Document:

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                                                                   Exhibit 10.20

                                 VARIABLE SHARE
                       QUOTA SHARE REINSURANCE AGREEMENT

REINSURED:          Commonwealth Mortgage Assurance Company (and Affiliates)

REINSURER:          Capital Mortgage Reinsurance Company

EFFECTIVE DATE:     January 1, 1997

TERM:               Continuous from the Effective Date until terminated as
                    provided below.

DEFINITIONS:        When used in this Agreement, the following terms shall have
                    the specific meanings shown unless the context of any
                    provision hereof clearly indicates otherwise. Any
                    definitions set forth herein shall (i) include the singular
                    as well as plural, and (ii) all accounting terms involving
                    premium and loss calculations shall have the meanings
                    ascribed to them under statutory accounting principles
                    prescribed or permitted under the laws and regulations of
                    the Commonwealth of Pennsylvania.

                    "Affiliate" means any insurance company controlled by,
                    controlling or under common control with the Reinsured or
                    the Reinsurer, as applicable.

                    "Captive Insurer" means an insurer that is controlled by,
                    controlling or under common control with a mortgage
                    originator and assumes risk on mortgage loans insured by the
                    Reinsured (or any insurer controlled by, controlling or
                    under common control with the Reinsured) and originated by
                    such mortgage lender.

                    "Agreement" means this Variable Share Quota Share
                    Reinsurance Agreement.

                    "Losses" means losses paid plus allocated loss adjustment
                    expenses paid by the Reinsured during the Term of this
                    Agreement arising from Covered Business and reported by the
                    Reinsured within its statutory financial statements, net of
                    any salvage in connection therewith. The Reinsured's
                    determination of Losses shall be binding on the Reinsurer.
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               "Calendar Year" means each whole calendar year, i.e., each
               January 1 through December 31.

               "Calendar Year's Earned Premium" means for any Calendar Year, the
               amount of gross earned premium allocable to Covered Business and
               reported by the Reinsured within its statutory financial
               statement for the particular Calendar Year.

               "Calendar Year's Losses" means, for any Calendar Year, the amount
               of Losses allocable to Covered Business and reported by the
               Reinsured within its year-end statutory financial statement for
               the particular Calendar Year.

               "Calendar Year's Ever to Date Written Premium" means for any
               particular Calendar Year, the aggregate amount of all gross
               written premium allocable to Covered Business reported by the
               Reinsured within its year-end financial statements for the period
               from the Underwriting Year through the end of the particular
               Calendar Year.

               "Calendar Year's Ever to Date Covered Losses" means, for any
               particular Calendar Year, the aggregate amount of all Losses
               reimbursed, or reimbursable by the Reinsurer hereunder, whether
               under the Calendar Year Variable Quota Share Coverage or the
               Underwriting Year Excess Coverage, from the Effective Date
               through the end of the particular Calendar Year.

               "Underwriting Year" means the Calendar Year beginning January 1,
               1997 and ending December 31, 1997.

               "Underwriting Year's Written Premium" means the gross written
               premium allocable to Covered Business written by the Reinsured
               during the Underwriting Year.

               "Underwriting Year's Net Losses" means the aggregate of all
               losses allocable to Covered Business minus the amount of such
               Losses reimbursed, or reimbursable by the Reinsurer pursuant to
               this Agreement from the Effective Date through the end of a
               particular Calendar Year.

               "Gross Risk in Force" means the aggregate amount of exposure
               arising from Covered Business calculated as
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                         follows: (i) in the case of primary mortgage guaranty
                         insurance policies, the unpaid principal balance of
                         each mortgage loan insured multiplied by the coverage
                         percentage for each such loan, and (ii) in the case of
                         Agency Pool Insurance policies, the stop loss amount
                         for each policy less any losses paid by the Reinsured
                         in connection with such policy.

                         "Agency Pool Insurance" means coverage provided by the
                         Reinsured to either the Federal Home Loan Mortgage
                         Corporation or Federal National Mortgage Association
                         (the "Agencies") that a mortgage originator or one of
                         the Agencies purchases from the Reinsured on a pool of
                         mortgages sold to such Agency.

                         "Agency Pool Insurance Limit" means $100 million of
                         risk originated new for 1997 under Agency Pool
                         Insurance policies. For the avoidance of doubt, the
                         aggregate amount of Agency Pool Insurance risk the
                         Reinsured may write and cede to the Reinsurer under the
                         Agreement is $100 million and the maximum amount of
                         Loss on Agency Pool Insurance payable by the Reinsurer
                         is $15 million (i.e., 15% of $100 million). Any Agency
                         Pool Insurance risk written by the Reinsured in excess
                         of the Agency Pool Insurance Limit shall be voided for
                         coverage purposes on a last written first excluded
                         basis.

COVERED BUSINESS:        All primary mortgage guaranty insurance policies and
                         Agency Pool Insurance policies issued by the Reinsured
                         during the Underwriting Year, subject to the Agency
                         Pool Insurance Limit.

EXCLUSIONS:              (i)       Pool Insurance (other than Agency Pool
                                   Insurance)
                         (ii)      Reinsurance Assumed
                         (iii)     Any policy issued as a replacement for an
                         outstanding mortgage insurance policy of any entity
                         acquired by the Reinsured.
                         (iv)      Any policy with regard to which the insured
                         under such policy (or its affiliate) provides any
                         insurance or co-insurance (or its functional
                         equivalent) to the Reinsured in connection with such
                         policy.
                         (v)       Any policy for which any portion of the risk
                         is ceded to a Captive Insurer.
                         (vi)      Any Agency Pool Insurance Policy issued to
                         Norwest Mortgage Corporation.

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                         (vii)     Any policy issued in connection with
                         "supernotes," i.e., a risk sharing financial product
                         sold by the Reinsured.

COVERAGES:               Calendar Year Variable Quota Share Coverage: The
                         Reinsurer will assume as reinsurance and be liable for:

                         (i)       7.5% of the amount of each Calendar Year's
                                   Losses that do not exceed 55% of such
                                   Calendar Year's Earned Premium.

                         (ii)      11.25% of the amount of each Calendar Year's
                                   Losses that exceed 55% but are less than or
                                   equal to 180% of such Calendar Year's Earned
                                   Premium. Provided, however, that for any
                                   Calendar Year in which such Calendar Year's
                                   Losses exceed 55% of such Calendar Year's
                                   Earned Premium, the Reinsurer shall assume
                                   and be liable for an additional 3.75% of such
                                   Calendar Year's Losses up to 55% of such
                                   Calendar Year's Earned Premium.

                         (iii)     15% of the amount of each Calendar Year's
                                   Losses that exceed 180% of such Calendar
                                   Year's Earned Premium.

                         (iv)      100% of the amount of each Calendar Year's
                                   Losses that exceed 85% of the Reinsured's
                                   Gross Risk in Force at the end of such
                                   Calendar Year and are not covered pursuant to
                                   provisions (i) through (iii) above.

                         Underwriting Year Excess Coverage: The Reinsurer will
                         assume as reinsurance and be liable for:

                         (i)       100% of the Underwriting Year's Net Losses
                                   incurred by the Reinsured during Calendar
                                   Years one through four, to the extent that 8%
                                   of the Underwriting Year's Written Premium,
                                   plus any unpaid ceding commission, exceeds
                                   the Calendar Year's Ever to Date Covered
                                   Losses at the end of the fourth Calendar Year
                                   of this Agreement.

                         (ii)      100% of the Underwriting Year's Net Losses
                                   incurred by the Reinsured during Calendar
                                   Years five through seven, to the extent that
                                   8% of the premium allocable to the
                                   Underwriting Year and

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                                   collected during the first and second
                                   Calendar Years of this Agreement plus any
                                   unpaid ceding commission, exceeds the
                                   Calendar Year's Ever to Date Covered Losses
                                   at the end of the seventh Calendar Year of
                                   this Agreement.

                         (iii)     100% of the Underwriting Year's Net Losses
                                   incurred by the Reinsured through the end of
                                   the tenth Calendar Year of this Agreement, to
                                   the extent that 8% of the premium allocable
                                   to the Underwriting Year, plus any unpaid
                                   ceding commission, exceeds the Calendar
                                   Year's Ever to Date Covered Losses, at the
                                   end of the tenth Calendar Year of this
                                   Agreement.

PREMIUM:                 The Reinsured shall pay to the Reinsurer a premium (the
                         "Premium") during the Term of this Agreement equal to
                         15% of the Reinsured's gross written premium allocable
                         to Covered Business during each calendar quarter. The
                         Premium, net of any ceding commission due hereunder,
                         shall be due and payable within thirty (30) days after
                         the end of such calendar quarter and shall be remitted
                         as set forth below.

CEDING
COMMISSION:              The Reinsurer shall pay to the Reinsured a ceding
                         commission of thirty-two percent (32%) of the Premium
                         paid hereunder, provided, however, that for any
                         Calendar Year for which such Calendar Year's Losses
                         exceed fifty-five percent (55%) of such Calendar Year's
                         Earned Premium, no ceding commission shall be paid.

LOSS
PAYMENTS:                Calendar Year Variable Quota Share Coverage

                         The Reinsurer shall pay to the Reinsured a provisional
                         payment for Losses reinsured under the Calendar Year
                         Variable Quota Share Coverage equal to 7.5% of the
                         amount of the Reinsured's Losses during each calendar
                         quarter during the Term of this Agreement no later than
                         the later of (i) thirty (30) days after the end of such
                         calendar quarter, and (ii) ten (10) business days
                         following the receipt by the Reinsurer of a schedule
                         setting forth the amount of the Reinsured's Losses
                         during such quarter. Sixty (60) days after the end of
                         each Calendar Year (or any shorter

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                         period in the event of a termination) the Reinsured
                         shall prepare and forward to the Reinsurer a loss
                         account showing for such Calendar Year (or shorter
                         period) and the Underwriting Year, all Losses, Written
                         Premium, Earned Premium and Gross Risk in Force. Within
                         ten (10) days after the Reinsurer's receipt of the loss
                         account for a particular Calendar Year (or shorter
                         period), the Reinsurer and the Reinsured shall transfer
                         funds between them so as to reconcile the difference
                         between (i) the Reinsured's Calendar Year's Losses
                         reimbursed and reimbursable hereunder, and (ii) the sum
                         of the provisional payments for Losses and payments of
                         ceding commissions made by the Reinsurer with respect
                         to the calendar quarters during such Calendar Year (or
                         shorter period).

                         Underwriting Year Excess Coverage

                         The Reinsurer shall remit to the Reinsured a
                         provisional payment of any amounts due the Reinsured
                         under the Underwriting Year Excess Coverage on or
                         before the last business day of the fourth, seventh
                         and tenth Calendar Years of this Agreement. The
                         Reinsured shall provide the Reinsurer with a
                         provisional loss account no later than thirty (30)
                         days prior to the end of any such Calendar Year.

                         Sixty (60) days after the end of the fourth, seventh
                         and tenth Calendar Years of this Agreement, the
                         Reinsured shall prepare and forward to the Reinsurer
                         a loss account showing for such Calendar Year and the
                         Underwriting Year, all Losses, Written Premium, Earned
                         Premium and Gross Risk in Force. Within ten (10)
                         business days after the Reinsurer's receipt of the
                         loss account for the fourth, seventh and tenth
                         Calendar Years, the Reinsurer and the Reinsured shall
                         transfer funds between them so as to reconcile the
                         difference between (i) the Reinsured's Underwriting
                         Year's Net Losses, and (ii) the sum of the provisional
                         payments made by the Reinsurer under the Underwriting
                         Year Excess Coverage with respect to such Calendar
                         Year.

CANCELLATION,
TERMINATION:             A. This Agreement is non-cancelable by either party
                         hereto for a period of ten years from the effective
                         date hereof, except as provided in Section (B) below.

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                         B.  Upon the occurrence of one or more of the following
                         events, the Reinsured, upon providing ninety (90) days
                         prior written notice to the Reinsurer, shall have the
                         right to terminate this Agreement on a cut-off basis,
                         providing that such event or events have not been
                         corrected prior to the expiration of such ninety (90)
                         day period:

                         1.  Notice from Standard & Poor's Corporation ("S&P"),
                         Moody's Investor Services, Inc. ("Moody's"), or any
                         other nationally recognized rating agency that rates
                         the Reinsured, confirmation of which shall be provided
                         to the Reinsurer, that the Reinsured's then-current
                         financial strength or claims-paying rating cannot be
                         maintained because of the reinsurance coverage
                         provided hereunder.

                         2.  Receipt by the Reinsured of written notice from
                         the Pennsylvania Department of Insurance, or any other
                         regulatory authority, a copy of which notice shall be
                         provided to the Reinsurer, denying to the Reinsured
                         full financial statement credit according to the
                         statutory requirements of the Commonwealth of
                         Pennsylvania or any other jurisdiction in which the
                         failure of the Reinsured to obtain such full financial
                         statement credit would have a material adverse impact
                         on the Reinsured.

                         3.  Each party shall have the right to terminate this
                         Agreement in the event of any actual or alleged breach
                         or non-performance of a material provision of this
                         Agreement by the other party which is not corrected or
                         cured within thirty (30) days of the receipt by such
                         other party of a written notice specifying the nature
                         of the claimed breach or non-performance.

                         4.  Each party shall have the right to terminate this
                         Agreement on December 31, 2006 (or any subsequent
                         December 31) by providing at least ninety (90) days
                         prior written notice of its intention to terminate
                         this Agreement.

                         After a termination cut-off pursuant to this Section,
                         the Reinsurer shall pay to the Reinsured a profit
                         commission equal to (i) 8% of the current Calendar
                         Year's Ever to Date Written Premium, plus (ii) any
                         unpaid ceding commission not paid in any Calendar Year
                         when the Underwriting Year's Ever to Date Covered
                         Losses exceeded fifty-five percent (55%) of such
                         Calendar Year's Earned Premium,

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                         minus (iii) such Calendar Year's ever to Date Covered
                         Losses.

                         At any termination of this Agreement, the Reinsurer
                         shall refund to the Reinsured, in addition to any other
                         sums due to the Reinsured hereunder, 14.67% of the
                         Reinsured's ceded unearned premium with respect to
                         Covered Business as of the date of such termination.

FINANCIAL
STATEMENT CREDIT:        The Reinsurer shall take all steps necessary for the
                         Reinsured to obtain full financial statement credit
                         according to the statutory requirements of the
                         Commonwealth of Pennsylvania, the State of New York,
                         and any other jurisdiction in which the failure of the
                         Reinsured to obtain such full financial statement
                         credit would have a material adverse impact on the
                         Reinsured.

TRUST
AGREEMENT:               Upon the execution of this Agreement by the parties,
                         the Reinsurer shall establish a trust account (the
                         "Trust") for the benefit of the Reinsured at a
                         financial institution and under a trust agreement
                         acceptable to the Reinsured. The Reinsured shall
                         promptly reimburse the Reinsurer for the reasonable and
                         customary fees and expenses of the administration of
                         the Trust.

                         The payments of Premium (net of any ceding commissions
                         due) by the Reinsured hereunder shall be made in two
                         parts: (i) an amount equal to 14.67% of any Premium
                         shall be remitted directly to the Reinsurer; and (ii)
                         any remaining Premium due, net of any ceding
                         commission, shall be deposited directly into the Trust.

                         Deposits of Premium into the Trust shall be invested at
                         the discretion of the Reinsurer, provided, however,
                         that at each quarter-end (i) at least ninety-five
                         percent (95%) of the assets of the Trust shall consist
                         of instruments or securities determined, as of the date
                         of each quarter-end, to be of investment grade as
                         defined from time to time by S&P and/or Moody's, (ii)
                         at least fifty percent (50%) of the investments and
                         cash assets of the Trust shall consist of cash or cash
                         equivalents, or securities determined, as of the date
                         of purchase, to be of the highest investment grade as
                         determined from time to time by S&P and/or Moody's, and

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                    (iii) none of the assets of the Trust may be invested in
                    instruments or securities with any real estate-related risk,
                    and (iv) none of the assets of the Trust may be invested in
                    instruments or securities of the Reinsurer, the Reinsured or
                    any Affiliate of either. The Reinsurer shall be entitled to
                    the investment income generated by the Trust.

                    The Reinsured has the right and the obligation to withdraw
                    assets from the Trust at any time and from time to time, as
                    the Reinsured shall elect, in satisfaction of the
                    Reinsurer's obligations hereunder, provided that such
                    obligations have not been previously reimbursed to the
                    Reinsured by the Reinsurer. In the event that, at any time,
                    the assets of the Trust are insufficient to satisfy fully
                    the obligations of the Reinsurer hereunder, the Reinsurer
                    shall satisfy such shortfall directly as provided
                    hereinabove.

                    The Reinsurer may withdraw, and retain for its own account,
                    all investment income earned on the Trust's assets at any
                    time and from time to time as the Reinsurer shall elect. The
                    trustee shall allow no other withdrawals or substitutions of
                    assets from or to the Trust except as permitted hereunder.

                    The trustee shall immediately honor all withdrawal requests
                    made in accordance herewith and take all steps necessary to
                    transfer the applicable assets held under the Trust to the
                    appropriate party.

                    Any disputes arising from the Trust may not be the subject
                    of an arbitration proceeding between the parties unless both
                    the Reinsured and the Reinsurer agree in writing to such an
                    arbitration proceeding.

OTHER PROVISIONS:   This Agreement is subject to the negotiation and execution
                    of a formal reinsurance treaty and a trust agreement both
                    acceptable to the parties containing in addition to the
                    terms and conditions set forth herein, ordinary and
                    customary clauses set forth in reinsurance transactions
                    generally, including, but not limited to the following:

                    Follow the Fortunes Clause
                    Offset Clause
                    Errors and Omissions Clause

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                    Inspections Clause
                    Taxes Clause
                    Service of Suit Clause
                    Insolvency Clause
                    Arbitration Clause
                    Assignment Clause
                    Notices Clause
                    Waiver Clause
                    Negotiated Agreement Clause
                    Governing Law Clause (PA)
                    Salvage Clause
                    Subrogation Clause
                    Access to Records Clause
                    Reports Clause
                    Parental Wrap of Reinsurer Clause
                    Penalty Interest for Late Payments

AGREED TO AND ACCEPTED BY:

COMMONWEALTH MORTGAGE ASSURANCE COMPANY

BY:
       ---------------------------------
NAME:
       ---------------------------------
TITLE:
       ---------------------------------
DATE:
       ---------------------------------

CAPITAL MORTGAGE REINSURANCE COMPANY

BY:
       ---------------------------------
NAME:
       ---------------------------------
TITLE:
       ---------------------------------
DATE:
       ---------------------------------<PAGE>   1
                                                                   Exhibit 10.21

----------------------------------               ------------------------------
Name of Insured                                  Master Policy Number

         In consideration of the premium paid, and in reliance upon the
representations in the Application for Insurance, RADIAN GUARANTY INC., a
Pennsylvania corporation (a stock mortgage insurance company hereinafter
referred to as the "Company") agrees to pay to the Insured the Loss resulting
from the Default of the Borrower, subject to all of the terms and conditions
contained in this Policy.

                                   CONDITIONS

         CONDITION ONE - DEFINITIONS

                  The following words and phrases shall have the specific
meanings as set forth in this Condition One when used in this Policy:

                  A.       ADVANCES means only the following expenses advanced
                           by the Insured:

                           (1)      Reasonable and customary hazard insurance
                                    premiums.

                           (2)      Taxes, assessments and other public charges
                                    imposed upon the Property.

                           (3)      Customary expenses necessary for
                                    preservation of the Property.

                           (4)      Condominium fees, homeowner association dues
                                    and other shared property fees.

                           (5)      All other reasonable and necessary expenses
                                    incurred in the Appropriate Proceedings,
                                    including attorney's fees not in excess of
                                    three percent (3%) of the delinquent
                                    principal and interest at the time a Claim
                                    is filed, and customary court costs.
                                    Provided, however, that reasonable
                                    attorney's fees incurred pursuant to
                                    Condition Eleven (C) shall not be so
                                    limited.

                           (6)      Necessary and customary costs for eviction
                                    proceedings, including related attorney's
                                    fees.
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                  B.       APPROPRIATE PROCEEDINGS means any action or
                           proceeding which vests in the Insured all of the
                           Borrower's rights and title in and to the Property
                           including, but not limited to, foreclosure by public
                           or private sale or voluntary conveyance from the
                           Borrower, provided, however, that such action or
                           proceeding shall not be inconsistent with the
                           requirements of Conditions Six, Nine and Fifteen of
                           this Policy and is permitted by applicable law.

                  C.       APPROVED SALE means the sale of the Property by the
                           Borrower with the consent of the Insured, or by the
                           Insured after the acquisition of the Property, the
                           terms of which in either case have been approved by
                           the Company pursuant to Condition Nine of this
                           Policy; redemption of the Property from the Insured
                           after it acquires Borrower's Title; or the sale of
                           the Property at a foreclosure sale to a third party
                           bidder pursuant to Condition Six (A)(3)(c) of this
                           Policy.

                  D.       APPLICATION FOR INSURANCE means all documents,
                           materials, statements and exhibits, whether or not
                           prepared by the Insured, submitted to the Company by
                           or on behalf of the Insured for the purpose of
                           obtaining a Commitment of Insurance or a Certificate
                           of Insurance.

                  E.       BORROWER means the person or persons designated as
                           such on the face of the Application for Insurance
                           and/or the Certificate of Insurance, and includes any
                           co-borrower, co-signer, co-obligor, guarantor, or
                           other maker of the note, mortgage, or other
                           instrument of indenture, whether or not specifically
                           listed on the Application for Insurance and/or the
                           Certificate of Insurance.

                  F.       BORROWER'S OWN FUNDS means any funds owned by the
                           Borrower, and not borrowed from other sources, or
                           subject to any rebate, refund, or repayment.
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                  G.       BORROWER'S TITLE means the Insured's possession and
                           control of the Property, as evidenced by: (i) an
                           executed Trustee's or Sheriff's deed (which need not
                           reflect recordation) or other evidence satisfactory
                           to the Company that the foreclosure sale has been
                           completed, or (ii) a deed from the Borrower in the
                           case of a voluntary conveyance to the Insured,
                           conveying title to the Insured, and (iii) the
                           expiration of any applicable redemption period,
                           unless the Insured elects to file the Claim prior to
                           expiration, subject to Condition Eleven of this
                           Policy.

                  H.       CERTIFICATE OF INSURANCE means a certificate issued
                           by the Company to the Insured, in accordance with the
                           terms of this Policy, to extend insurance coverage to
                           the Loan therein described. A Certificate may take
                           the form, without limitation, of a facsimile,
                           electronic computer tape or other agreed upon data
                           interchange.

                  I.       CLAIM means a written request for payment of a Loss,
                           made on a form or in a manner acceptable to the
                           Company.

                  J.       CLAIM SETTLEMENT PERIOD means the period starting
                           when the Claim is initially filed and ending at the
                           close of business on the Settlement Due Date.

                  K.       COMMITMENT OF INSURANCE means any commitment issued
                           by the Company to the Insured, setting forth the
                           terms and conditions under which the Company will
                           extend insurance coverage to a Loan in accordance
                           with this Policy.

                  L.       DEFAULT means the failure of the Borrower to pay when
                           due an amount equal to or greater than one (1)
                           monthly regular periodic payment in accordance with
                           the terms of a Loan.

                  M.       DEFICIENCY means all amounts due and owing under a
                           Loan on which a Default has occurred, and remaining
                           after the conclusion of Appropriate Proceedings,
                           pursuant to applicable state law.

                  N.       EARLY DEFAULT means the failure of the Borrower to
                           make any of the initial twelve (12) monthly payments
                           in accordance with the terms of a Loan so

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                           that sums equal to the aggregate of two (2) such
                           monthly payments have not been paid when due.
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                  O.       EFFECTIVE DATE means, with respect to an insured
                           Loan, the closing date of such Loan, or, such later
                           date as may be requested by the Insured and approved
                           in writing by the Company.

                  P.       FAIR MARKET VALUE means, with regard to the amount
                           bid for any Property at a foreclosure sale, the
                           Property's value at the approximate time of the
                           foreclosure sale as determined by appraisal, if
                           available, or in accordance with customary servicing
                           practices (which may include reliance on information
                           provided by a local real estate broker), subject to
                           applicable law governing foreclosure.

                  Q.       INSURED means the named Insured or any party (i) to
                           whom coverage has been granted by the Company, or
                           (ii) that is a subsequent assignee or transferee
                           owner of a Loan that has requested to become the
                           insured. If however, the Company has not been
                           notified in writing of such assignment or transfer,
                           the Company's sole obligation hereunder shall be to
                           the named Insured.

                  R.       LOAN means the indebtedness of the Borrower to the
                           Insured in the amount and for the term specified on
                           the face of the Certificate of Insurance, which is
                           evidenced by a written obligation and secured by a
                           mortgage, deed of trust or other instrument, which is
                           a first lien or charge on the Property, and which is
                           insured under this Policy or intended to be insured
                           in accordance with the terms of a Commitment of
                           Insurance.

                  S.       LOSS means the amount of loss suffered or incurred by
                           the Insured determined pursuant to the provisions of
                           Condition Eleven of this Policy.

                  T.       MERCHANTABLE TITLE means title to the Property which
                           is readily saleable and freely transferable and which
                           is free and clear of all liens, defects and
                           encumbrances including, without limitation, rights of
                           parties in possession and rights of redemption
                           (unless in either or both cases the Company waives in
                           writing its right to take the Property free of such
                           rights), excepting only:

                           (1)      the lien of current general real estate
                                    taxes and other public charges and
                                    assessments not

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                                    yet due and payable; and

<PAGE>   7

                           (2)      easements for public utilities, building
                                    restrictions and the effect of building laws
                                    or regulations with which the improvements
                                    on the Property comply, which do not impair
                                    the use of the Property and the improvements
                                    thereon for their intended purposes; and

                           (3)      tenants under leases approved in writing by
                                    the Company; and

                           (4)      such minor imperfections of title as would
                                    not impair the use and enjoyment of the
                                    Property as a residence.

                           Merchantable Title does not exist if there is a lien
                           on the Property pursuant to federal or state law
                           providing for liens in connection with the cleanup of
                           environmental conditions, or if notice has been given
                           of commencement of proceedings which could result in
                           such a lien.

                  U.       PERFECTED CLAIM means a Claim containing all of the
                           information and proof reasonably required by the
                           Company to evaluate its liability with respect
                           thereto.

                  V.       PHYSICAL DAMAGE means any tangible injury to the
                           Property, whether caused by accident, natural
                           occurrence or otherwise, excluding normal wear and
                           tear.

                  W.       PROPERTY means the residential real property,
                           designed for occupancy by not more than four (4)
                           families, identified on the face of a Certificate of
                           Insurance and shall include all appurtenances, rights
                           of access and improvements thereon which secure the
                           Loan.

                  X.       SERVICER means the entity servicing a Loan on behalf
                           of the Insured. The Servicer is deemed to be the
                           representative of the Insured for purposes of the
                           Policy.

                  Y.       SETTLEMENT DUE DATE means the date sixty (60) days
                           after receipt of a Claim by the Company, subject to
                           the extensions of time set forth in Condition
                           Thirteen of this Policy.
<PAGE>   8

                  Z.       THIRD PARTY MISREPRESENTATION OR FRAUD means a
                           misrepresentation or fraud by anyone other than the
                           Insured, its employees or agents. For purposes of
                           this definition, the Insured's agents shall include
                           any mortgage broker and/or intermediary originating
                           the Loan, or anyone under contract with such persons
                           in connection with the origination of the Loan, such
                           as an appraiser or escrow agent.

CONDITION TWO - APPLICATION FOR INSURANCE, COMMITMENT OF INSURANCE, INITIAL
PREMIUM, REPRESENTATIONS OF THE INSURED

                  A.       APPLICATION FOR INSURANCE AND COMMITMENT OF INSURANCE

                           The Insured shall submit an Application for Insurance
                           to the Company in connection with each Loan for which
                           coverage under this Policy is desired. The Company
                           shall provide forms of Application for Insurance to
                           the Insured and the Insured shall comply with the
                           requirements contained therein. Approval of any
                           Application for Insurance shall be at the discretion
                           of the Company and shall be communicated to the
                           Insured in the form of a Commitment of Insurance.
                           Each Application for Insurance shall be deemed to be
                           part of this Policy and incorporated herein by this
                           reference. If the Borrower's application for a Loan
                           is denied, the Company shall bear no responsibility
                           for notifying the Borrower of the decision pursuant
                           to applicable state or federal law.

                  B.       INITIAL PREMIUM, COMPLIANCE WITH CONDITIONS

                           (1)      Within ten (10) days after the Effective
                                    Date, the Insured shall forward to the
                                    Company the initial premium as shown on the
                                    face of the Commitment of Insurance.

<PAGE>   9

                           (2)      The obligation of the Company to extend
                                    insurance coverage to a Loan for which a
                                    Commitment of Insurance has been issued, or
                                    pay any Loss in respect thereof, is
                                    expressly conditioned upon the Insured's
                                    compliance with the provisions of this
                                    Policy and any conditions shown on the
                                    Commitment of Insurance and the timely
                                    receipt by the Company of the initial
                                    premium. Provided, however, that any special
                                    conditions shall expire upon the Company's
                                    acceptance of renewal premium or a period of
                                    one (1) year from the Certificate effective
                                    date, whichever is longer.

                           (3)      Upon compliance by the Insured with the
                                    Commitment of Insurance and upon receipt by
                                    the Company of the initial premium, the
                                    Company shall issue a Certificate of
                                    Insurance to the Insured, or a Certificate
                                    of Insurance previously issued to the
                                    Insured shall become effective and bind the
                                    Company under this Policy as of the
                                    Effective Date.

                  C.       REPRESENTATIONS OF THE INSURED

                           An Application for Insurance shall be deemed a
                           representation by the Insured to the Company, and the
                           Commitment of Insurance and Certificate of Insurance
                           shall be deemed to have been issued in reliance
                           thereon.

         CONDITION THREE - TERM OF COVERAGE, RENEWAL

                  A.       TERM OF COVERAGE

                           A Certificate of Insurance shall be in force and
                           provide coverage for the period of time shown on the
                           face thereof, unless renewed in accordance with
                           Condition Three (B), below. Upon renewal, the
                           Certificate of Insurance shall continue in force for
                           the applicable renewal period.
<PAGE>   10

                  B.       RENEWAL

                           A Certificate of Insurance may be renewed at the
                           option of the Insured upon payment of the applicable
                           renewal premium and delivery of instructions
                           identifying the Loan or Loans for which the premium
                           is being paid, provided that such instructions and
                           payment are received by the Company within thirty
                           (30) days after the expiration of any coverage or
                           renewal period. If the Certificate of Insurance is
                           not renewed as set forth herein, coverage under the
                           Certificate of Insurance shall terminate for Defaults
                           not then existing as of 12:01 A.M. on the day
                           following the expiration date thereof, or of the then
                           current renewal period. The Company shall provide
                           notice of renewal dates to the Servicer (or, if the
                           Company has not been informed of a Servicer, to the
                           Insured).

                           A lapse of coverage for failure to pay premiums when
                           due which affects a group of Loans may be cured upon
                           written notification to the Company by the Insured, a
                           transferee Servicer or the owner of the Loans, that
                           the failure to pay the renewal premiums was the
                           result of a servicing transfer, seizure or
                           forfeiture, provided that such notification occurs
                           within three (3) months of the servicing transfer.

<PAGE>   11

         CONDITION FOUR - CANCELLATION, TERMINATION

                  A.       CANCELLATION BY THE INSURED

                           (1)      CERTIFICATE OF INSURANCE

                                    The Insured or its Servicer may, at any
                                    time, by written notice to the Company,
                                    cancel a Certificate of Insurance. Such
                                    cancellation shall relieve the Company of
                                    liability for any Default unless a Claim has
                                    been submitted prior to such cancellation.
                                    Upon receipt by the Company of the original
                                    copy of the Certificate of Insurance or a
                                    notice of cancellation acceptable to the
                                    Company, the appropriate portion of the
                                    premium will be refunded to the Insured
                                    pursuant to the Cancellation Schedule
                                    appended hereto and made a part hereof.
                                    However, no refund shall be remitted if a
                                    Claim has been submitted, or if the premium
                                    plan selected by the Insured does not
                                    provide for a return of premium.

                           (2)      MASTER POLICY

                                    The Insured may, at any time, by written
                                    notice to the Company, cancel this Policy
                                    and such cancellation shall be effective as
                                    of the date of such notice, provided that
                                    the conditions of this Policy shall remain
                                    applicable to any Loans insured hereunder
                                    prior to such cancellation.

                  B.       CANCELLATION BY THE COMPANY

                           (1)      CERTIFICATE OF INSURANCE

                                    Subject to applicable law, the Company may
                                    cancel a Certificate of Insurance only upon
                                    the failure of the Insured to pay any
                                    premium or comply with any condition as
                                    required by this Policy.
<PAGE>   12

                           (2)      MASTER POLICY

                                    Subject to applicable law, the Company may,
                                    at any time, by written notice to the
                                    Insured, cancel this Policy and such
                                    cancellation shall be effective as of the
                                    date of such notice, provided that the
                                    conditions of this Policy shall remain
                                    applicable to any Loans insured hereunder
                                    prior to such cancellation.

                  C.       TERMINATION OF COVERAGE, CONDITIONS SUBSEQUENT

                           Notwithstanding any other provision of this Policy,
                           the coverage extended to any Loan by a Certificate of
                           Insurance may be terminated at the Company's sole
                           discretion, immediately and without notice, if, with
                           respect to such Loan, the Insured shall permit or
                           agree to any of the following without prior written
                           consent of the Company:

                           (1)      Any material change or modification of the
                                    terms of the Loan including, but not limited
                                    to, the borrowed amount, interest rate, term
                                    or amortization schedule, excepting such
                                    modifications as may be specifically
                                    provided for in the Loan documents, and
                                    permitted without further approval or
                                    consent of the Insured.

                           (2)      Any release of the Borrower from liability
                                    for the Loan.

                           (3)      Any assumption of liability for the Loan,
                                    with or without release of the original
                                    Borrower from liability therefor.

                           (4)      Any change in the Property.

                           (5)      Any sale or transfer of the servicing of a
                                    Loan to an entity not approved in writing by
                                    the Company as a servicer, subject to the
                                    provisions of Condition Seven of this
                                    Policy.

                           In the event that the Company elects to terminate the
                           coverage pursuant to the above Conditions, it will
                           make a refund of any applicable premium and/or
                           renewal premium, pro-rated to the date of the event
                           giving rise to termination.

<PAGE>   13
CONDITION FIVE - EXCLUSIONS FROM COVERAGE

     It is understood and agreed that the Company shall not be liable for and
     the Policy shall not apply, extend to or cover the following:

     A.   BALLOON PAYMENT

          Any Loss arising out of or in connection with failure of the Borrower
          to make any payment of principal and/or interest due under a Loan
          which payment arises because the Insured exercises its right to call
          or accelerate such Loan (except as a result of a Default) or because
          the term of such Loan is shorter than the amortization period, and
          which payment is for an amount more than twice the regular periodic
          payments of principal and interest (including any additional amounts
          escrowed for taxes or insurance) that are set forth in such Loan
          (commonly referred to as a "Balloon Payment"). This exclusion shall
          not apply to Loss resulting from the refusal of the Borrower to accept
          an extension or renewal from the Insured or its Servicer of the Loan
          at market rates.

     B.   PRIOR DELINQUENCIES

          Any Loss arising from a Default if, as of the Effective Date of the
          Certificate of Insurance, a delinquency exists with respect to any
          payment under the Loan.

     C.   INCOMPLETE CONSTRUCTION

          Any Loss, if, as of the date of the related Claim, construction of the
          Property has not been completed in accordance with the construction
          plans and specifications.
<PAGE>   14
     D.   MISREPRESENTATION AND FRAUD

          Any Loss for which a Claim is made in connection with a Certificate of
          Insurance issued in reliance upon an Application for Insurance
          containing any material misstatement, misrepresentation or omission,
          whether intentional or otherwise or as a result of any act of fraud;
          provided, however, that unless the Insured had knowledge of or
          participated in a Third Party Misrepresentation or Fraud at the time
          it was made, the Company shall not rescind or deny coverage, or adjust
          any Claim based on such Third Party Misrepresentation or Fraud if the
          Borrower has made twelve consecutive monthly payments from the
          Borrower's Own Funds.

     E.   NEGLIGENCE OF INSURED OR SERVICER

          Any Loss arising out of any negligence of the Insured or Servicer in
          the origination or servicing of a Loan which negligence is either the
          proximate cause of such Loss or materially increases the risk insured,
          provided that if the Company can reasonably determine the amount by
          which such negligence increased the Loss as calculated in Condition
          Eleven (B), its remedy shall be to adjust the Loss accordingly.

     F.   PHYSICAL DAMAGE

          Any cost or expense related to the repair or remedy of any Physical
          Damage to the Property, including but not limited to Physical Damage
          arising from the following causes; (i) contamination by toxic or
          hazardous waste, chemical, or other substances, (ii) earthquake,
          flood, or any act of God, (iii) civil war or riot, or (iv) any defects
          in the construction of the Property not identified in the Application.

CONDITION SIX - CONDITIONS PRECEDENT TO PAYMENT OF CLAIM

     A.   CONDITIONS PRECEDENT

          The Insured must comply with each of the following requirements as a
          condition precedent to any obligation of the Company under this
          Policy:
<PAGE>   15
          (1)  NOTICE OF DEFAULT OR EARLY DEFAULT

               The Insured shall, within fifteen (15) days, and notwithstanding
               any subsequent cure, give the Company written notice, on forms
               acceptable to the Company, of (i) any Loan that is three (3)
               months in Default, or (ii) any Loan for which there is an Early
               Default.

          (2)  MONTHLY DEFAULT REPORTS; REPORT OF PROCEEDINGS

               The Insured shall give the Company monthly reports, on forms
               acceptable to the Company, detailing servicing efforts with
               respect to each Loan for which notice to the Company is required
               under Condition Six of this Policy. Monthly reports shall contain
               all of the information and documentation reasonably requested by
               the Company, including, but not limited to, the condition of the
               Property, status of Borrower contact efforts and status of
               Appropriate Proceedings.

               Monthly reports shall continue with respect to each such Loan
               until such Default or Early Default has been cured or until title
               to the Property has been acquired by the Insured. The Insured
               shall provide the Company with written notice within fifteen (15)
               days after the Insured has knowledge of the commencement of any
               proceeding, including Appropriate Proceedings, which affects the
               Loan, the Property, or the Insured's or Borrower's interest
               therein.

          (3)  APPROPRIATE PROCEEDINGS

               Subject only to the provisions of Conditions Nine and Fifteen
               below:

               (a)  The Insured shall commence and diligently pursue Appropriate
                    Proceedings, but in no event later than six (6) months after
                    it is permitted to do so pursuant to the terms of the Loan
                    and applicable law. If directed by the Company, the Insured
                    shall commence Appropriate Proceedings as soon as it is
                    permitted to do so pursuant to the terms of the Loan and
                    applicable law.
<PAGE>   16
               (b)  The Insured shall furnish the Company with copies of all
                    notices and pleadings filed or required in connection with
                    Appropriate Proceedings.

               (c)  Bidding instructions.

                    (i)  The Company may give specific foreclosure sale bidding
                         instructions to the Insured that do not require a
                         minimum bid of less than Fair Market Value, and in
                         accordance with applicable law, provided that the
                         Company will not specify a maximum bid of less than the
                         uninsured Loan amount, and, if the Property will be
                         subject to redemption for less than the outstanding
                         amount owed by the Borrower, the Company will not
                         specify an opening bid of less than the uninsured Loan
                         amount. For this purpose the uninsured Loan amount
                         shall be the estimated Loss calculated pursuant to
                         Condition Eleven (B), less the percentage thereof
                         payable pursuant to Condition Twelve (A)(2).

                    (ii) In the absence of specific bidding instructions, the
                         Insured may control the bidding process.

                    (iii)In the event of either (i) or (ii), above, unless the
                         Company elects in writing prior to the foreclosure sale
                         to purchase the Property, any third party purchase at
                         foreclosure will be treated as an Approved Sale
                         pursuant to Condition Eight (A) of this Policy.
<PAGE>   17
     B.   FAILURE TO COMPLY

          The failure of the Insured to comply with any of the foregoing
          conditions precedent will give the Company, at its sole discretion,
          the right to declare any liability or obligation under this Policy
          null and void with respect to the applicable Certificate of Insurance,
          provided that violations of timing requirements shall result only in a
          reduction of the Loss to the estimated extent of the prejudice
          suffered by the Company for the violation, and shall not result in
          cancellation of coverage unless the timing violation exceeds one year
          from the required date of submission.

CONDITION SEVEN - LOAN SERVICING

     Every Loan insured under this Policy shall be serviced in a reasonable and
     prudent manner and consistent with the highest standards of servicing in
     use in the residential mortgage industry. Such servicing shall include, but
     not be limited to, diligent efforts to cure a Default, including Borrower
     contact, and prompt reporting of any Default to the appropriate credit
     reporting bureau(s). If the servicing of a Loan is sold, assigned or
     transferred by the Insured or by the Servicer, coverage shall continue
     hereunder; provided that notice thereof is given to the Company and the
     Loan continues to be serviced by an entity approved by the Company.

     If the Company disapproves a Servicer, or if the Loan is transferred to a
     previously disapproved or unapproved Servicer, the Insured, (or the owner
     of the Loan if the Company has been notified of an owner other than the
     Insured), shall have ninety (90) days in which to replace the Servicer with
     one approved by the Company.

CONDITION EIGHT - APPROVED SALE

     A.   SETTLEMENT ON BASIS OF APPROVED SALE

          If an Approved Sale is consummated in accordance with the terms set
          forth hereinabove, with respect to such Approved Sale:
<PAGE>   18
          (1)  The Company hereby waives its right to exercise its option to
               acquire the Property pursuant to Condition Twelve (A)(1) of this
               Policy and releases the Insured from the obligation to tender
               Merchantable Title pursuant to Condition Twelve or Borrower's
               Title to the Property pursuant to Condition Eleven (A)(1) of this
               Policy;

          (2)  The Insured shall have the sole right to receive the net proceeds
               of such Approved Sale and acceptance of such net proceeds in
               satisfaction of the Loan shall not prejudice the Insured
               hereunder; and

          (3)  In calculating the net proceeds of such Approved Sale, all the
               Insured's reasonable costs of obtaining and closing the sale
               shall be deducted from the gross proceeds of the sale.

          (4)  Company shall pay to the Insured, in full settlement of its
               obligation to the Insured with respect to the Loss to which such
               Approved Sale is related, the lesser of:

               (a)  the entire amount of such Loss determined pursuant to
                    Condition Eleven of this Policy; or

               (b)  the percentage of such Loss, computed without deduction of
                    the net proceeds of the Approved Sale, specified in the
                    applicable Certificate of Insurance and in accordance with
                    the premium plan under which the Loan is insured.
<PAGE>   19
     B.   SETTLEMENT IF APPROVED SALE DOES NOT CLOSE If an Approved Sale does
          not close, the Company may settle under either of the settlement
          options set forth in Condition Twelve (A), provided that if the
          Settlement Due Date has passed, (i) interest as provided for in
          Condition Thirteen (D) shall be payable, and (ii) if the Company
          wishes to settle under Condition Twelve (A)(1), the Insured's
          obligations in connection with the transfer of the Property to the
          Company shall be as required by this Policy subject to the limitation
          that they shall not be more burdensome to the Insured than its
          obligations (including, but not limited to, its obligations as to the
          condition of the Property) as seller in the Approved Sale that failed
          to close.

CONDITION NINE - MITIGATION OF DAMAGES

     A.   MITIGATION OF DAMAGES

          The Insured shall actively cooperate with the Company to prevent and
          mitigate Loss including, without limitation, the collection of rents,
          the assertion of its rights in and to any collateral or security in
          its custody or control, assertion of rights against the Borrower, and
          prompt reporting to the Company of any preforeclosure sale offers. If
          a preforeclosure sale is approved by the Company and the Insured, but
          for any reason the sale does not close, then the Company shall
          continue to administer the Policy as if no sale had been attempted.
          The Company may assist the Insured in efforts to mitigate any Loss.

          The Company shall actively cooperate with the Insured to administer
          the Policy in such a way as to not increase the Insured's uninsured
          loss, pursuant to the reciprocity and mutuality of the parties'
          obligations.
<PAGE>   20
     B.   SALE OF THE PROPERTY BY THE INSURED

          The mitigation efforts of the Insured shall also include diligent
          efforts to market any Property for which it has obtained Borrower's
          Title. After obtaining Borrower's Title, the Insured shall submit to
          the Company any offer for sale of the Property that would be
          acceptable to the Insured and would result in a lower Claim settlement
          under Condition Eight (A) than under the percentage payment option of
          Condition Twelve (A)(2), so long as the Company has not notified the
          Insured that it will acquire the Property, and its right to acquire
          the Property has not been waived, or expired pursuant to Condition
          Twelve (B). Any such sale offer shall be approved or rejected by the
          Company in its entirety.

          For purposes of this Condition, a sale offer submitted to the Company
          shall consist of an offer to purchase the Property received by the
          Insured, together with a schedule of (i) expense items proposed by the
          Insured to be included in the settlement amount if the Property sale
          closes, and (ii) the insured's then estimated amounts thereof.

          The Insured, if requested by the Company, shall authorize its broker
          to release to the Company such marketing information concerning the
          Property as the Company may request, unless or until the Insured shall
          have notified the broker that the Company's right to acquire the
          Property has expired or been waived.

     C.   FAILURE TO MITIGATE

          If the Insured breaches its duty to prevent and mitigate Loss, then
          the Company's remedy shall be to reduce the Insured's Loss by the
          reasonably estimated extent of the resulting prejudice to the Company,
          rather than to deny the Claim.
<PAGE>   21
CONDITION TEN - OPTION TO ACQUIRE LOAN

     At any time after a Default and prior to the conclusion of Appropriate
     Proceedings, the Company shall have the option to acquire the related Loan.
     The Company shall exercise such option in writing and within thirty (30)
     days after the date thereof the Insured shall furnish to the Company a
     written statement of the acquisition cost of such Loan. The acquisition
     cost shall be computed in the same manner as the computation of Loss set
     forth in Condition Eleven of this Policy, except that interest shall be
     calculated only through the date of acquisition. Payment of the acquisition
     cost so computed shall be made by the Company to the Insured within thirty
     (30) days after the receipt of such statement from the Insured together
     with all supporting documentation reasonably required by the Company.
     Contemporaneously therewith, Insured shall execute and deliver to the
     Company, or its nominee, such instruments or documents which the Company
     may reasonably require to effect or confirm the assignment or transfer of
     the Loan and any right, title or interest of the Insured in and to the
     Property, Appropriate Proceedings and any other collateral or security. In
     addition, Insured shall assign and deliver to the Company existing fire,
     hazard and title insurance policies relating to the Loan. The assignment or
     transfer of the Loan, any other collateral or security and all related
     documents by the Insured to the Company shall constitute a warranty by the
     Insured that it has good title to such Loan, collateral, security and
     related documents, free and clear of all liens and encumbrances, and that
     there are no setoffs or counterclaims which may be asserted by the
     Borrower, and that the Insured has done nothing to impair the validity and
     enforceability of its rights with respect to such Loan, such collateral or
     security and such related documents.

CONDITION ELEVEN - LOSS PAYMENT PROCEDURE

     A.   SUBMISSION OF CLAIM

          (1)  A Claim may not be submitted to the Company prior to the
               Insured's acquisition of Borrower's Title to the Property, except
               in the case of Approved Sales, as set forth in Condition Eight.
<PAGE>   22
          (2)  The Insured may submit a Claim prior to the expiration of any
               applicable redemption period, provided however that in the event
               a Borrower exercises his redemption rights, the Insured shall
               reimburse the Company for the amount (if any) by which the sum of
               the Claim payment paid plus the amount realized by the Insured
               from the redemption of the Property exceeds the Loss as
               calculated pursuant to Condition Eleven (B).

          (3)  Failure by the Insured to submit a Perfected Claim within one
               year after the acquisition of Borrower's Title to the Property
               shall relieve the Company of any obligation or liability with
               respect to the underlying Certificate of Insurance.

     B.   CALCULATION OF LOSS

          (1)  Loss with respect to any Default insured against hereunder shall
               be determined as the sum of:

               (a)  the unpaid principal balance due under the Loan; and

               (b)  the amount of unpaid accumulated interest due under the
                    Loan, computed at the contractual rate or rates stated in
                    the Loan (excluding late charges and penalties), up to the
                    date the Claim is submitted to the Company, but in no event
                    in excess of two (2) years; and

               (c)  the amount of any Advances made by the Insured.

               In addition, if a Loan has been divided into secured and
               unsecured portions pursuant to proceedings under the federal
               bankruptcy laws, the amount in clause (a) above shall include the
               unpaid principal due under the unsecured portion of the Loan,
               even if the Borrower has been released from such debt, and the
               amount in clause (b) above shall include interest thereon
               computed at the contract rate or rates stated in the Loan from
               the date of Default through the date referred to in clause (b).
<PAGE>   23
          (2)  Such Loss shall be reduced by the following, insofar as not
               previously applied to the repayment of the Loan:

               (a)  the unpaid interest due under the Loan, calculated in
                    accordance with Condition Eleven (B)(1), accruing after the
                    Insured has acquired Borrower's Title to the Property for a
                    period of sixty (60) days; and

               (b)  the amount of all rent and other payments (excluding
                    proceeds of fire and extended coverage insurance) which have
                    been received by the Insured and which are in any way
                    related to the Property; and

               (c)  any amount remaining in any related escrow account or
                    security deposit in the custody or control of the Insured as
                    of the date of last payment; and

               (d)  the amount of any payments on the Loan received by the
                    Insured after the date of Default; and

               (e)  the amount of any benefits paid under any fire and extended
                    coverage policies which is in excess of the actual cost of
                    restoring and repairing the Property; and

               (f)  the remaining amount, if any, of unused interest buydown
                    funds, discounts, or similar features of the Loan; and

               (g)  When the Company elects to purchase the Property pursuant to
                    Condition Twelve (A)(1), or when the Company elects to pay
                    the percentage option pursuant to Condition Twelve (A)(2),
                    and a casualty event, coupled with a lack of insurance for
                    such casualty, was the most important cause of the Default;
                    the entire cost to repair or remedy any Physical Damage in
                    excess of $1,500.00 to the Property to the extent such
                    Physical Damage has not been previously repaired or
                    remedied; and

               (h)  the net proceeds of any Approved Sale; and
<PAGE>   24
               (i)  the full amount of the entire proceeds awarded in or
                    resulting from a condemnation or a sale in lieu of
                    condemnation.

     C.   DEFICIENCY JUDGEMENTS

          If either the Insured or the Company intends to pursue a deficiency
          judgement against the Borrower, no later than during the Claim
          Settlement Period the party that is the proponent of pursuing a
          deficiency will promptly notify the other party of its intent and the
          parties will determine whether the deficiency judgement will be sought
          for the account of such proponent or for the account of both parties.
          If, pursuant to the instructions of the Company, the Insured has
          pursued a manner of foreclosure other than the usual and customary
          manner so that a deficiency judgement may be preserved and pursued,
          the Company will be deemed the proponent. If the Insured, without
          instruction, has pursued a manner of foreclosure other than the usual
          and customary manner so that a deficiency judgement may be preserved
          and pursued, the Insured will be deemed the proponent. Further, the
          Insured will be deemed the proponent, and the determination is not
          required, if the Company is prohibited by law from pursuing a
          deficiency judgement against the Borrower.

          To facilitate such determination on an informed basis, either party
          may request pertinent deficiency information from the other. Each
          party will provide such information if requested, but is not obligated
          to seek additional information solely to respond to the request. If
          the Claim as initially filed does not indicate whether the Insured
          intends to pursue a deficiency and/or does not provide such
          information as the Insured may have relevant to whether a deficiency
          should be pursued, the Company may request the information as provided
          in Condition Thirteen (A).
<PAGE>   25
          If the amount of Loss calculated pursuant to Condition Eleven (B) has
          been increased because of the desire of either the Insured or the
          Company to preserve and pursue deficiency rights, the excess shall be
          determined. In determining such excess, the three percent (3%)
          limitation of Condition One (A)(5) will not be applied to exclude
          amounts that are necessary to preserve and/or pursue the deficiency
          rights. If the deficiency rights will be pursued solely by the
          Insured, the Loss shall be adjusted to exclude such excess. If the
          deficiency rights will be pursued solely by the Company, the amount
          paid by the Company pursuant to Condition Eight, Condition Ten or
          Condition Twelve shall include all of such excess, regardless of the
          settlement option the Company may select. If the deficiency judgment
          is to be pursued for the account of both parties, any expenses the
          Company incurred (other than staff time or other internal costs) to
          preserve and/or pursue the deficiency rights will be added to such
          excess and the total shall be allocated between the Insured and the
          Company in accordance with their pro rata shares referred to in
          Condition Fifteen (A). The Loss paid pursuant to Condition Eight or
          Condition Twelve will be adjusted to reflect such allocation of
          deficiency-related expenses. Subsequent deficiency-related expenses
          (including collection expenses, insofar as not satisfied from sums
          collected, but excluding staff time or other internal costs of either
          party), and any and all amounts recovered (net of collection expenses)
          also will be allocated to the parties in such pro rata shares.

          After the Company's payment of the Loss, management and control of
          deficiency rights being pursued for the account of both parties will
          be governed by reasonable agreement of the parties.

     D.   CLAIM REQUIREMENTS

          In order to make a Perfected Claim, the Insured must provide the
          Company with the following:

          1.   A properly completed Claim on a form furnished or approved by the
               Company requesting payment of the Loss;
<PAGE>   26
          2.   All information requested on such form, all documentation
               requested or reasonably necessary to complete such form, and all
               other information and/or documentation reasonably requested by
               the Company in connection with its review of the Claim;

          3.   Evidence satisfactory to the Company that the Insured has
               Borrower's Title to the Property, except where there has been an
               Approved Sale or the Company has elected to acquire the Property;

          4.   If the Company elects to acquire the Property, evidence that the
               Insured has acquired and can convey Merchantable Title; and

          5.   Access to the Property for purposes of determining its condition
               and value, if requested by the Company.

CONDITION TWELVE - CLAIM SETTLEMENT OPTION

     A.   In settlement of any Claim, unless the Claim is paid pursuant to
          Condition Eight (A), the Company in its sole discretion, and at its
          option, may elect to pay the Insured either:

          (1)  the entire amount of the Loss and upon such payment the Insured
               shall convey Merchantable Title to the Property to the Company
               (or its nominee); or

          (2)  the percentage of the Loss specified in the applicable
               Certificate of Insurance and in accordance with the premium plan
               under which the Loan is insured and, in such event, the Company
               shall have no right to acquire the Property.

     B.   The Company shall make its election within the sixty (60) day period
          set forth in Condition Thirteen, below. If the Company does not make
          its election within such time, its option to acquire the Property
          shall be deemed waived by the Company except as described in Condition
          Eight (B).
<PAGE>   27
     C.   Upon the election and payment by the Company of the sum due under this
          Condition Twelve, or due under either Condition Eight (A) or Condition
          Ten, and any additional sum due under Condition Eleven (C), the
          liability of the Company under the related Certificate of Insurance
          will be fully and finally discharged.

CONDITION THIRTEEN - CLAIM PAYMENT PROCEDURE

     Any payment of Loss required to be made to the Insured with respect to any
     Claim shall be payable within sixty (60) days after receipt of such Claim,
     if the Claim has become a Perfected Claim, subject to the following
     conditions:

     A.   ADDITIONAL DOCUMENTATION

          The Company shall, within twenty (20) days of the filing of the
          initial Claim, request additional items necessary to complete its
          review of the Claim. The sixty (60) day period shall be suspended
          until the Company receives the requested items. Additional items may
          be requested by the Company after the initial twenty (20) day period,
          but the sixty (60) day limit will not be tolled for their receipt.

     B.   ACCESS

          If access is sought to the Property by the Company, and is not
          provided, the running of the sixty (60) day period shall be suspended,
          and will resume when access is available, and the Insured so notifies
          the Company.

     C.   ACQUISITION

          If the Company elects to acquire the Property, the sixty (60) day
          period shall be further extended if and insofar as necessary for there
          to be ten (10) days remaining after the Insured tenders Merchantable
          Title to the Property.

     D.   LATE PAYMENT

          In the event that the Company does not pay the Claim within the sixty
          (60) day period, subject to the above extensions, the Company shall
          add simple interest at the Loan rate or rates, accruing from the
          Settlement Due Date.
<PAGE>   28
     E.   RESCISSION/DENIAL

          All Claims shall be either paid, rescinded or denied within one
          hundred and twenty (120) days after the Settlement Due Date.

CONDITION FOURTEEN - DUTY OF COOPERATION

     Whenever requested by the Company, whether or not a notice of Default has
     been submitted, the Insured shall cooperate with the Company and furnish
     all reasonable aid, evidence and information in the possession of the
     Insured or to which the Insured has access with respect to any Loan,
     including, but not limited to, all documents, files, computer data or other
     information requested by the Company upon reasonable notice. To the extent
     the Company is prejudiced by any failure of the Insured to cooperate, the
     Company's remedy shall be to reduce the Insured's Loss by the estimated
     extent of such prejudice.

CONDITION FIFTEEN - COMPANY'S RIGHT OF SUBROGATION

     A.   SUBROGATION

          Whenever the Company shall have paid a Loss under this Policy, all
          rights of subrogation shall vest in the Company to the extent of that
          payment, and where permitted by applicable law, pursuant to the
          following formula:

               (i) All of the Insured's deficiency rights against the Borrower
               will vest in the Company by subrogation if the Company has
               acquired the Property pursuant to Condition Twelve (A)(1), if the
               Insured has elected not to share in pursuit of such rights
               pursuant to Condition Eleven (C), if the Insured is made whole
               pursuant to Condition Eight (C)(4)(a), or if the Company acquires
               the Loan pursuant to Condition Ten;

               (ii) None of the Insured's deficiency rights against the Borrower
               shall vest by subrogation in the Company if the Company is not
               entitled by law to pursue such rights, or if the Company has
               elected not to share in the pursuit of such rights pursuant to
               Condition Eleven (C)
<PAGE>   29
               (iii) A pro rata share of the deficiency rights against the
               Borrower shall vest in the Company if, pursuant to Condition
               Eleven (C), such rights will be pursued for the account of both
               the Insured and the Company, according to the reasonable
               agreement of the parties.

     B.   IMPAIRMENT OF SUBROGATION

          The Insured shall not act or omit to act to impair the Company's right
          of subrogation in any way.

CONDITION SIXTEEN - LIMITATION OF ACTIONS

     No suit or action arising from any right of the Insured under this Policy
     shall be commenced in any court of law or equity unless the Insured has
     substantially complied with all material conditions of this Policy and the
     Certificate of Insurance, excepting conditions specifically waived or
     altered in writing by the Company, and unless commenced within two (2)
     years after such right shall first arise.

CONDITION SEVENTEEN - NOTICES

     All notices, reports or other documents required or permitted to be given
     by either party to the other shall be in writing and shall be forwarded by
     prepaid postage to the recipient at the address shown on the face of this
     Policy or at such other address as the respective parties may hereafter in
     writing specify.

CONDITION EIGHTEEN - ENTIRE AGREEMENT, ENDORSEMENT, SEVERABILITY

     A.   ENTIRE AGREEMENT

          This Policy together with the Certificate of Insurance and the
          Application for Insurance shall constitute the entire agreement
          between the original Insured and the Company. No provision,
          requirement or condition of this Policy and the Certificate of
          Insurance shall be deemed to have been waived, altered, amended or
          otherwise changed unless stated in writing and duly executed by the
          Company.
<PAGE>   30
     B.   ENDORSEMENT

          Any endorsement issued by the Company to the Insured contemporaneously
          with any Certificate of Insurance shall be deemed to modify the
          coverage under this Policy with respect to the Loan described in such
          Certificate of Insurance to the extent shown in such endorsement.

CONDITION NINETEEN - BENEFICIARIES UNDER POLICY

     The provisions of this Policy and Certificate of Insurance shall inure to
     the benefit of and be binding upon the Company and any Insured and its
     respective successors. In the event that the Insured assigns a Loan insured
     hereunder, this Policy and the related Certificate of Insurance shall
     continue in force and effect in favor of such assignee subject to all of
     the terms and conditions hereof and further subject to all defenses
     available to the Company against any predecessor Insured. In no event shall
     any Borrower or other person be deemed to be a party to, or intended
     beneficiary of, this Policy. No payments made hereunder to the Insured
     shall lessen or affect the Insured's rights of recovery against any
     Borrower or other person.

CONDITION TWENTY - ARBITRATION

     Unless prohibited by applicable law, the Insured and the Company may agree,
     in writing, that any claim or controversy arising out of or related to this
     Policy or any breach, interpretation or construction thereof be submitted
     to arbitration. In such event, the arbitration proceeding will be held
     pursuant to the Title Insurance Arbitration Rules of the American
     Arbitration Association in effect on the date the agreement to arbitrate is
     made. The decision of the arbitrators shall be made in accordance with the
     terms and conditions of this Policy and the laws of the jurisdiction where
     the related Property is located. The decision of the arbitrators shall be
     final and binding upon the Insured and the Company and judgment upon the
     award may be entered in any court having jurisdiction thereof. A copy of
     the Title Insurance Arbitration Rules of the American Arbitration
     Association may be obtained from the Company upon request.
<PAGE>   31
CONDITION TWENTY-ONE - CONFORMITY TO STATUTE

     Any provision of this Policy which is in clear conflict with the laws of
     the jurisdiction in which the Property is located is hereby amended to
     conform to the minimum requirements of that law, it being the intention of
     the Insured and the Company that the specific provisions of this Policy
     shall be controlling whenever possible.

IN WITNESS WHEREOF, the Company has caused its Corporate Seal to be hereto
affixed and these to be signed by its duly authorized officers in facsimile, to
become effective as its original seal and signatures and binding on the Company
by virtue of countersignature by its duly authorized agent where required by
applicable law.

                                            RADIAN GUARANTY INC.

                                            President

                                            Secretary

--------------------------------------      ------------------------------------
Date                                        Authorized Agent

CMAC FORM #10404

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