are to be distributed to the Payment Account in the month of
substitution). The Seller shall pay the amount of such shortfall to the Servicer
for deposit into the Collection Account on the day of substitution, without any
reimbursement therefor.

          Upon receipt by the Trustee of written notification, signed by a
Servicing Officer, of the deposit of such Repurchase Price or of such
substitution of an Eligible Substitute Mortgage Loan and deposit of any
applicable Substitution Adjustment Amount as provided above, the Certificate
Administrator shall, on behalf of the Trustee, cause to be released to the
Seller the related Mortgage File for the Mortgage Loan being repurchased or
substituted for and

                                       22

<PAGE>

the Trustee shall execute and deliver such instruments of transfer or assignment
prepared by the Servicer, in each case without recourse, as shall be necessary
to vest in the Seller or its designee such Mortgage Loan released pursuant
hereto and thereafter such Mortgage Loan shall not be an asset of the Trustee.

          It is understood and agreed that the obligation of the Seller to cure
any breach with respect to or to repurchase or substitute for, any Mortgage Loan
as to which such a breach has occurred and is continuing shall, except to the
extent provided in Section 6.01 of this Purchase Agreement, constitute the sole
remedy respecting such breach available to the Company, the Trustee, the
Certificateholders (or the Certificate Administrator on behalf of the Trustee
for the benefit of Certificateholders) against the Seller.

          It is understood and agreed that the representations and warranties
set forth in this Section 3.01 shall survive delivery of the respective Mortgage
Files to the Certificate Administrator.

          Section 3.02  Company Representations and Warranties.

          The Company hereby represents and warrants to the Seller and the
Trustee as of the date hereof and as of the Closing Date that:

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

          (b) The Company is duly qualified to do business as a foreign
corporation in good standing and has obtained all necessary licenses and
approvals in all jurisdictions in which the ownership or lease of its property
or the conduct of its business shall require such qualifications and in which
the failure to so qualify would have a material adverse effect on the business,
properties, assets or condition (financial or other) of the Company and the
ability of the Company to perform under this Purchase Agreement.

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

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

                                       23

<PAGE>

applicable to the Company of any court or of any federal or state regulatory
body, administrative agency or other governmental instrumentality having
jurisdiction over the Company or its properties.

          (e) The Company (A) is a solvent entity and is paying its debts as
they become due and (B) after giving effect to the transfer of the Mortgage
Loans, will be a solvent entity and will have sufficient resources to pay its
debts as they become due.

          Section 3.03  [Reserved]

                                   ARTICLE IV

                               SELLER'S COVENANTS

          Section 4.01  Covenants of the Seller.

          The Seller hereby covenants as of the date hereof and as of the
Closing Date that, except for the transfer hereunder, on and after the Closing
Date, the Seller will not sell, pledge, assign or transfer to any other Person,
or grant, create, incur or assume any Lien on, any Mortgage Loan, whether now
existing or hereafter created, or any interest therein; the Seller will notify
the Certificate Administrator and the Trustee of the existence of any such Lien
on any Mortgage Loan immediately upon discovery thereof; and the Seller will
defend the right, title and interest of the Trustee, on its own behalf and as
assignee of the Company, in, to and under the Mortgage Loans, whether now
existing or hereafter created, against all claims of third parties claiming
through or under the Seller.

          In the event that the Certificate Administrator or the Trustee
receives actual notice of any Transfer Taxes arising out of the transfer,
assignment and conveyance of the Mortgage Loans, on written demand by the
Certificate Administrator, or upon the Seller's otherwise being given notice
thereof by the Certificate Administrator, the Seller shall pay any and all such
Transfer Taxes (it being understood that the Holders of the Certificates, the
Company, the Certificate Administrator and the Trustee shall have no obligation
to pay such Transfer Taxes).

          Section 4.02  Payment of Expenses.

          (a) The Seller will pay on the Closing Date all expenses incident to
the performance of its obligations under this Purchase Agreement and the
Underwriting Agreement, including (i) the preparation, printing and any filing
of the preliminary prospectus, Prospectus Supplement and Prospectus (including
any schedules or exhibits and any document incorporated therein by reference)
originally filed and of each amendment or supplement thereto, (ii) the
preparation, printing and delivery to the Underwriter of this Purchase Agreement
and the Underwriting Agreement, the Pooling and Servicing Agreement and such
other documents as may be required in connection with the offering, purchase,
sale and delivery of the Certificates, (iii) the preparation, issuance and
delivery of the certificates for the Class A Certificates to the Underwriter,
including any charges of DTC, CEDEL, S.A. and the Euroclear System in connection
therewith; (iv) the qualification of the Class A Certificates and Mezzanine
Certificates under securities laws in accordance with the provisions of Section
3(f) of the Underwriting Agreement, including filing fees and the reasonable
fees and disbursements of

                                       24

<PAGE>

counsel for the Underwriter in connection therewith and in connection with the
preparation of the Blue Sky Survey and any supplement thereto for delivery to
potential investors, (v) in addition to the initial printing and filing costs
under (i) above, the printing and delivery to the Underwriter of copies of each
preliminary prospectus and of the Prospectus and any amendments or supplements
thereto for delivery to potential investors, (vi) the fees and expenses of the
Trustee and the Certificate Administrator, including the fees and disbursements
of counsel for the Trustee and the Certificate Administrator in connection with
the Pooling and Servicing Agreement, the Purchase Agreement and the Certificates
and (vii) any fees payable in connection with the rating of the Certificates.

     (b) If the Underwriting Agreement is terminated by the Underwriter in
accordance with the provisions of Section 5 or Section 9(a)(i) thereof, the
Seller shall reimburse the Underwriter for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Underwriter.

                                   ARTICLE V

                  CONDITIONS TO INITIAL MORTGAGE LOAN PURCHASE

     Section 5.01 Conditions of Company's Obligations.

     The Company's obligations to purchase the Initial Mortgage Loans which each
accepts for purchase hereunder shall be subject to each of the following
conditions:

         (i)   the Mortgage File for each Initial Mortgage Loan shall have been
delivered in accordance with this Purchase Agreement;

         (ii)  the representations and warranties set forth in Section 3.01(b)
hereof with respect to each Initial Mortgage Loan shall be true as of the
Closing Date;

         (iii) the Underwriter or its affiliates shall have had an opportunity
to perform a due diligence review of each Mortgage Loan; and

         (iv) the Seller shall have provided to the Underwriter or its
affiliates such other documents which are then required to have been delivered
under this Purchase Agreement or which are reasonably requested by the
Underwriter or its affiliates, which other documents may include UCC financing
statements, a favorable opinion or opinions of counsel with respect to matters
which are reasonably requested by the Underwriter, and/or an Officers'
Certificate.

                                       25

<PAGE>

                                   ARTICLE VI

                         INDEMNIFICATION BY THE SELLER

                       WITH RESPECT TO THE MORTGAGE LOANS

     Section 6.01 Indemnification With Respect to the Mortgage Loans.

     The Seller shall indemnify and hold harmless the Company, Trustee and the
Certificate Administrator from and against any loss, liability or expense
arising from the breach by the Seller of its representations and warranties in
Section 3.01 of this Purchase Agreement which materially and adversely affects
the value of any Mortgage Loan or the Company's assignees' interest in any
Mortgage Loan or from the failure by the Seller to perform its obligations under
this Purchase Agreement in any material respect.

     Section 6.02 Limitation on Liability of the Seller.

     None of the directors, officers, employees or agents of the Seller shall be
under any liability to the Company, it being expressly understood that all such
liability is expressly waived and released as a condition of, and as
consideration for, the execution of this Purchase Agreement. Except as and to
the extent expressly provided in the Basic Documents, the Seller shall not be
under any liability to the Trustee, the Certificate Administrator or the
Certificateholders. The Seller and any director, officer, employee or agent of
the Seller may rely in good faith on any document of any kind prima facie
properly executed and submitted by any Person respecting any matters arising
hereunder.

                                  ARTICLE VII

                                  TERMINATION

     Section 7.01 Termination.

     (a) Except as provided in Section 7.01(b) hereof, the respective
obligations and responsibilities of the Seller, the Company, the Trustee and the
Certificate Administrator created hereby shall terminate, except for the
Seller's indemnity obligations as provided herein, upon the termination of the
Trust Fund pursuant to the terms of the Pooling and Servicing Agreement.

     (b) The Company may terminate this Purchase Agreement, by notice to the
Seller, at any time at or prior to the Closing Date:

         (i) if the Underwriting Agreement is terminated by the Underwriter
pursuant to the terms of the Underwriting Agreement or if there has been, since
the time of execution of this Purchase Agreement or since the respective dates
as of which information is given in the Prospectus, any material adverse change
in the financial condition, earnings, business affairs or business prospects of
the Seller, whether or not arising in the ordinary course of business, or

                                       26

<PAGE>

         (ii)  if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or development
involving a prospective change in national or international political, financial
or economic conditions, in each case the effect of which is such as to make it,
in the judgment of the Underwriter, impracticable to market the Class A
Certificates and Mezzanine Certificates or to enforce contracts for the sale of
the Class A Certificates and Mezzanine Certificates, or

         (iii) if trading in any securities of the Seller has been suspended or
limited by the Commission or the New York Stock Exchange, or if trading
generally on the American Stock Exchange or the New York Stock Exchange or in
the NASDAQ National Market System has been suspended or limited, or minimum or
maximum prices for trading have been fixed, or maximum ranges for prices have
been required, by any of said exchanges or by such system or by order of the
Commission, the National Association of Securities Dealers, Inc. or any other
governmental authority,

         (iv)  if a banking moratorium has been declared by either federal or
New York authorities,

         (v)   either (A) a change in control of the Seller shall have occurred
other than in connection with and as a result of the issuance and sale by the
Seller or registered, publicly offered common stock; or (B) the Underwriter
determines in its sole discretion that any material adverse change has occurred
in the management of the Seller,

         (vi)  there is (A) a material breach by the Seller of any
representation and warranty contained in this Purchase Agreement or the
Underwriting Agreement other than a representation or warranty relating to
particular Mortgage Loans, and the Underwriter has reason to believe in good
faith either that such breach is not curable within two (2) days or that such
breach may not have been cured in all material respects at the expiration of two
(2) days following discovery thereof by the Seller or (B) a failure by the
Seller to make any payment payable by it under this Purchase Agreement or (C)
any other failure by the Seller to observe and perform in any material respect
its material covenants, agreements and obligations with the Company, including
without limitation those contained in this Purchase Agreement, and the Company
has reason to believe in good faith that such failure may not have been cured in
all material respects at the expiration of two (2) days following discovery
thereof by the Seller, or

         (vii) the Seller fails to provide written notification to the
Underwriter of any change in its loan origination, acquisition or appraisal
guidelines or practices, or the Seller, without the prior consent of the
Underwriter (which shall not be unreasonably withheld), amends in any material
respect its loan origination, acquisition or appraisal guidelines or practices.

     If this Purchase Agreement is terminated pursuant to this Section 7.01(b),
such termination shall be without liability of any party to any other party
except as provided in Section 4.02 hereof.

                                       27

<PAGE>

                                  ARTICLE VIII

                            MISCELLANEOUS PROVISIONS

     Section 8.01 Amendment.

     This Purchase Agreement may be amended from time to time by the Seller, the
Company by written agreement signed by the Seller and the Company.

     Section 8.02 Governing Law.

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

     Section 8.03 Notices.

     All demands, notices and communications hereunder shall be in writing and
shall be deemed to have been duly given if personally delivered at or mailed by
registered mail, postage prepaid, addressed as follows:

         (i)   if to the Seller:

               NovaStar Mortgage, Inc.
               1901 West 47/th/ Place
               Suite 105
               Westwood, Kansas 66205
               Attention: Scott F. Hartman

or, such other address as may hereafter be furnished to the Company in writing
by the Seller.

         (ii)  if to the Company:

               NovaStar Mortgage Funding Corporation
               1901 W. 47/th/ Place
               Suite 105
               Westwood, Kansas 66205
               Attention: Matt Kaltenrieder

or such other address as may hereafter be furnished to the Seller in writing by
the Company.

         (iii) if to the Certificate Administrator:

               Wachovia Bank, National Association
               12th Floor, 401 S. Tryon Street, NC 1179
               Charlotte, North Carolina 28288-1179
               Attention:   Structured Finance Trust Services (NovaStar Mortgage
                            Funding Trust, Series 2002-3)

                                       28

<PAGE>

or such other address as may hereafter be furnished to the Seller in writing by
the Certificate Administrator.

             (iv) if to the Trustee:

                  JPMorgan Chase Bank
                  450 West 33/rd/ Street, 14/th/ Floor
                  New York, NY 10001
                  Attention:   Institutional Trust Services (NovaStar Mortgage
                               Funding Trust, Series 2002-3)

or such other address as may hereafter be furnished to the Seller in writing by
the Trustee.

     Section 8.04 Severability of Provisions.

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

     Section 8.05 Relationship of Parties.

     Nothing herein contained shall be deemed or construed to create a
partnership or joint venture between the parties hereto, and the services of the
Seller shall be rendered as an independent contractor and not as agent for the
Company.

     Section 8.06 Counterparts.

     This Purchase Agreement may be executed in two or more counterparts and by
the different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original and such counterparts together shall
constitute one and the same agreement.

     Section 8.07 Further Agreements.

     The Company and the Seller each agree to execute and deliver to the other
such additional documents, instruments or agreements as may be necessary or
appropriate to effectuate the purposes of this Purchase Agreement. Each of the
Company and the Seller agrees to use its best reasonable efforts to take all
actions necessary to be taken by it to cause the Class A-1 Certificates to be
rated "Aaa" by Moody's and "AAA" by S&P, the Class A-2 Certificates to be rated
"Aaa" by Moody's and "AAA" by S&P, the Class AIO Certificates to be rated "Aaa"
by Moody's and "AAA" by S&P, the Class M-1 Certificates to be rated "Aa2" by
Moody's and "AA" by S&P, the Class M-2 Certificates to be rated "A2" by Moody's
and "A" by S&P, the Class M-3 Certificates to be rated "Baa2" by Moody's and
"BBB" by S&P, the Class B Certificates to be rated "Ba2" by Moody's and "BB" by
S&P and the class P Certificates to be rated "AAA" by S&P, and each party will
cooperate with the other in connection therewith.

                                       29

<PAGE>

          Section 8.08 Intention of the Parties.

          It is the intention of the parties that (i) the Company is purchasing
on the Closing Date, and the Seller is selling on the Closing Date, the Initial
Mortgage Loans, rather than the Company providing to the Seller a loan secured
by the Initial Mortgage Loans on the Closing Date, and (ii) the Trustee is
purchasing on the Closing Date, and the Company is selling on the Closing Date,
the Initial Mortgage Loans, rather than the Trustee providing to the Company a
loan secured by the Initial Mortgage Loans, (iii) the Company will be purchasing
on each Subsequent Transfer Date, and the Seller will be selling on each
Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather than the
Company providing to the Seller a loan secured by the related Subsequent
Mortgage Loans on each Subsequent Transfer Date, and (iv) the Trustee will be
purchasing on each Subsequent Transfer Date, and the Company will be selling on
each Subsequent Transfer Date, the related Subsequent Mortgage Loans, rather
than the Trustee providing to the Company a loan secured by the related
Subsequent Mortgage Loans on each Subsequent Transfer Date. Accordingly, the
parties hereto each intend to treat these transactions as (i) a sale by the
Seller, and a purchase by the Company, of the Initial Mortgage Loans on the
Closing Date, and (ii) a sale by the Company, and a purchase by the Trustee, of
the Initial Mortgage Loans on the Closing Date, (iii) a sale by the Seller, and
a purchase by the Company, of the related Subsequent Mortgage Loans on each
Subsequent Transfer Date, and (iv) a sale by the Company, and a purchase by the
Trustee, of the related Subsequent Mortgage Loans on each Subsequent Transfer
Date.

          Section 8.09 Successors and Assigns; Assignment of Purchase Agreement.

          This Purchase Agreement shall bind and inure to the benefit of and be
enforceable by the Seller, the Company, the Trustee, the Certificate
Administrator, and their respective successors and assigns. The obligations of
the Seller under this Purchase Agreement cannot be assigned or delegated to a
third party without the consent of the Company, which consent shall be at the
Company's discretion. The parties hereto acknowledge that (i) the Company is
acquiring the Initial Mortgage Loans for the purpose of selling them to the
Trustee, who will in turn pledge the Initial Mortgage Loans to the Trustee for
the benefit of the Certificateholders and (ii) the Company is acquiring the
Subsequent Mortgage Loans for the purpose of selling them to the Trustee, who
will hold the Subsequent Mortgage Loans for the benefit of the
Certificateholders. As an inducement to the Company and the Trustee to purchase
the Mortgage Loans, the Seller acknowledges and consents to (i) the assignment
by the Company to the Trustee of all of the Company's rights or remedies against
the Seller pursuant to this Purchase Agreement and to (ii) the enforcement or
exercise of any rights against the Seller pursuant to this Purchase Agreement by
the Company, the Certificate Administrator and the Trustee. Such enforcement of
a right or remedy by the Company, the Trustee or the Certificate Administrator,
as applicable, shall have the same force and effect as if the right or remedy
had been enforced or exercised by the Company directly.

          Section 8.10 Survival.

          The representations and warranties made herein by the Seller and the
provisions of Article V hereof shall survive the purchase of the Mortgage Loans
hereunder.

                                       30

<PAGE>

          Section 8.11 Liability of the Trustee.

          The Trustee is entering into the Basic Documents to which it is a
party solely as Trustee, hereunder and thereunder, and not in its individual
capacity, and all persons having any claim against the Trustee by reason of the
transactions contemplated by this Agreement or any other Basic Document shall
look only to the Trust Fund for payment or satisfaction thereof.

                                       31

<PAGE>

          IN WITNESS WHEREOF, the Seller, the Company, the Certificate
Administrator and the Trustee have caused their names to be signed to this
Mortgage Loan Purchase Agreement by their respective officers thereunto duly
authorized as of the day and year first above written.

                                           NOVASTAR MORTGAGE, INC.
                                           as Seller

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

                                           NOVASTAR MORTGAGE FUNDING
                                           CORPORATION
                                           as Company

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

                                           WACHOVIA BANK, NATIONAL ASSOCIATION
                                           as Certificate Administrator

                                           By: /s/ Robert Ashbaugh
                                               ---------------------------------
                                           Name:   Robert Ashbaugh
                                           Title:  Vice President

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

                                           By: /s/ Ryan Biasi
                                               ---------------------------------
                                           Name:   Ryan Biasi
                                           Title:  Trust Officer

              [Signature Page to Mortgage Loan Purchase Agreement]

<PAGE>

                                    EXHIBIT 1

                         INITIAL MORTGAGE LOAN SCHEDULE

                       [On File with Dewey Ballantine LLP]

                                       2

<PAGE>

                                  EXHIBIT 2(A)

                     SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

          Pursuant to this Seller's Subsequent Transfer Instrument (the
"Seller's Instrument"), dated as of September 1, 2002, between NovaStar
Mortgage, Inc. as seller (the "Seller"), and NovaStar Mortgage Funding
Corporation, as company (the "Company"), and pursuant to the Mortgage Loan
Purchase Agreement, dated as of September 1, 2002 (the "Purchase Agreement"),
among the Seller, the Company, Wachovia Bank, National Association, as
Certificate Administrator (the "Certificate Administrator") and JPMorgan Chase
Bank, as Trustee (the "Trustee"), the Seller and the Company agree to the sale
by the Seller and the purchase by the Company of the subsequent Mortgage Loans
listed on the attached Mortgage Loan Schedule (the "Subsequent Mortgage Loans")
and the related MI Policies.

          Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of September 1, 2002 (the "Pooling and Servicing
Agreement"), between the Trustee, the Certificate Administrator, the Company and
the Seller/Servicer which definitions are incorporated by reference herein. All
other capitalized terms used herein shall have the meanings specified herein.

          Section 1.  Conveyance of Subsequent Mortgage Loans.

          (a) The Seller does hereby sell, transfer, assign, set over and convey
to the Company, without recourse, all of its right, title and interest in and to
the Subsequent Mortgage Loans and the related MI Policies, all scheduled
payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on
the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus
that portion of any such payment which is allocable to the period prior to the
Subsequent Cut-off Date); provided, however, that no scheduled payments of
principal and interest due on or before the Subsequent Cut-off Date and
collected after the Subsequent Cut-off Date shall belong to the Company pursuant
to the terms of this Seller's Instrument. The Seller, contemporaneously with the
delivery of this Seller's Instrument, has delivered or caused to be delivered to
the Certificate Administrator, at the direction of the Company, each item set
forth in Section 2.02(b) of the Purchase Agreement with respect to such
Subsequent Mortgage Loans and the related MI Policies. The transfer to the
Company by the Seller of the Subsequent Mortgage Loans identified on the
attached Mortgage Loan Schedule shall be absolute and is intended by the Seller,
the Company, the Certificate Administrator, the Trustee and the
Certificateholders to constitute and to be treated as a sale by the Seller.

          The parties hereto intend that the transactions set forth herein
constitute a sale by the Seller to the Company on the Subsequent Transfer Date
of all the Seller's right, title and interest in and to the Subsequent Mortgage
Loans and the related MI Policies, and other property as and to the extent
described above. In the event the transactions set forth herein shall be deemed
not to be a sale, the Seller hereby grants to the Company as of the Subsequent
Transfer Date a security interest in all of the Seller's right, title and
interest in, to and under the Subsequent Mortgage Loans, and such other
property, to secure all of the Seller's obligations

<PAGE>

hereunder, and this Purchase Agreement shall constitute a security agreement
under applicable law, and in such event, the parties hereto acknowledge that the
Certificate Administrator, in addition to holding the Subsequent Mortgage Loans
and the related MI Policies on behalf of the Trustee for the benefit of the
Certificateholders, holds the Subsequent Mortgage Loans and the related MI
Policies as designee and agent of the Company. The Seller agrees to take or
cause to be taken such actions and to execute such documents, including without
limitation the filing of all necessary UCC-1 financing statements filed in the
State of Maryland (which shall be submitted for filing as of the Subsequent
Transfer Date), any continuation statements with respect thereto and any
amendments thereto required to reflect a change in the name or corporate
structure of the Seller or the filing of any additional UCC-1 financing
statements due to the change in the state of incorporation of the Seller as are
necessary to perfect and protect the interests of the Company and its assignees
in each Subsequent Mortgage Loan, the related MI Policies and the proceeds
thereof.

     (b) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Seller's Instrument and such other items required under the
Mortgage Loan Purchase Agreement shall be borne by the Seller.

     (c) Additional terms of the sale are set forth on Attachment A hereto.

     Section 2. Representations and Warranties; Conditions Precedent.

     (a) The Seller hereby affirms the representations and warranties set forth
in Section 3.01 of the Purchase Agreement that relate to the Seller and the
Subsequent Mortgage Loans as of the date hereof. The Seller hereby confirms that
each of the conditions set forth in Section 2.02(b) of the Purchase Agreement
are satisfied as of the date hereof and further represents and warrants that
each Subsequent Mortgage Loan complies with the requirements of this Seller's
Instrument and Section 2.02(c) of the Purchase Agreement.

     (b) The Seller is solvent, is able to pay its debts as they become due and
has capital sufficient to carry on its business and its obligations hereunder;
it will not be rendered insolvent by the execution and delivery of this Seller's
Instrument or by the performance of its obligations hereunder nor is it aware of
any pending insolvency; no petition of bankruptcy (or similar insolvency
proceeding) has been filed by or against the Seller prior to the date hereof;

     (c) All terms and conditions of the Purchase Agreement are hereby ratified
and confirmed; provided, however, that in the event of any conflict the
provisions of this Seller's Instrument shall control over the conflicting
provisions of the Purchase Agreement.

     Section 3. Recordation of the Seller's Instrument.

     To the extent permitted by applicable law, this Seller's Instrument, or a
memorandum thereof if permitted under applicable law, is subject to recordation
in all appropriate public offices for real property records in all of the
counties or other comparable jurisdictions in which any or all of the properties
subject to the Mortgages are situated, and in any other appropriate public
recording office or elsewhere, such recordation to be effected by the Servicer,
but only when accompanied by an Opinion of Counsel to the effect that such

                                       2

<PAGE>

recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

     Section 4. Governing Law.

     This Seller's Instrument shall be construed in accordance with the laws of
the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws, without giving
effect to principles of conflicts of law.

     Section 5. Counterparts.

     This Seller's Instrument may be executed in one or more counterparts and by
the different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed to be an original; such counterparts, together, shall
constitute one and the same instrument.

     Section 6. Successors and Assigns.

     This Seller's Instrument shall inure to the benefit of and be binding upon
the Seller and the Company and their respective successors and assigns. The
Certificate Administrator and the Trustee shall be express third party
beneficiaries hereto.

     IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Seller's Instrument as of the day and year first written above.

                                       NOVASTAR MORTGAGE, INC.,
                                       as Seller

                                       By:_________________________________

                                         Name:
                                         Title:

                                       NOVASTAR MORTGAGE FUNDING
                                       CORPORATION,
                                       as Company

                                       By:_________________________________

                                         Name:
                                         Title:

                                       3

<PAGE>

       NOVASTAR HOME EQUITY LOAN ASSET-BACKED CERTIFICATES, SERIES 2002-3

            ATTACHMENT A TO SELLER'S SUBSEQUENT TRANSFER INSTRUMENT

                              __________ __, 2002

A.   Profile of Subsequent Mortgage Loans:

            1.       Subsequent Cut-off Date:  _________ __, 2002

            2.       Subsequent Transfer Date:  ________ __, 2002

            3.       Aggregate Principal Balance of the Subsequent Mortgage
Loans as of the Subsequent Cut-off Date:$346,040,478.63

            4.       Purchase Price:  100.00%

B.   As to all the Subsequent Mortgage Loans the subject of this Instrument:

     I.     Longest stated term to maturity:               360 months
     II.    Minimum Mortgage Rate:                         ____%
     III.   Maximum Mortgage Rate:                         ____%
     IV.    WAC of all Mortgage Loans:                     ____%
     V.     WAM of all Mortgage Loans:                     ____%
     VI.    Largest Principal Balance:                     $______
     VII.   Non-owner occupied Mortgaged Properties:       ____%
     VIII.  California zip code concentration:             ____%
     IX.    Condominiums:                                  ____%
     X.     Single-family:                                 ____%
     XI.    Weighted average term since origination:       ___ months
     XII.   Mortgage Loans Covered by MI Policies:         ____%

<PAGE>

                                  EXHIBIT 2(B)

                    COMPANY'S SUBSEQUENT TRANSFER INSTRUMENT

     Pursuant to this Company's Subsequent Transfer Instrument (the "Company's
Instrument"), dated as of _________ __, 2002, between NovaStar Mortgage Funding
Corporation, as company (the "Company"), and JPMorgan Chase Bank, as trustee
(the "Trustee"), and pursuant to the Mortgage Loan Purchase Agreement, dated as
of September 1, 2002 (the "Purchase Agreement"), among NovaStar Mortgage, Inc.,
as seller (the "Seller"), the Company, Wachovia Bank, National Association, as
Certificate Administrator ("Certificate Administrator"), and JPMorgan Chase
Bank, as Trustee (the "Trustee"), the Company and the Trustee agree to the sale
by the Company and the purchase by the Trustee of the subsequent Mortgage Loans
listed on the attached Mortgage Loan Schedule (the "Subsequent Mortgage Loans")
and the related MI Policies, and the pledge of the Subsequent Mortgage Loans by
the Trustee.

     Capitalized terms used and not defined herein have their respective
meanings as set forth in the definitions contained in the Pooling and Servicing
Agreement, dated as of September 1, 2002 (the "Pooling and Servicing
Agreement"), between the Certificate Administrator, the Trustee, the Company and
the Servicer which definitions are incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.

     Section 1. Conveyance of Subsequent Mortgage Loans.

     (a) The Company does hereby sell, transfer, assign, set over and convey to
the Trustee, without recourse, (i) all of its right, title and interest in and
to the Subsequent Mortgage Loans and the related MI Policies, all scheduled
payments of principal and interest on the Subsequent Mortgage Loans due after
the Subsequent Cut-off Date, and all other payments of principal and interest on
the Subsequent Mortgage Loans collected after the Subsequent Cut-off Date (minus
that portion of any such payment which is allocable to the period prior to the
Subsequent Cut-off Date); provided, however, that no scheduled payments of
principal and interest due on or before the Subsequent Cut-off Date and
collected after the Subsequent Cut-off Date shall belong to the Trustee pursuant
to the terms of this Company's Instrument and (ii) all of its right, title and
interest in and to the Seller's Subsequent Transfer Instrument, dated as of
______ __, 2002 (the "Seller's Instrument"), between the Seller and the Company.
The Company, contemporaneously with the delivery of this Company's Instrument,
has delivered or caused to be delivered to the Certificate Administrator each
item set forth in Section 2.02(b) of the Purchase Agreement with respect to such
Subsequent Mortgage Loans. The transfer to the Trustee by the Company of the
Subsequent Mortgage Loans identified on the attached Mortgage Loan Schedule and
the related MI Policies shall be absolute and is intended by the Company, the
Trustee, the Certificate Administrator and the Certificateholders to constitute
and to be treated as a sale by the Company.

     The parties hereto intend that the transactions set forth herein constitute
a sale by the Company to the Trustee on the Subsequent Transfer Date of all the
Company's right, title and interest in and to the Subsequent Mortgage Loans and
the related MI Policies, and other property

<PAGE>

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

     (b) The expenses and costs relating to the delivery of the Subsequent
Mortgage Loans, this Company's Instrument and such other items required under
the Purchase Agreement shall be borne by the Company.

     Section 2. Representations and Warranties; Conditions Precedent.

     (a) The Company hereby affirms the representations and warranties set forth
in Section 3.02 of the Purchase Agreement that relate to the Company as of the
date hereof.

     (b) The Company is solvent, is able to pay its debts as they become due and
has capital sufficient to carry on its business and its obligations hereunder;
it will not be rendered insolvent by the execution and delivery of this
Company's Instrument or by the performance of its obligations hereunder nor is
it aware of any pending insolvency; no petition of bankruptcy (or similar
insolvency proceeding) has been filed by or against the Company prior to the
date hereof;

     (c) All terms and conditions of the Purchase Agreement are hereby ratified
and confirmed; provided, however, that in the event of any conflict the
provisions of this Company's Instrument shall control over the conflicting
provisions of the Mortgage Loan Purchase Agreement.

     Section 3. Grant from Trustee to Certificate Administrator.

     The Trustee, as trustee for the benefit of the Certificateholders, hereby
grants as of the Subsequent Transfer Date to the Certificate Administrator, to
secure all of the Trustee's obligations under the Pooling and Servicing
Agreement, all of the Trustee's right, title and interest in and to, whether now
existing or hereafter created, (a) the Subsequent Mortgage Loans, the related MI
Policies and the proceeds thereof and all rights under the Related Documents
(including the related Mortgage Files); (b) all funds on deposit from time to
time in the Collection Account allocable to the Subsequent Mortgage Loans,
excluding any investment

<PAGE>

income from such funds; (c) all its rights under the Seller's Instrument and
this Company's instrument; and (d) all present and future claims, demands,
causes of action and choses in action in respect of any or all of the foregoing
and all payments on or under, and all proceeds of every kind and nature
whatsoever in respect of, any or all of the foregoing and all payments on or
under, and all proceeds of every kind and nature whatsoever in the conversion
thereof, voluntary or involuntary, into cash or other liquid property, all cash
proceeds, accounts, accounts receivable, notes, drafts acceptances, checks,
deposit accounts, rights to payment of any and every kind, and other forms of
obligations and receivables, instruments and other property which at any time
constitute all or part of or are included in the proceeds of any of the
foregoing.

          Section 4. Recordation of Instrument.

          To the extent permitted by applicable law, this Company's Instrument,
or a memorandum thereof if permitted under applicable law, is subject to
recordation in all appropriate public offices for real property records in all
of the counties or other comparable jurisdictions in which any or all of the
properties subject to the Mortgages are situated, and in any other appropriate
public recording office or elsewhere, such recordation to be effected by the
Servicer, but only when accompanied by an Opinion of Counsel to the effect that
such recordation materially and beneficially affects the interests of the
Certificateholders or is necessary for the administration or servicing of the
Mortgage Loans.

          Section 5. Governing Law.

          This Company's Instrument shall be construed in accordance with the
laws of the State of New York and the obligations, rights and remedies of the
parties hereunder shall be determined in accordance with such laws, without
giving effect to principles of conflicts of law.

          Section 6. Counterparts.

          This Company's Instrument may be executed in one or more counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed, shall be deemed to be an original; such counterparts,
together, shall constitute one and the same instrument.

          Section 7. Successors and Assigns.

          This Company's instrument shall inure to the benefit of and be binding
upon the Company, the Certificate Administrator and the Trustee and their
respective successors and assigns.

<PAGE>

          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Company's Instrument as of the day and year first written above.

                                            NOVASTAR MORTGAGE FUNDING
                                            CORPORATION,

                                            as Company

                                            By:_________________________________
                                                Name:
                                                Title:

                                            JPMORGAN CHASE BANK,
                                            as Trustee

                                            By:_________________________________
                                                Name:
                                                Title:

                                            WACHOVIA BANK, NATIONAL ASSOCIATION,
                                            as Certificate Administrator

                                            By:_________________________________
                                                Name:
                                                Title:

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