Document:

<PAGE>
                                                                    EXHIBIT 10.2

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

                                CREDIT AGREEMENT

                         PREFERRED HOME MORTGAGE COMPANY

                                   as Borrower

                                  GUARANTY BANK

                                    as Lender

                                  July 5, 2001

================================================================================
<PAGE>

                                TABLE OF CONTENTS

<Table>
<Caption>

                                                                                                                Page
                                                                                                                ----

<S>                                                                                                             <C>
ARTICLE I         GENERAL TERMS...................................................................................1
                  Section 1.1       Certain Definitions...........................................................1
                  Section 1.2       Exhibits and Schedules.......................................................17
                  Section 1.3       Calculations and Determinations..............................................17

ARTICLE II        AMOUNT AND TERMS OF LOANS......................................................................17
                  Section 2.1       Commitment and Loans.........................................................17
                  Section 2.2       Promissory Note; Interest on the Note........................................17
                  Section 2.3       Notice and Manner of Obtaining Loans.........................................18
                  Section 2.4       Fees.........................................................................18
                  Section 2.5       Mandatory Repayments.........................................................18
                  Section 2.6       Continuations and Conversions of Existing Loans..............................18
                  Section 2.7       Payments to Lender...........................................................19
                  Section 2.8       Increased Cost and Reduced Return............................................20
                  Section 2.9       Limitation on Types of Loans.................................................22
                  Section 2.10      Illegality...................................................................22
                  Section 2.11      Treatment of Affected Loans..................................................22
                  Section 2.12      Compensation.................................................................23
                  Section 2.13      Taxes........................................................................23

ARTICLE III       CONDITIONS PRECEDENT...........................................................................24
                  Section 3.1       Initial Loan.................................................................24
                  Section 3.2       All Loans....................................................................25

ARTICLE IV        BORROWER REPRESENTATIONS AND WARRANTIES........................................................26
                  Section 4.1       Organization and Good Standing...............................................26
                  Section 4.2       Authorization and Power......................................................26
                  Section 4.3       No Conflicts or Consents.....................................................27
                  Section 4.4       Enforceable Obligations......................................................27
                  Section 4.5       Priority of Liens............................................................27
                  Section 4.6       No Liens.....................................................................27
                  Section 4.7       Financial Condition of Borrower..............................................27
                  Section 4.8       Full Disclosure..............................................................27
                  Section 4.9       No Default...................................................................28
                  Section 4.10      No Litigation................................................................28
                  Section 4.11      Taxes........................................................................28
                  Section 4.12      Principal Office, etc........................................................28
                  Section 4.13      Compliance with ERISA........................................................28
                  Section 4.14      Subsidiaries.................................................................28
                  Section 4.15      Indebtedness.................................................................28
                  Section 4.16      Permits, Patents, Trademarks, etc............................................28
</Table>

                                       i
<PAGE>
<Table>
<S>                                                                                                              <C>
                  Section 4.17      Status Under Certain Federal Statutes........................................29
                  Section 4.18      Securities Act...............................................................29
                  Section 4.19      No Approvals Required........................................................29
                  Section 4.20      Survival of Representations..................................................29
                  Section 4.21      Individual Mortgage Loans....................................................29
                  Section 4.22      Environmental Matters........................................................31

ARTICLE V         AFFIRMATIVE COVENANTS..........................................................................31
                  Section 5.1       Financial Statements and Reports.............................................31
                  Section 5.2       Taxes and Other Liens........................................................33
                  Section 5.3       Maintenance..................................................................33
                  Section 5.4       Further Assurances...........................................................33
                  Section 5.5       Reimbursement of Expenses....................................................33
                  Section 5.6       Insurance....................................................................34
                  Section 5.7       Accounts and Records; Servicing Records......................................34
                  Section 5.8       Right of Inspection..........................................................34
                  Section 5.9       Notice of Certain Events.....................................................35
                  Section 5.10      Performance of Certain Obligations and Information Regarding Investors.......35
                  Section 5.11      Use of Proceeds; Margin Stock................................................35
                  Section 5.12      Notice of Default............................................................35
                  Section 5.13      Compliance with Loan Documents...............................................36
                  Section 5.14      Operations and Properties....................................................36
                  Section 5.15      Environmental Matters........................................................36

ARTICLE VI        NEGATIVE COVENANTS.............................................................................36
                  Section 6.1       No Merger; Limitation on Issuance of Securities..............................36
                  Section 6.2       Limitation on Indebtedness...................................................37
                  Section 6.3       Fiscal Year, Method of Accounting............................................37
                  Section 6.4       Business.....................................................................37
                  Section 6.5       Liquidations, Consolidations and Dispositions of Substantial Assets..........37
                  Section 6.6       Loans, Advances, and Investments.............................................37
                  Section 6.7       Use of Proceeds..............................................................38
                  Section 6.8       Actions with Respect to Mortgage Collateral..................................38
                  Section 6.9       Transactions with Affiliates.................................................38
                  Section 6.10      Liens........................................................................39
                  Section 6.11      ERISA........................................................................39
                  Section 6.12      Change of Principal Office...................................................39
                  Section 6.13      Tangible Net Worth...........................................................39
                  Section 6.14      Total Debt to Tangible Net Worth Ratio.......................................39
                  Section 6.15      Profitability................................................................39

ARTICLE VII       EVENTS OF DEFAULT..............................................................................40
                  Section 7.1       Nature of Event..............................................................40
</Table>

                                       ii
<PAGE>

<Table>
<S>                                                                                                              <C>
                  Section 7.2       Default Remedies.............................................................42

ARTICLE VIII      INDEMNIFICATION................................................................................42
                  Section 8.1       Indemnification..............................................................42
                  Section 8.2       Limitation of Liability......................................................43

ARTICLE IX        [RESERVED].....................................................................................43

ARTICLE X         MISCELLANEOUS..................................................................................43
                  Section 10.1      Notices......................................................................43
                  Section 10.2      Amendments, Etc..............................................................44
                  Section 10.3      CHOICE OF LAW; VENUE.........................................................44
                  Section 10.4      Invalidity...................................................................44
                  Section 10.5      Survival of Agreements.......................................................45
                  Section 10.6      Renewal, Extension or Rearrangement..........................................45
                  Section 10.7      Waivers......................................................................45
                  Section 10.8      Cumulative Rights............................................................45
                  Section 10.9      Limitation on Interest.......................................................45
                  Section 10.10     Bank Accounts; Offset........................................................46
                  Section 10.11     Assignments, Participations..................................................46
                  Section 10.12     Exhibits.....................................................................47
                  Section 10.13     Titles of Articles, Sections and Subsections.................................47
                  Section 10.14     Counterparts.................................................................47
                  Section 10.15     ENTIRE AGREEMENT.............................................................47
                  Section 10.16     Termination; Limited Survival................................................47
                  Section 10.18     WAIVER OF JURY TRIAL.........................................................48
                  Section 10.19     CONSEQUENTIAL DAMAGES........................................................48
</Table>

EXHIBITS

         Exhibit A      --  Form of Note
         Exhibit B      --  Form of Borrowing Request
         Exhibit C      --  Investors
         Exhibit D      --  Subsidiaries
         Exhibit E      --  Certificate Accompanying Financial Statement
         Exhibit F      --  Form of Security Agreement
         Exhibit G      --  Form of Opinion of Borrower's Counsel
         Exhibit H      --  Borrowing Base Certificate
         Exhibit I      --  Continuation/Conversion Notice

                                      iii
<PAGE>

                                CREDIT AGREEMENT

         THIS CREDIT AGREEMENT is made and entered into as of July 5, 2001,
between PREFERRED HOME MORTGAGE COMPANY, a Florida corporation ("BORROWER"), and
GUARANTY BANK ("LENDER").

         The parties hereto hereby agree as follows:

                                    ARTICLE I

                                  GENERAL TERMS

         Section 1.1 Certain Definitions. As USED in this Agreement, the
following terms have the following meanings:

         "ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Loan for any
Interest Period therefor, the rate per annum equal to the sum of (a) the
Applicable Eurodollar Margin plus (b) the Eurodollar Rate, provided that the
Adjusted Eurodollar Rate shall never exceed the Maximum Rate. The Adjusted
Eurodollar Rate for any Eurodollar Loan shall change whenever the Reserve
Requirement changes.

         "AFFILIATE" means, as to any Person, each other Person that directly or
indirectly (through one or more intermediaries or otherwise) controls, is
controlled by, or is under common control with, such Person.

         "AGREEMENT" means this Credit Agreement, as the same may from time to
time be amended, supplemented or restated.

         "AGREEMENT TO PLEDGE" means each agreement by Borrower set forth in a
Borrowing Request for Wet Mortgage Loans, to deliver Required Mortgage Documents
to Agent.

         "APPLICABLE BASE RATE MARGIN" means, on each day one and three-eighths
percent (1.375%) per annum.

         "APPLICABLE EURODOLLAR MARGIN" means, on each day one and one-fourth
percent (1.25%) per annum.

         "APPLICABLE LENDING OFFICE" means the address of Lender set forth
herein.

         "ALT A LOAN" means a Mortgage Loan which does not conform to FNMA,
FHLMC, FHA or VA guidelines in regards to credit quality, but does conform to
underwriting guidelines of Borrower for Alt A Loans, which guidelines have been
approved by Lender.

                                       1
<PAGE>

         "ALT A/SUBPRIME SUBLIMIT" means fifteen percent (15%) of the
Commitment.

         "BASE RATE" means, for any day, the rate per annum equal to the sum of
the Federal Funds Rate for such day plus the Applicable Base Rate Margin,
provided that the Base Rate shall never exceed the Maximum Rate.

         "BASE RATE LOAN" means a Loan which does not bear interest at the
Adjusted Eurodollar Rate.

         "BORROWER" shall have the meaning assigned to such term in the preamble
hereof.

         "BORROWING" means a borrowing of new Loans of a single Type pursuant to
Section 2.3 or a Continuation or Conversion of existing Loans into a single Type
(and, in the case of Eurodollar Loans, with the same Interest Period) pursuant
to Section 2.6.

         "BORROWING BASE" means at any date all Eligible Mortgage Loans which
have been delivered to and held by Lender or otherwise identified as Mortgage
Collateral.

         "BORROWING BASE CERTIFICATE" means a certificate describing the
Eligible Mortgage Loans to be included in the Borrowing Base in a form
acceptable to Lender.

         "BORROWING REQUEST" means a request, in the form of Exhibit B, for a
Loan pursuant to Article II.

         "BUSINESS DAY" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Dallas, Texas. Any
Business Day in any way relating to the Eurodollar Rate must also be a day on
which, in the judgment of Lender, significant transactions in dollars are
carried out in the interbank Eurocurrency market.

         "CASH EQUIVALENTS" means (i) securities issued or directly and fully
guaranteed or insured by the United States Government or any agency or
instrumentality thereof which mature within ninety (90) days from the date of
acquisition, and (ii) time deposits and certificates of deposit, which mature
within ninety (90) days from the date of acquisition, of Lender or any other
domestic commercial bank having capital and surplus in excess of $200,000,000,
which has, or the holding company of which has, a commercial paper rating of at
least A-1 or the equivalent thereof by Standard & Poors Corporation or P-1 or
the equivalent thereof by Moody's Investors Service, Inc.

         "CHANGE OF CONTROL" means (a) Parent ceases to own one hundred percent
(100%) of the voting power of the voting stock of Borrower, or (b) Paul Leikert
ceases to serve as President of Borrower and is not replaced by a Person
reasonably acceptable to Lender within 180 days after such cessation.

         "CODE" means the Internal Revenue Code of 1986, as amended.

                                       2
<PAGE>

         "COLLATERAL" has the meaning given to it in the Security Agreement.

         "COLLATERAL VALUE OF THE BORROWING BASE" means on any day the sum of
the Unit Collateral Values of all Eligible Mortgage Loans included in the
Borrowing Base on such day as reasonably determined by Lender based on
information then available to Lender; provided that the Collateral Value of the
Borrowing Base shall never exceed the Commitment.

         "COMMITMENT" means at any date, the obligation of the Lender to make
Loans to Borrower pursuant to Section 2.1 hereof in an aggregate outstanding
amount not to exceed at any time $20,000,000.

         "CONSOLIDATED" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References herein to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated subsidiaries.

         "CONTINUATION" shall refer to the continuation pursuant to Section 2.6
hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the
next Interest Period.

         "CONTINUATION/CONVERSION NOTICE" means a written or telephonic request,
or a written confirmation, made by Borrower which meets the requirements of
Section 2.6.

         "CONVERSION" shall refer to a conversion pursuant to Section 2.6 or
Article II of one Type of Loan into another Type of Loan.

         "DEBTOR LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization or
similar Laws from time to time in effect affecting the rights of creditors
generally and general principles of equity.

         "DEFAULT" means any of the events specified in Section 7.1 hereof,
whether or not any requirement for notice or lapse or time or any other
condition has been satisfied.

         "DEFAULT RATE" means, at the time in question, with respect to any
Eurodollar Loan, four percent (4%) per annum plus the Adjusted Eurodollar Rate
then in effect, and (ii) with respect to any Base Rate Loan and any other
Obligation, four percent (4%) per annum plus the Base Rate then in effect;
provided that in no event shall the Default Rate ever exceed the Maximum Rate.

         "DIVIDENDS," in respect of any corporation, means: (a) cash
distributions or any other distributions on, or in respect of, any class of
equity security of such corporation, except for distributions made solely in
shares of securities of the same class; and (b) any and all funds, cash or other
payments made in respect of the redemption, repurchase or acquisition of such
securities.

                                       3
<PAGE>

         "DRAWDOWN TERMINATION DATE" means the earlier of the date which is 364
days after the date hereof, or the day on which the Note first becomes due and
payable in full.

         "ELIGIBLE MORTGAGE LOAN" means a Mortgage Loan with respect to which
each of the following statements is accurate and complete (and the Borrower by
including such Mortgage Loan in any computation of the Collateral Value of the
Borrowing Base shall be deemed to so represent to Lender at and as of the date
of such computation):

                  (a) Such Mortgage Loan is a binding and valid obligation of
         the Obligor thereon, in full force and effect and enforceable in
         accordance with its terms, except as enforceability may be limited by
         Debtor Laws;

                  (b) The Mortgage Note evidencing such Mortgage Loan is genuine
         in all respects as appearing on its face and as represented in the
         books and records of Borrower, and all information set forth therein is
         true and correct;

                  (c) Such Mortgage Loan is free of any default (other than as
         permitted by subparagraph below) of any party thereto (including
         Borrower), counterclaims, offsets and defenses, including the defense
         of usury, and from any rescission, cancellation or avoidance, and all
         right thereof, whether by operation of law or otherwise;

                  (d) No payment under such Mortgage Loan is more than thirty
         (30) days past due the payment due date set forth in the underlying
         Mortgage Note and Mortgage;

                  (e) The Mortgage Note evidencing such Mortgage Loan contains
         the entire agreement of the parties thereto with respect to the subject
         matter thereof, has not been modified or amended in any respect not
         expressed in writing therein and is free of concessions or
         understandings with the Obligor thereon of any kind not expressed in
         writing therein;

                  (f) Such Mortgage Loan is in all respects in accordance with
         all Requirements of Law applicable thereto, including, without
         limitation, the federal Consumer Credit Protection Act and the
         regulations promulgated thereunder and all applicable usury Laws and
         restrictions, and all notices, disclosures and other statements or
         information required by Law or regulation to be given, and any other
         act required by Law or regulation to be performed, in connection with
         such Mortgage Loan have been given and performed as required;

                  (g) All advance payments and other deposits on such Mortgage
         Loan have been paid in cash, and no part of said sums has been loaned,
         directly or indirectly, by Borrower to the Obligor, and, other than as
         disclosed to Lender in writing, there have been no prepayments;

                  (h) At all times such Mortgage Loan will be free and clear of
         all Liens, except in favor of Lender;

                                       4
<PAGE>

                  (i) The Property covered by such Mortgage Loan is insured
         against loss or damage by fire and all other hazards normally included
         within standard extended coverage in accordance with the provisions of
         such Mortgage Loan with Borrower named as a loss payee thereon;

                  (j) Such Mortgage Loan is secured by a first Mortgage, or in
         the case of any Second Lien Loan, a second Mortgage, on Property
         consisting of a completed one-to-eight unit single family residence
         which is not used for commercial purposes and which is not a
         construction loan; provided that if such Mortgage Loan is a Second Lien
         Loan, the Unit Collateral Value of such Mortgage Loan when added to the
         Unit Collateral Value of other Second Lien Loans does not exceed the
         Second Lien Loan Sublimit;

                  (k) The date of origination of such Mortgage Loan is not more
         than thirty (30) days prior to the date such Mortgage Loan was first
         included in the Borrowing Base;

                  (l) Such Mortgage Loan has not been included in the Borrowing
         Base for more than ninety (90) days;

                  (m) If such Mortgage Loan is included in the Borrowing Base
         and has been withdrawn from the possession of the Lender on terms and
         subject to conditions set forth in the Security Agreement:

                           (i) If such Mortgage Loan was withdrawn by Borrower
                  for purposes of correcting clerical or other non-substantive
                  documentation problems, the promissory note and other
                  documents relating to such Mortgage Loan are returned to the
                  Lender within ten (10) Business Days from the date of
                  withdrawal; and the Unit Collateral Value of such Mortgage
                  Loan when added to the Unit Collateral Value of other Mortgage
                  Loans which have been similarly released to Borrower and have
                  not been returned does not exceed ten percent (10%) of the
                  Commitment;

                           (ii) If such Mortgage Loan was shipped by the Lender
                  directly to a permanent investor for purchase or to a
                  custodian for the formation of a pool, (x) such investor or
                  custodian is in full compliance with the terms of the bailee
                  letter under which such Mortgage Loan was shipped, and (y) the
                  full purchase price for such Mortgage Loan has been received
                  by the Lender (or such Mortgage Loan has been returned to the
                  Lender) within thirty (30) calendar days from the date of
                  shipment by the Lender;

                  (n) Such Mortgage Loan is subject to a Take-Out Commitment
         which is in full force and effect;

                  (o) Such Mortgage Loan conforms to FNMA, FHLMC, FHA or VA
         guidelines in regards to credit quality, or

                                       5
<PAGE>

                           (i) If such Mortgage Loan is a Jumbo Loan, the Unit
                  Collateral Value of such Mortgage Loan when added to the Unit
                  Collateral Value of all other Jumbo Loans does not exceed the
                  Jumbo Sublimit; and

                           (ii) If such Eligible Mortgage Loans is an Alt A Loan
                  or a Subprime Loan, the Unit Collateral Value of such Mortgage
                  Loan when added to the Unit Collateral Value of all other Alt
                  A Loans and Subprime Loans does not exceed the Alt A/Subprime
                  Sublimit; and

                  (p) The Required Mortgage Documents have been delivered to
         Lender prior to the inclusion of such Mortgage Loan in any computation
         of the Borrowing Base or, if such items have not been delivered to
         Lender on or prior to the date such Mortgage Loan is first included in
         any computation of the Borrowing Base, (a) Borrower has pledged and
         agreed to deliver all Required Mortgage Documents pursuant to a
         Borrowing Request delivered to Lender prior to such inclusion, and (b)
         the Collateral Value of such Mortgage Loan when added to the Collateral
         Value of all other Mortgage Loans for which Lender has not received the
         Required Mortgage Documents does not exceed the Wet Warehousing
         Sublimit, provided that, all Required Documents with respect to such
         Mortgage Loan shall be delivered to Agent within seven (7) Business
         Days after the date of the Agreement to Pledge with respect thereto;

         "ENVIRONMENTAL LAWS" means any and all Laws relating to (a) the
protection of the environment, (b) emissions, discharges or releases of
pollutants, contaminants, chemicals or hazardous or toxic substances or wastes
into the environment including ambient air, surface water, ground water or land,
or (c) the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes or the clean-up or other
remediation thereof.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with the regulations from time to time
promulgated with respect thereto.

         "ERISA AFFILIATE" means all members of the group of corporations and
trades or businesses (whether or not incorporated) which, together with
Borrower, are treated as a single employer under Section 414 of the Code.

         "ERISA PLAN" means any pension benefit plan subject to Title IV of
ERISA or Section 412 of the Code maintained or contributed to by Borrower or any
ERISA Affiliate with respect to which Borrower has a fixed or contingent
liability.

         "EURODOLLAR LOAN" means a Loan that bears interest at the Adjusted
Eurodollar Rate.

         "EURODOLLAR RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on the Bloomberg
Eurorate (or, if not available,

                                       6
<PAGE>

any other nationally recognized trading screen reporting on-line trading with
Eurorates) at 10:00 a.m. (Dallas, Texas time) as the Eurorates for deposits in
dollars on that day for the period equal to or next greater than the Interest
Period. In the event such rate ceases to be published, Eurodollar Rate shall
mean a comparable rate of interest reasonably selected by Lender.

         "EVENT OF DEFAULT" means any of the events specified in Section 7.1
hereof, provided that any requirement in connection with such event for the
giving of notice or the lapse of time, or the happening of any further
condition, event or act has been satisfied.

         "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Business Day next
succeeding such day, provided that (a) if the day for which such rate is to be
determined is not a Business Day, the Federal Funds Rate for such day shall be
such rate on such transactions on the next preceding Business Day as so
published on the next succeeding Business Day, and (b) if such rate is not so
published for any day, the Federal Funds Rate for such day shall be the average
rate quoted to Lender on such day on such transactions as determined by Lender.

         "FHA" means the Federal Housing Administration or any successor
thereto.

         "FHLMC" means the Federal Home Loan Mortgage Corporation, or any
successor thereto.

         "FINANCING LEASE" means (i) any lease of Property if the then present
value of the minimum rental commitment thereunder should, in accordance with
GAAP, be capitalized on a balance sheet of the lessee, and (ii) any other lease
obligations which are capitalized on a balance sheet of the lessee.

         "FISCAL QUARTER" means each period of three calendar months ending
March 31, June 30, September 30 and December 31 of each year.

         "FISCAL YEAR" means each period of twelve calendar months ending
December 31 of each year.

         "FNMA" means the Federal National Mortgage Association, or any
successor thereto.

         "FUNDING ACCOUNT" means the non-interest bearing demand checking
account established by Borrower with Lender to be used for (a) the initial
deposit of proceeds of Loans; and (b) the funding or purchase of a Mortgage Note
by Borrower; provided that the Funding Account shall be pledged to Lender and
that Borrower shall not be entitled to withdraw funds from the Funding Account.

                                       7
<PAGE>

         "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor) and which, in the case of Borrower
and its consolidated subsidiaries, are applied for all periods after the date
hereof in a manner consistent with the manner in which such principles and
practices were applied to the financing statements described in Section 4.7. If
any change in any accounting principle or practice is required by the Financial
Accounting Standards Board (or any such successor) in order for such principle
or practice to continue as a generally accepted accounting principle or
practice, all reports and financial statements required hereunder with respect
to Borrower or Parent may be prepared in accordance with such change, but all
calculations and determinations to be made hereunder may be made in accordance
with such change only after notice of such change is given to Lender and Lender
agrees to such change insofar as it affects the accounting of Borrower.

         "GOVERNMENTAL AUTHORITY" means any nation or government, any agency,
department, state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.

         "GOVERNMENTAL REQUIREMENT" means any law, statute, code, ordinance,
order, rule, regulation, judgment, decree, injunction, franchise, permit,
certificate, license, authorization or other direction or requirement
(including, without limitation, any of the foregoing which relate to
environmental standards or controls, energy regulations and occupational, safety
and health standards or controls) of any arbitrator, court or other Governmental
Authority, which exercises jurisdiction over any Related Person or any of its
Property.

         "GUARANTOR" means Parent and any other person who incurs a Guaranty
Obligation with respect to the Obligations.

         "GUARANTY OBLIGATION" of any Person means any contract, agreement or
understanding of such Person pursuant to which such Person guarantees, or in
effect guarantees, any Indebtedness, lease, dividends or other obligations (the
"PRIMARY OBLIGATIONS") of any other Person (the "PRIMARY OBLIGOR") in any
manner, whether directly or indirectly, contingently or absolutely, in whole or
in part, including without limitation agreements:

                  (a) to purchase such Primary Obligation or any property
         constituting direct or indirect security therefor;

                  (b) to advance or supply funds (A) for the purchase or payment
         of any such Primary Obligation, or (B) to maintain working capital or
         other balance sheet conditions of the Primary Obligor or otherwise to
         maintain the net worth or solvency of the Primary Obligor;

                  (c) to purchase property, securities or services primarily for
         the purpose of assuring the owner of any such Primary Obligation of the
         ability of the Primary Obligor to make payment of such Primary
         Obligation; or

                                       8
<PAGE>

                  (d) otherwise to assure or hold harmless the owner of any such
         Primary Obligation against loss in respect thereof;

provided, that "GUARANTY OBLIGATION" shall not include endorsements that are
made in the ordinary course of business of negotiable instruments or documents
for deposit or collection. The amount of any Guaranty Obligation shall be deemed
to be the maximum amount for which the guarantor may be liable pursuant to the
agreement that governs such Guaranty Obligation, unless such maximum amount is
not stated or determinable, in which case the amount of such obligation shall be
the maximum reasonably anticipated liability thereon, as determined by such
guarantor in good faith.

         "INDEBTEDNESS" of any Person at a particular date means the sum
(without duplication) at such date of (a) all indebtedness of such Person for
borrowed money or for the deferred purchase price of property or services or
which is evidenced by a note, bond, debenture, or similar instrument, (b) all
obligations of such Person under any Financing Lease, (c) all obligations of
such Person in respect of letters of credit, acceptances, or similar obligations
issued or created for the account of such Person, (d) all Guaranty Obligations
of such Person, (e) all liabilities secured by any Lien on any property owned by
such Person, whether or not such Person has assumed or otherwise become liable
for the payment thereof, and (f) any liability of such Person in respect of
unfunded vested benefits under an ERISA Plan and (g) all liabilities of such
Person in respect of indemnities or repurchase obligations made in connection
with the sale of Mortgage Loans.

         "INTERCREDITOR AGREEMENT" means that certain Release and Intercreditor
Agreement between Borrower, Lender and First Union National Bank.

         "INTEREST PERIOD" means, with respect to each particular Eurodollar
Loan, a period of 1, 2, or 3 months, as specified in the Borrowing Request
applicable thereto, beginning on and including the date specified in such
Borrowing Request (which must be a Business Day), and ending on but not
including the same day of the month as the day on which it began (e.g., a period
beginning on the third day of one month shall end on but not include the third
day of another month), provided that each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day (unless such next succeeding Business Day is the first Business Day
of a calendar month, in which case such Interest Period shall end on the
immediately preceding Business Day). No Interest Period may be elected which
would extend past the date on which the associated Note is due and payable in
full.

         "INVESTOR" means any Person listed on Exhibit C, as such exhibit may be
updated or supplemented from time to time; provided, however, that Lender shall
deliver a list of all Persons approved as Investors by Lender upon each
amendment of such exhibit by Lender, and a Investor shall be removed from such
list upon the written direction of Lender exercised in its reasonable
discretion.

         JUMBO LOAN" means a Mortgage Loan which has been underwritten in
accordance with the guidelines of an Investor and which would be an Eligible
Mortgage Loan except that the original unpaid principal amount of the underlying
Mortgage Note is greater than $275,000 but does not exceed $650,000.

                                       9
<PAGE>

         "JUMBO SUBLIMIT" means twenty percent (20%) of the Commitment.

         "LAW" means any statute, law, regulation, ordinance, rule, treaty,
judgment, order, decree, permit, concession, franchise, license, agreement or
other governmental restriction of the United States or any state or political
subdivision thereof. Any reference to a Law includes any amendment or
modification to such Law, and all regulations, rulings, and other Laws
promulgated under such Law.

         "LENDER" means Guaranty Bank and its successors and assigns.

         "LIEN" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (whether statutory or otherwise), or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any Financing Lease having substantially the same
economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).

         "LOAN" has the meaning given it in Section 2.1(a).

         "LOAN BALANCE" means for any day, the principal balance of the Loans
outstanding on such day.

         "LOAN DOCUMENT" means any, and "LOAN DOCUMENTS" shall mean all, of this
Agreement, the Note, the Security Instruments, the MERS Agreement, the
Intercreditor Agreement and any and all other agreements or instruments now or
hereafter executed and delivered by Borrower or any other Person in connection
with, or as security for the payment or performance of any or all of the
Obligations, as any of such may be renewed, amended or supplemented from time to
time.

         "MARKET VALUE" on any day shall be determined by Lender, in its
reasonable discretion, based upon (a) information then available to Lender
regarding quotes to dealers for the purchase of mortgage notes similar to the
Mortgage Note that have been delivered to Lender pursuant to this Agreement or
(b) sales prices actually received by Borrower for mortgage notes sold by
Borrower during the immediately preceding thirty (30) day period similar to the
Mortgage Note that have been delivered to Lender pursuant to this Agreement.

         "MATERIAL ADVERSE EFFECT" means any material adverse effect on (a) the
validity or enforceability of this Agreement, the Note or any other Loan
Document, (b) the business, operations, total Property or financial condition of
any Related Person, (c) the collateral under any Security Instrument, or (d) the
ability of any Related Person to fulfill its obligations under this Agreement,
the Note, or any other Loan Document to which it is a party.

                                       10
<PAGE>

         "MAXIMUM RATE" means, with respect to each Lender, the maximum
nonusurious rate of interest that such Lender is permitted under applicable Law
to contract for, take, charge, or receive with respect to its Loans.

         "MERS" means Mortgage Electronic Registration, Inc., a Delaware
corporation, or any successor thereto.

         "MERS AGREEMENT" means those agreements by and among Borrower, Lender,
MERS and MERSCORP, Inc., as amended, modified, supplemented, extended, restated
or replaced from time to time.

         "MERS(R) SYSTEM" means the system of recording transfers of mortgages
electronically maintained by MERS.

         "MIN" means, with respect to each Mortgage Loan, the Mortgage
Identification Number for such Mortgage Loan registered with MERS on the MERS(R)
System.

         "MOM LOAN" means, with respect to any Mortgage Loan, MERS acting as the
mortgagee of such Mortgage Loan, solely as nominee for the originator or
Borrower, as the case may be, of such Mortgage Loan and its successors and
assignees.

         "MORTGAGE" means a mortgage or deed of trust, on standard forms in form
and substance satisfactory to Lender, securing a Mortgage Note and granting a
perfected, first or second priority lien on residential real property consisting
of land and a single-family dwelling thereon which is completed and ready for
occupancy.

         "MORTGAGE ASSIGNMENT" means an instrument duly executed and in
recordable form assigning a Mortgage, in blank and like all intervening
instruments that have been executed with respect to such Mortgage and which is
in form acceptable to Lender and satisfies all Requirements of Law.

         "MORTGAGE COLLATERAL" means all Mortgage Notes (a) which are made
payable to the order of Borrower or have been endorsed (without restriction or
limitation) payable to the order of Borrower, (b) in which Lender has been
granted and continues to hold a perfected first priority security interest, (c)
which are in form and substance acceptable to Lender in its reasonable
discretion, (d) which are secured by Mortgages, and (e) conform in all respects
with all the requirements for purchase of such Mortgage Note under the Take-Out
Commitments and are valid and enforceable in accordance with their respective
terms.

         "MORTGAGE LOAN" means a one-to-eight-family mortgage loan which is
evidenced by a Mortgage Note and secured by a Mortgage, together with the rights
and obligations of a holder thereof and payments thereon and proceeds therefrom.

         "MORTGAGE NOTE" means the note or other evidence of indebtedness
evidencing the indebtedness of an Obligor under a Mortgage Loan.

                                       11
<PAGE>

         "NET WORTH" of any Person means, as of any date, the remainder of all
Consolidated assets of such Person minus such Person's Consolidated liabilities,
each as determined by GAAP.

         "NOTE" means any promissory note delivered by Borrower to Lender
pursuant to Section 2.2 in the form attached hereto as Exhibit A and all
renewals, modifications and extensions thereof.

         "OBLIGATIONS" means all present and future Indebtedness, obligations,
and liabilities of Borrower to Lender, and all renewals and extensions thereof,
or any part thereof, arising pursuant to this Agreement or any other Loan
Document, and all interest accrued thereon, and reasonable attorneys' fees and
other costs incurred in the drafting, negotiation, enforcement or collection
thereof, regardless of whether such Indebtedness, obligations, and liabilities
are direct, indirect, fixed, contingent, joint, several or joint and several.

         "OBLIGOR" means the Person or Persons obligated to pay the Indebtedness
which is the subject of a Mortgage Loan.

         "OPERATING ACCOUNT" means the non-interest bearing demand checking
accounts (whether one or more) established by Borrower with Lender to be used
for Borrower's operations.

         "PARENT" means Engle Homes, Inc., a Florida corporation and owner of
all of the outstanding capital stock of Borrower.

         "PARENT DEBT AGREEMENTS" means (i) that certain Credit Agreement dated
as of November 22, 2000, among Parent, Bank of America, N.A., as agent and
lender and certain financial institutions named therein, as from time to time
supplemented, amended and restated, (ii) those certain Indentures between
Parent, the guarantors party thereto, and American Stock Transfer & Trust
Company, as trustee, pursuant to which Parent issued promissory notes in the
aggregate amount of $250,000,000, as from time to time supplemented, amended and
restated, and (iii) all agreements under which such debt described in clauses
(i) and (ii) above may hereafter be refinanced.

         "PBGC" means the Pension Benefit Guaranty Corporation or any
Governmental Authority succeeding to any of its functions.

         "PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, Governmental Authority, or any other form of
entity.

         "PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.

         "PURCHASE FACILITY" means the Mortgage Loan Purchase and Sale Agreement
of even date herewith between Borrower and Lender.

                                       12
<PAGE>

         "REGULATION D" means Regulation D issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.

         "REGULATION U" means Regulation U issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.

         "REGULATION X" means Regulation X issued by the Board of Governors of
the Federal Reserve System as in effect from time to time.

         "RELATED PERSONS" means Borrower and each of Borrower's Subsidiaries.

         "REPORTABLE EVENT" means (1) a reportable event described in Sections
4043(c)(5) or (6) of ERISA or the regulations promulgated thereunder, or (2) any
other reportable event described in Section 4043(c) of ERISA or the regulations
promulgated thereunder other than a reportable event not subject to the
provision for 30-day notice to the PBGC pursuant to a waiver by the PBGC under
Section 4043(a) of ERISA.

         "REQUIRED MORTGAGE DOCUMENTS" means as to any Mortgage Loan, the items
described on Schedule A to the Security Agreement.

         "REQUIREMENT OF LAW" as to any Person means the charter and by-laws or
other organizational or governing documents of such Person, and any law,
statute, code, ordinance, order, rule, regulation, judgment, decree, injunction,
franchise, permit, certificate, license, authorization or other determination,
direction or requirement (including, without limitation, any of the foregoing
which relate to environmental standards or controls, energy regulations and
occupational, safety and health standards or controls) of any arbitrator, court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its Property or to which such Person or any of its Property is
subject.

         "RESERVE REQUIREMENT" means at any time, the maximum rate at which
reserves (including any marginal, special, supplemental, or emergency reserves)
are required to be maintained under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) by member
banks of the Federal Reserve System against "Eurocurrency liabilities" (as such
term is used in Regulation D). Without limiting the effect of the foregoing, the
Reserve Requirement shall reflect any other reserves required to be maintained
by such member banks with respect to Section 1.2 any category of liabilities
which includes deposits by reference to which the Adjusted Eurodollar Rate is to
be determined, or Section 1.3 any category of extensions of credit or other
assets which include Eurodollar Loans.

         "RISK RATING" means the risk rating of a Mortgage Loan determined by
the applicable standards of an Investor to which such Mortgage Loan is to be
sold by Borrowers under a Take-Out Commitment, provided that such applicable
standards comply with industry standards in the reasonable judgment of Lender.

                                       13
<PAGE>

         "SECOND LIEN LOAN" means an otherwise Eligible Mortgage Loan, except
that such Mortgage Loan is secured by a second priority lien on Property
consisting of a completed one-to-eight unit single family residence, including a
condominium, planned unit development, townhouse or co-op.

         "SECOND LIEN LOAN SUBLIMIT" means twenty percent (20%) of the
Commitment.

         "SECURITY AGREEMENT" means the Security and Collateral Agency Agreement
between Borrower and Lender in the form attached hereto as Exhibit F, as the
same may from time to time be further supplemented, amended or restated.

         "SECURITY INSTRUMENT" means (a) the Security Agreement and (b) such
other executed documents as are or may be necessary to grant to Lender a
perfected first prior and continuing security interest in and to all Mortgage
Collateral, and any and all other agreements or instruments now or hereafter
executed and delivered by Borrower in connection with, or as security for the
payment or performance of, all or any of the Obligations, including Borrower's
obligations under the Note and this Agreement, as such agreements may be
amended, modified or supplemented from time to time.

         "SERVICING AGREEMENTS" means all agreements between the Related Persons
and Persons other than a Related Person pursuant to which Borrower undertakes to
service Mortgage Loans.

         "SERVICING RECORDS" means all contracts and other documents, books,
records and other information (including without limitation, computer programs,
tapes, discs, punch cards, data processing software and related property and
rights) maintained with respect to the Servicing Rights.

         "SERVICING RIGHTS" means all of right, title and interest of any
Related Person in and under the Servicing Agreements, including, without
limitation, the rights of Borrower to income and reimbursement thereunder.

         "SETTLEMENT ACCOUNT" means (i) the non-interest bearing demand deposit
account established by Borrower with Lender to be used for the deposit of
proceeds from the sale of Mortgage Collateral; and (ii) the payment of the
Obligations; provided that (a) the Settlement Account shall be pledged to Lender
for the benefit of Lender, (b) Borrower shall not be entitled to withdraw funds
from the Settlement Account, (c) as long as no Event of Default has occurred and
is continuing, to the extent that the deposit of proceeds from the sale of
Mortgage Loans exceeds the Unit Collateral Value of such Mortgage Loans and any
payments then due and owing under this Agreement or the Note, Lender shall
transfer such excess amount to the Operating Account, and (d) if at any time the
aggregate amount of funds in the Settlement Account is insufficient to pay any
and all payments due and owing under this Agreement or the Note (such amount
being referred to as the "Deficiency"), Lender shall transfer an amount equal to
the Deficiency from the Operating Account to the Settlement Account.

                                       14
<PAGE>

         "SUBMISSION LIST" means a list in the form of Schedule I to the form of
Borrowing Request.

         "SUBPRIME LOAN" means a Mortgage Loan which has a Risk Rating of less
than A.

         "SUBSIDIARY" means, with respect to any Person, any corporation,
association, partnership, joint venture, or other business or corporate entity,
enterprise or organization which is directly or indirectly (through one or more
intermediaries) controlled by or owned fifty percent (50%) or more by such
Person.

         "TAKE-OUT COMMITMENT" means with respect to any Eligible Mortgage Loan,
a written master commitment of an Investor to purchase a pool of Mortgage Loans
under which such Eligible Mortgage Loans will be delivered to such Investor on
terms satisfactory to Lender, in its reasonable discretion.

         "TANGIBLE NET WORTH OF ANY PERSON" means, as of any date, the Net Worth
of such Person minus (a) all Consolidated assets of such Person which would be
classified as intangible assets under GAAP, including but not limited to
goodwill (whether representing the excess cost over book value of assets
acquired or otherwise), patents, trademarks, trade names, copyrights,
franchises, deferred charges, and capitalized servicing rights and (b) all
Indebtedness of such Person owing to its Affiliates.

         "TERMINATION EVENT" means (a) the occurrence with respect to any ERISA
Plan of a Reportable Event, (2) the withdrawal of the Borrower or any ERISA
Affiliate from an ERISA Plan during a plan year in which it was a "substantial
employer," as defined in Section 4001(a)(2) of ERISA, (c) the distribution to
affected parties of a notice of intent to terminate any ERISA Plan or the
treatment of any ERISA Plan amendment as a termination under Section 4041 of
ERISA, (d) the institution of proceedings to terminate any ERISA Plan by the
PBGC under Section 4042 of ERISA, or (5) any other event or condition which
might constitute grounds under Section 4042 of ERISA for the termination of, or
the appointment of a trustee to administer, any ERISA Plan.

         "TOTAL DEBT" of any Person means, as of any date, all amounts which
would be included as liabilities on a balance sheet of such Person as of such
date prepared in accordance with GAAP.

         "TYPE" means with respect to any Loans, the characterization of such
Loans as either Base Rate Loans or Eurodollar Loans.

         "UCC" means the Texas Uniform Commercial Code, as the same may
hereafter be amended.

         "UNIT COLLATERAL VALUE" means on any day with respect to each Eligible
Mortgage Loan included in the Borrowing Base, ninety-eight percent (98%) of the
least of the following:

                                       15
<PAGE>

                  (i) the outstanding principal balance of the Mortgage Note
         constituting such Mortgage Loan;

                  (ii) the actual out-of-pocket cost to Borrower of such
         Mortgage Loan minus the amount of principal paid under such Mortgage
         Loan and delivered to Lender for application to the prepayment of the
         Loans;

                  (iii) the amount at which an Investor has committed to
         purchase the Mortgage Loan pursuant to a Take-Out Commitment not to
         exceed 100% of the original principal balance of the Mortgage Note; or

                  (iv) the Market Value of the Mortgage Note constituting such
         Mortgage Loan.

         "VA" means the Veterans Administration and any successor thereto.

         "WET LOANS" means Eligible Mortgage Loans which are included in the
Borrowing Base, but for which the Required Mortgage Documents have not been
delivered to Lender.

         "WET WAREHOUSING SUBLIMIT" means twenty-five percent (25%) of the
Commitment.

Other Definitional Provisions.

         (a) Unless otherwise specified therein, all terms defined in this
Agreement shall have the above-defined meanings when used in the Note or any
other Loan Document, certificate, report or other document made or delivered
pursuant hereto.

         (b) Each term defined in the singular form in Section 1.1 shall mean
the plural thereof when the plural form of such term is used in this Agreement,
the Note or any other Loan Document, certificate, report or other document made
or delivered pursuant hereto, and each term defined in the plural form in
Section 1.1 shall mean the singular thereof when the singular form of such term
is used herein or therein.

         (c) The words "hereof," "herein," "hereunder" and similar terms when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section, subsection, schedule and
exhibit references herein are references to sections, subsections, schedules and
exhibits to this Agreement unless otherwise specified. The word "or" is not
exclusive, and the word "including" (in its various forms) means "including
without limitation."

         (d) Unless the context otherwise requires or unless otherwise provided
herein the terms defined in this Agreement which refer to a particular
agreement, instrument or document also refer to and include all renewals,
extensions, modifications, amendments and restatements of such agreement,
instrument or document, provided that nothing contained in this section shall be
construed to authorize any such renewal, extension, modification, amendment or
restatement.

                                       16
<PAGE>

         (e) As used herein, in the Note or in any other Loan Document,
certificate, report or other document made or delivered pursuant hereto,
accounting terms relating to any Person and not specifically defined in this
Agreement or therein shall have the respective meanings given to them under
GAAP.

         Section 1.2 Exhibits and Schedules. All Exhibits and Schedules attached
to this Agreement are a part hereof for all purposes.

         Section 1.3 Calculations and Determinations. All calculations under the
Loan Documents of interest and of fees shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of three
hundred sixty (360) days. Each determination by Lender of amounts to be paid
under Sections 2.6 through 2.13 or any other matters which are to be determined
hereunder by Lender (such as any Eurodollar Rate, Adjusted Eurodollar Rate,
Business Day, Interest Period or Reserve Requirement) shall, in the absence of
manifest error, be conclusive and binding. Unless otherwise expressly provided
herein or unless Lender otherwise consents all financial statements and reports
furnished to Lender hereunder shall be prepared and all financial computations
and determinations pursuant hereto shall be made in accordance with GAAP. The
Lender shall deliver to Borrower an interest billing statement for each month on
or before the fifteenth day of the next succeeding month, which interest billing
statement shall set forth the interest accrued on the Loans for such month;
provided that any failure or delay in delivering such interest billing or any
inaccuracy therein shall not affect the Obligations.

                                   ARTICLE II

                            AMOUNT AND TERMS OF LOANS

         Section 2.1 Commitment and Loans. Subject to the terms and conditions
contained in this Agreement, Lender agrees to make loans ("LOANS") to Borrower
on a revolving credit basis from time to time on any Business Day from the date
of this Agreement through the Drawdown Termination Date. The aggregate amount of
all Loans requested in any Borrowing Notice (i) which are Base Rate Loans must
be greater than or equal to $25,000 or the unadvanced portion of the Borrowing
Base, and (ii) which are Eurodollar Loans must be greater than or equal to
$1,000,000 or the unadvanced portion of the Borrowing Base. Borrower may have no
more than four (4) Eurodollar Loans outstanding at any time. After giving effect
to the transactions contemplated by the Borrowing Request pursuant to which a
Loan is requested, and at all other times, the aggregate amount of all Loans
outstanding shall not exceed the Collateral Value of the Borrowing Base.

         Section 2.2 Promissory Note; Interest on the Note. The obligation of
Borrower to repay the Loans made by Lender, together with interest accruing in
connection therewith, shall be evidenced by a Note payable to the order of
Lender. Interest on the Note shall be due and payable as provided herein and
therein. The entire Loan Balance and all accrued and unpaid interest thereon
shall be finally due and payable on the Drawdown Termination Date.

                                       17
<PAGE>

         Section 2.3 Notice and Manner of Obtaining Loans. Borrower must give
written notice, or telephonic notice promptly confirmed in writing, of each
request for Loans. Each such written request or confirmation must be made in
writing in the form and substance of the "Borrowing Request" attached hereto as
Exhibit B, duly completed. Each such Borrowing Request must:

         (a) specify (i) the aggregate amount of any such Borrowing of new Base
Rate Loans and the date on which such Base Rate Loans are to be advanced, or
(ii) the aggregate amount of any such Borrowing of new Eurodollar Loans, the
date on which such Eurodollar Loans are to be advanced (which shall be the first
day of the Interest Period which is to apply thereto), and the length of the
applicable Interest Period; and

         (b) be received by Lender not later than 11:00 a.m., Dallas, Texas,
time, on (i) the day on which any such Base Rate Loans are to be made, or (ii)
the third Business Day preceding the day on which any such Eurodollar Loans are
to be made.

Each such telephonic request shall be deemed a representation, warranty,
acknowledgment and agreement by Borrower as to the matters which are required to
be set out in such written confirmation. If all conditions precedent to such
Loan have been met Lender will on the date requested promptly remit to Borrower
the amount of such Loan in immediately available dollars, by crediting the
Funding Account with immediately available funds as the amount of such Loan.

         Section 2.4 Fees.

         (a) In consideration of Borrower's commitment to make the Loans,
Borrower will pay to Lender a non-refundable commitment fee determined on a
daily basis by applying a rate of ten basis points (0.10%) per annum to the
Commitment on each day during the term of the Loans. This commitment fee shall
be due and payable in advance for each Fiscal Quarter on the fifteenth day of
such Fiscal Quarter.

         (b) Borrower shall pay to Lender, a collateral handling fee in the
amount of $10 for each Mortgage Loan file.

         Section 2.5 Mandatory Repayments. If at any time the Loan Balance
exceeds the Collateral Value of the Borrowing Base, Borrower shall repay the
amount of such excess within two (2) Business Day after written notice thereof
is given by Lender to Borrower.

         Section 2.6 Continuations and Conversions of Existing Loans. Borrower
may make the following elections with respect to Loans already outstanding: to
convert Base Rate Loans to Eurodollar Loans, to convert Eurodollar Loans to Base
Rate Loans on the last day of the Interest Period applicable thereto, and to
continue Eurodollar Loans beyond the expiration of such Interest Period by
designating a new Interest Period to take effect at the time of such expiration.
In making such elections, Borrower may combine existing Loans made pursuant to
separate Borrowings into one new Borrowing or divide existing Loans made
pursuant to one Borrowing into separate new Borrowings, provided that Borrower
may have no more than four Borrowings

                                       18
<PAGE>

of Eurodollar Loans outstanding at any time. To make any such election, Borrower
must give to Lender written notice (or telephonic notice promptly confirmed in
writing) of any such Conversion or Continuation of existing Loans, with a
separate notice given for each new Borrowing. Each such notice constitutes a
"Continuation/Conversion Notice" hereunder and must:

                  (a) specify the existing Loans which are to be Continued or
         Converted;

                  (b) specify (i) the aggregate amount of any Borrowing of Base
         Rate Loans into which such existing Loans are to be continued or
         converted and the date on which such Continuation or Conversion is to
         occur, or (ii) the aggregate amount of any Borrowing of Eurodollar
         Loans into which such existing Loans are to be continued or converted,
         the date on which such Continuation or Conversion is to occur (which
         shall be the first day of the Interest Period which is to apply to such
         Eurodollar Loans), and the length of the applicable Interest Period;
         and

                  (c) be received by Lender not later than 11:00 a.m., Dallas,
         Texas time, on (a) the day on which any such Continuation or Conversion
         to Base Rate Loans is to occur, or (b) the third Business Day preceding
         the day on which any such Continuation or Conversion to Eurodollar
         Loans is to occur.

Each such written request or confirmation must be made in the form and substance
of the "Continuation/Conversion Notice" attached hereto as Exhibit I, duly
completed. Each such telephonic request shall be deemed a representation,
warranty, acknowledgment and agreement by Borrower as to the matters which are
required to be set out in such written confirmation. Each
Continuation/Conversion Notice shall be irrevocable and binding on Borrower.
During the continuance of any Default, Borrower may not make any election to
convert existing Loans into Eurodollar Loans or continue existing Loans as
Eurodollar Loans. If (due to the existence of a Default or for any other reason)
Borrower fails to timely and properly give any Continuation/Conversion Notice
with respect to a Borrowing of existing Eurodollar Loans at least three days
prior to the end of the Interest Period applicable thereto, such Eurodollar
Loans shall automatically be converted into Base Rate Loans at the end of such
Interest Period. No new funds shall be repaid by Borrower or advanced by Lender
in connection with any Continuation or Conversion of existing Loans pursuant to
this section, and no such Continuation or Conversion shall be deemed to be a new
advance of funds for any purpose; such Continuations and Conversions merely
constitute a change in the interest rate applicable to already outstanding
Loans.

         Section 2.7 Payments to Lender. All payments of interest on the Note,
all payments of principal, including any principal payment made with proceeds of
Mortgage Collateral, and fees hereunder shall be made directly to Lender in
federal or other immediately available funds before 1:00 pm (Dallas, Texas time)
on the respective dates when due via wire transfer to the Settlement Account.
Borrower shall send notice to Lender before 1:00 p.m. (Dallas, Texas time) on
the day any payment of principal or interest is received by Lender which sets
forth the Loans against which such payment is to be applied. Any payment (or any
payment received without a notice

                                       19
<PAGE>

regarding application of such payment) received by Lender after such time will
be deemed to have been made on the next following Business Day. Should any such
payment become due and payable on a day other than a Business Day, the maturity
of such payment shall be extended to the next succeeding Business Day, and, in
the case of a payment of principal or past due interest, interest shall accrue
and be payable thereon for the period of such extension as provided in the Loan
Document under which such payment is due. Each payment under a Loan Document
shall be payable at the place provided therein and, if no specific place of
payment is provided, shall be payable at the place of payment of the Note. When
Lender collects or receives money on account of the Obligations, Lender shall
apply all such money so distributed, as follows:

                  (a) first, for the payment of all Obligations which are then
         due, and if such money is insufficient to pay all such Obligations, (i)
         first to any reimbursements due Lender under Section 5.5, (ii) second,
         to the payment of the Loans then due, and (iii) then to the partial
         payment of all other Obligations then due in proportion to the amounts
         thereof, or as Lender shall otherwise agree;

                  (b) then for the prepayment of amounts owing under the Loan
         Documents if so specified by Borrower;

                  (c) then for the prepayment of principal on the Note, together
         with accrued and unpaid interest on the principal so prepaid; and

                  (d) last, for the payment or prepayment of any other
         Obligations.

All payments applied to principal or interest on any Note shall be applied first
to any interest then due and payable, then to principal then due and payable,
and last to any prepayment of principal and interest.

         Section 2.8 Increased Cost and Reduced Return.

         (a) If, after the date hereof, there shall occur any change in any
applicable Law, rule, or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank, or
comparable agency charged with the interpretation or administration thereof, or
compliance by Lender (or its Applicable Lending Office) with any request or
directive issued after the date hereof (whether or not having the force of Law)
of any such governmental authority, central bank, or comparable agency:

                  (i) shall subject Lender (or its Applicable Lending Office) to
         any tax, duty, or other charge with respect to any Eurodollar Loans,
         any Note, or its obligation to make Eurodollar Loans, or change the
         basis of taxation of any amounts payable to Lender (or its Applicable
         Lending Office) under this Agreement or any Note in respect of any
         Eurodollar Loans (other than taxes imposed on the overall net income of
         Lender by the jurisdiction in which Lender has its principal office or
         such Applicable Lending Office);

                                       20
<PAGE>

                  (ii) shall impose, modify, or deem applicable any reserve,
         special deposit, assessment, or similar requirement (other than the
         Reserve Requirement utilized in the determination of the Adjusted
         Eurodollar Rate) relating to any extensions of credit or other assets
         of, or any deposits with or other liabilities or commitments of, Lender
         (or its Applicable Lending Office), including the commitment of Lender
         hereunder; or

                  (iii) shall impose on Lender (or its Applicable Lending
         Office) or the London interbank market any other condition affecting
         this Agreement or any Notes or any of such extensions of credit or
         liabilities or commitments;

and the result of any of the foregoing is to increase the cost to Lender (or its
Applicable Lending Office) of making, converting into, continuing, or
maintaining any Eurodollar Loans or to reduce any sum received or receivable by
Lender (or its Applicable Lending Office) under this Agreement or its Notes with
respect to any Eurodollar Loans, then Borrower shall pay to Lender within
fifteen (15) days after demand by Lender, such amount or amounts as will
compensate Lender for such increased cost or reduction. If Lender requests
compensation by Borrower under this Section 2.8(a), Borrower may, by notice to
Lender, suspend the obligation of Lender to make or continue Loans of the Type
with respect to which such compensation is requested, or to convert Loans of any
other Type into Loans of such Type, until the event or condition giving rise to
such request ceases to be in effect (in which case the provisions of Section
2.11 shall be applicable); provided that such suspension shall not affect the
right of Lender to receive the compensation so requested.

         (b) If, after the date hereof, Lender shall have determined that the
adoption of any applicable Law, rule, or regulation regarding capital adequacy
or any change therein or in the interpretation or administration thereof by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of Law) of any such
governmental authority, central bank, or comparable agency, has or would have
the effect of reducing the rate of return on the capital of Lender or any
corporation controlling Lender, due to the obligations of Lender hereunder, to a
level below that which Lender or such corporation could have achieved but for
such adoption, change, request, or directive (taking into consideration its
policies with respect to capital adequacy), then, within fifteen (15) days after
demand by Lender, Borrower shall pay to Lender such additional amount or amounts
as will compensate Lender for such reduction, but only to the extent that Lender
has not been compensated therefor by any increase in the Adjusted Eurodollar
Rate.

         (c) Lender shall promptly notify Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle Lender to
compensation pursuant to this Section and will designate a different Applicable
Lending Office if such designation will avoid the need for, or reduce the amount
of, such compensation and will not, in the judgment of Lender, be otherwise
disadvantageous to it. In the event that Lender claims compensation under this
Section, Lender shall furnish to Borrower a statement setting forth the
additional amount or amounts to be paid to it hereunder which shall be
conclusive in the absence of manifest error. In

                                       21
<PAGE>

determining such amount, Lender shall act in good faith and may use any
reasonable averaging and attribution methods.

         Section 2.9 Limitation on Types of Loans. If on or prior to the first
day of any Interest Period for any Eurodollar Loan:

         (a) Lender determines (which determination shall be conclusive) that by
reason of circumstances affecting the relevant market, adequate and reasonable
means do not exist for ascertaining the Eurodollar Rate, as the case may be, for
such Interest Period; or

         (b) Lender determines (which determination shall be conclusive) that
the Adjusted Eurodollar Rate will not adequately and fairly reflect the cost to
Lender of funding Eurodollar Loans for such Interest Period;

then Lender shall give Borrower prompt notice thereof specifying the relevant
amounts or periods, and so long as such condition remains in effect, Lender
shall be under no obligation to make additional Loans, continue Eurodollar Loans
or convert Base Rate Loans into Eurodollar Loans, and Borrower shall, on the
last day(s) of the then current Interest Period(s) for the outstanding
Eurodollar Loans, either prepay such Loans or convert such Loans into Base Rate
Loans in accordance with the terms of this Agreement.

         Section 2.10 Illegality. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for Lender or its Applicable
Lending Office to make, maintain, or fund Eurodollar Loans hereunder, then
Lender shall promptly notify Borrower thereof and Lender's obligation to make or
continue Eurodollar Loans and to convert Base Rate Loans into Eurodollar Loans
shall be suspended until such time as Lender may again make, maintain, and fund
Eurodollar Loans (in which case the provisions of Section 1.4 shall be
applicable).

         Section 2.11 Treatment of Affected Loans. If the obligation of Lender
to make a particular Type of Loan or to continue, or to convert Loans of any
other Type into, Loans of a particular Type shall be suspended pursuant to
Sections 2.8, 2.9 and 2.10 hereof (Loans of such Type being herein called
"Affected Loans" and such Type being herein called the "Affected Type"),
Lender's Affected Loans shall be automatically converted into Base Rate Loans on
the last day(s) of the then current Interest Period(s) for Affected Loans (or,
in the case of a Conversion required by Section 2.6 hereof, on such earlier date
as Lender may specify to Borrower) and, unless and until Lender gives notice as
provided below that the circumstances specified in Sections 2.8, 2.9 and 2.10
hereof that gave rise to such Conversion no longer exist:

                  (a) to the extent that Lender's Affected Loans have been so
         converted, all payments and prepayments of principal that would
         otherwise be applied to Lender's Affected Loans shall be applied
         instead to its Base Rate Loans; and

                  (b) all Loans that would otherwise be made or continued by
         Lender as Loans of the Affected Type shall be made or continued instead
         as Base Rate Loans, and all

                                       22
<PAGE>

         Loans of Lender that would otherwise be converted into Loans of the
         Affected Type shall be converted instead into (or shall remain as) Base
         Rate Loans.

         Section 2.12 Compensation. Upon the request of Lender, Borrower shall
pay to Lender such amount or amounts as shall be sufficient (in the reasonable
opinion of Lender) to compensate it for any loss, cost, or expense (including
loss of anticipated profits) incurred by it as a result of:

                  (a) any payment, prepayment, or Conversion of a Eurodollar
         Loan for any reason (including, without limitation, the acceleration of
         the Loans pursuant to Section 7.2) on a date other than the last day of
         the Interest Period for such Loan; or

                  (b) any failure by Borrower for any reason (including, without
         limitation, the failure of any condition precedent specified in Article
         IV hereof to be satisfied) to borrow, convert, continue, or prepay a
         Eurodollar Loan on the date for such borrowing, Conversion,
         Continuation, or prepayment specified in the relevant notice of
         borrowing, prepayment, Continuation, or Conversion under this
         Agreement.

         Section 2.13 Taxes.

         (a) Any and all payments by Borrower to or for the account of Lender
hereunder or under any other Loan Document shall be made free and clear of and
without deduction for any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, taxes imposed on Lender's income, and franchise taxes
imposed on it, by the jurisdiction under the Laws of which Lender (or its
Applicable Lending Office) is organized or any political subdivision thereof
(all such non-excluded taxes, duties, levies, imposts, deductions, charges,
withholdings, and liabilities being hereinafter referred to as "Taxes"). If
Borrower shall be required by Law to deduct any Taxes from or in respect of any
sum payable under this Agreement or any other Loan Document to Lender, (a) the
sum payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this section) Lender receives an amount equal to the sum it would have received
had no such deductions been made, (b) Borrower shall make such deductions, and
(c) Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable Law.

         (b) In addition, Borrower agrees to pay any and all present or future
stamp or documentary taxes and any other excise or property taxes or charges or
similar levies which arise from any payment made under this Agreement or any
other Loan Document or from the execution or delivery of, or otherwise with
respect to, this Agreement or any other Loan Document (hereinafter referred to
as "Other Taxes").

         (c) Borrower agrees to indemnify Lender for the full amount of Taxes
and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
or asserted by any jurisdiction on amounts payable under this section) paid by
Lender and any liability (including penalties, interest, and expenses) arising
therefrom or with respect thereto.

                                       23
<PAGE>

         (d) If Borrower is required to pay additional amounts to or for the
account of Lender pursuant to this Section, then Lender will agree to use
reasonable efforts to change the jurisdiction of its Applicable Lending Office
so as to eliminate or reduce any such additional payment which may thereafter
accrue if such change, in the judgment of Lender, is not otherwise
disadvantageous to Lender and in the event Lender is reimbursed for an amount
paid by Borrower pursuant to this Section 3.7, it shall promptly return such
amount to Borrower.

         (e) Within thirty (30) days after the date of any payment of Taxes,
Borrower shall furnish to Lender the original or a certified copy of a receipt
evidencing such payment.

         (f) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in this
section shall survive the termination of this Agreement and the payment in full
of the Notes.

                                   ARTICLE III

                              CONDITIONS PRECEDENT

         The obligation of Lender to make Loans hereunder is subject to
fulfillment of the conditions precedent stated in this Article III.

         Section 3.1 Initial Loan. The obligation of Lender to fund any Loan
hereunder shall be subject to, in addition to the conditions precedent specified
in Section 3.2, the following terms and conditions:

         (a) Borrower shall have delivered to Lender the following (each of the
following documents being duly executed and delivered and in form and substance
satisfactory to Lender, and, with the exception of the Note, each in a
sufficient number of originals that Lender and its counsel may have an executed
original of each document):

                  (i) an executed counterpart of this Agreement and of all
         instruments, certificates and opinions referred to in this Article III
         not theretofore delivered (except the Borrowing Request which is to be
         delivered at the time provided in Subsection 3.2(a) hereof);

                  (ii) the Note;

                  (iii) the Security Agreement dated of even date herewith;

                  (iv) a certificate of the Secretary or Assistant Secretary of
         Borrower setting forth (i) resolutions of its board of directors
         authorizing the execution, delivery, and performance of the Loan
         Documents to which it is a party and identifying the officers
         authorized to sign such instruments, (ii) specimen signatures of the
         officers so authorized,

                                       24
<PAGE>

         and (iii) articles of incorporation of Borrower certified by the
         appropriate Secretary of State as of a recent date, and (iv) bylaws of
         Borrower, certified as being accurate and complete;

                  (v) a certificate of the existence and good standing for
         Borrower in its state of incorporation dated no earlier than fifteen
         days prior to the date hereof; and

                  (vi) an opinion of counsel for Borrower in the form of Exhibit
         G;

                  (vii) a Borrowing Request and a Borrowing Base Certificate
         dated as of the date of the first Loan, certified by the chief
         financial officer or treasurer of Borrower;

                  (viii) the unlimited Guarantee of Parent;

                  (ix) documents similar to those described as items (iv) and
         (v) above with respect to Guarantor;

                  (x) a duly executed original of the MERS Agreement;

                  (xi) the Intercreditor Agreement;

                  (xii) such other documents as Lender may reasonably request at
         any time at or prior to the date of the initial Loan hereunder.

         (b) No Person, other than Lender and First Union National Bank, shall
be listed in the field designated "interim funder" on the MERS(R) System.

         (c) No Person, other than Lender and First Union National Bank, holds
any mortgage, pledge, lien, security interest or other charge or encumbrance in,
against or to any of the Mortgage Loans.

         (d) Borrower shall have paid all fees and reimbursements to be paid to
Lender pursuant to any Loan Document, or otherwise due Lender and including
reasonable fees and disbursements of Lender's attorneys.

         Section 3.2 All Loans. The obligation of Lender to fund any Loan
pursuant to this Agreement is subject to the following further conditions
precedent:

         (a) Borrowing Request accompanied by a Borrowing Base Certificate dated
as of the date of such Loan, certified by the chief financial officer of
Borrower, and the Required Mortgage Documents for all Eligible Mortgage Loans
other than Wet Loans;

         (b) all other Property in which Borrower has granted a Lien to Lender
shall have been physically delivered to the possession of Lender;

                                       25
<PAGE>

         (c) the representations and warranties of each Related Person contained
in this Agreement or any Security Instrument (other than those representations
and warranties which are by their terms limited to the date of the agreement in
which they are initially made) shall be true and correct in all material
respects on and as of the date of such Loan;

         (d) no Default or Event of Default shall have occurred and be
continuing and no change or event which constitutes a Material Adverse Effect
shall have occurred as of the date of such Loan;

         (e) the Funding Account, the Settlement Account and the Operating
Account shall be established and in existence;

         (f) the making of such Loan shall not be prohibited by any Governmental
Requirement; and

         (g) the delivery to Lender of such other documents and opinions of
counsel, including such documents as may be necessary or desirable to perfect or
maintain the priority of any Lien granted or intended to be granted hereunder or
otherwise and including favorable written opinions of counsel with respect
thereto, as Lender may reasonably request.

Delivery to Lender of a Borrowing Request shall be deemed to constitute a
representation and warranty by Borrower on the date thereof and on the date on
which the Loan is made, if any, set forth therein as to the facts specified in
Subsections (c) and (d) of this Section.

                                   ARTICLE IV

                     BORROWER REPRESENTATIONS AND WARRANTIES

         Borrower represents and warrants as follows:

         Section 4.1 Organization and Good Standing. Each Related Person (a) is
a corporation duly incorporated and existing in good standing under the Laws of
the jurisdiction of its incorporation, (b) is duly qualified as a foreign
corporation and in good standing in all jurisdictions in which its failure to be
so qualified could have a Material Adverse Effect, (c) has the corporate power
and authority to own its properties and assets and to transact the business in
which it is engaged and is or will be qualified in those states wherein it
proposes to transact business in the future and (d) is in compliance with all
Requirements of Law except to the extent that the failure to comply therewith
could not, in the aggregate, have a Material Adverse Effect.

         Section 4.2 Authorization and Power. Each Related Person has the
corporate power and requisite authority to execute, deliver and perform the Loan
Documents to which it is a party; each Related Person is duly authorized to and
has taken all corporate action necessary to authorize it to, execute, deliver
and perform the Loan Documents to which it is a party and is and will continue
to be duly authorized to perform such Loan Documents.

                                       26
<PAGE>

         Section 4.3 No Conflicts or Consents. Neither the execution and
delivery by any Related Person of the Loan Documents to which it is a party, nor
the consummation of any of the transactions herein or therein contemplated, nor
compliance with the terms and provisions hereof or with the terms and provisions
thereof, will (a) materially contravene or conflict with any Requirement of Law
to which any Related Person is subject, or any indenture, mortgage, deed of
trust, or other agreement or instrument to which any Related Person is a party
or by which any Related Person may be bound, or to which the Property of any
Related Person may be subject, or (b) result in the creation or imposition of
any Lien, other than the Lien of the Security Agreement, on the Property of any
Related Person. All actions, approvals, consents, waivers, exemptions,
variances, franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, from any
Governmental Authority that are necessary in connection with the transactions
contemplated by the Loan Documents have been obtained.

         Section 4.4 Enforceable Obligations. This Agreement, the Note, and the
other Loan Documents to which any Related Person is a party are the legal, valid
and binding obligations of such Related Person, enforceable in accordance with
their respective terms, except as limited by Debtor Laws.

         Section 4.5 Priority of Liens. Upon delivery to Lender of each
Borrowing Request, Lender shall have valid, enforceable, perfected, first
priority Liens and security interests in each Mortgage Note identified therein.

         Section 4.6 No Liens. Borrower has good and indefeasible title to the
Mortgage Collateral free and clear of all Liens and other adverse claims of any
nature, except for ad valorem taxes and assessments not yet due and payable and
Liens in the Mortgage Collateral in favor of Lender.

         Section 4.7 Financial Condition of Borrower. Borrower has delivered to
Lender copies of its annual audited balance sheet as of October 31, 2000, and
the related statements of income, stockholders' equity and cash flows for the
period ended such date; such financial statements fairly present the financial
condition of Borrower as of such date and the results of operations of Borrower
for the period ended on such date and have been prepared in accordance with
GAAP, subject to normal year-end adjustments; as of the date thereof, there were
no obligations, liabilities or Indebtedness (including material contingent and
indirect liabilities and obligations or unusual forward or long-term
commitments) of Borrower which are not reflected in such financial statements
and no change which constitutes a Material Adverse Effect has occurred in the
financial condition or business of Borrower since October 31, 2000. Borrower has
also delivered to Lender its unaudited quarterly balance sheet for the period
ending May 31, 2001 and management reports for May 31, 2001; such reports fairly
and accurately present Borrower's commitment position, pipeline position,
servicing and production as of the end of such months and for the fiscal year to
date for the periods ending on such dates.

         Section 4.8 Full Disclosure. There is no material fact that Borrower
has not disclosed to Lender which could adversely affect the properties,
business, prospects or condition (financial

                                       27
<PAGE>

or otherwise) of the Related Persons, or could adversely affect the Mortgage
Collateral or the Servicing Rights. To the knowledge of Borrower, none of (i)
the financial statements referred to in Section 4.7 hereof, (ii) any Borrowing
Request or officer's certificate, or (iii) any statement delivered by any
Related Person to Lender in connection with this Agreement, contains any untrue
statement of material fact.

         Section 4.9 No Default. No Related Person is in default under any loan
agreement, mortgage, security agreement or other material agreement or
obligation to which it is a party or by which any of its Property is bound.

         Section 4.10 No Litigation. There are no material actions, suits or
legal, equitable, arbitration or administrative proceedings pending, or to the
knowledge of Borrower threatened, against any Related Person the adverse
determination of which could constitute a Material Adverse Effect.

         Section 4.11 Taxes. All tax returns required to be filed by each
Related Person in any jurisdiction have been filed and all taxes, assessments,
fees and other governmental charges upon each Related Person or upon any of its
properties, income or franchises have been paid prior to the time that such
taxes could give rise to a Lien thereon, unless protested in good faith by
appropriate proceedings and with respect to which reserves in conformity with
GAAP have been established on the books of such Related Person. No Related
Person has any knowledge of any proposed tax assessment against any Related
Person.

         Section 4.12 Principal Office, etc. The principal office, chief
executive office and principal place of business of each Related Person is at
the address set forth in Section 10.1.

         Section 4.13 Compliance with ERISA. No Related Person currently
maintains, contributes to, is required to contribute to or has any liability,
whether absolute or contingent, with respect to an ERISA Plan. With respect to
all other employee benefit plans maintained or contributed to by each Related
Person, each Related Person is in material compliance with ERISA.

         Section 4.14 Subsidiaries. No Related Person presently has any
Subsidiary or owns any stock in any other corporation or association except
those listed in Exhibit D. As of the date hereof, each Related Person owns,
directly or indirectly, the equity interest in each of its Subsidiaries which is
indicated in such exhibit.

         Section 4.15 Indebtedness. No Related Person has any indebtedness
outstanding other than the Indebtedness permitted by Section 6.2.

         Section 4.16 Permits, Patents, Trademarks, etc.

         (a) Each Related Person has all permits and licenses necessary for the
operation of its business.

                                       28
<PAGE>

         (b) Each Related Person owns or possesses (or is licensed or otherwise
has the necessary right to use) all patents, trademarks, service marks, trade
names and copyrights, technology, know-how and processes, and all rights with
respect to the foregoing, which are necessary for the operation of its business,
without any known material conflict with the rights of others. The consummation
of the transactions contemplated hereby will not alter or impair in any material
respect any of such rights of each Related Person.

         Section 4.17 Status Under Certain Federal Statutes. No Related Person
is (a) a "holding company" or a "subsidiary company" of a "holding company" or
an "affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, (b) a "public utility," as such term is defined in the Federal
Power Act, as amended, (c) an "investment company," or a company "controlled" by
an "investment company," within the meaning of the Investment Company Act of
1949, as amended or (d) a "rail carrier," or a "person controlled by or
affiliated with a rail carrier," within the meaning of Title 49, U.S.C., and no
Related Person is a "carrier" to which 49 U.S.C. Section 11301(b)(1) is
applicable.

         Section 4.18 Securities Act. No Related Person has issued any
unregistered securities in violation of the registration requirements of the
Securities Act of 1933, as amended, or of any other Requirement of Law, and is
not violating any rule, regulation, or requirement under the Securities Act of
1933, as amended, or the Securities and Exchange Act of 1934, as amended. No
Related Person is required to qualify an indenture under the Trust Indenture Act
of 1939, as amended, in connection with its execution and delivery of the Note.

         Section 4.19 No Approvals Required. Other than consents and approvals
previously obtained and actions previously taken, neither the execution and
delivery of this Agreement, the Note and the other Loan Documents to which any
Related Person is a party, nor the consummation of any of the transactions
contemplated hereby or thereby requires the consent or approval of, the giving
of notice to, or the registration, recording or filing by any Related Person of
any document with, or the taking of any other action in respect of, any
Governmental Authority which has jurisdiction over each Related Person or any of
its Property, except for (a) the filing of the Uniform Commercial Code financing
statements and other similar filings to perfect the interest of Lender in the
Collateral, and (b) such other consents, approvals, notices, registrations,
filings or action as may be required in the ordinary course of business of the
Related Persons in connection with the performance of the obligations of the
Related Persons hereunder.

         Section 4.20 Survival of Representations. All representations and
warranties by Borrower herein shall survive delivery of the Note and the funding
of the Loans, and any investigation at any time made by or on behalf of Lender
shall not diminish the right of Lender to rely thereon.

         Section 4.21 Individual Mortgage Loans. Borrower hereby represents with
respect to each Mortgage Note and Mortgage Loan that is part of the Collateral:

                                       29
<PAGE>

         (a) Borrower has good and marketable title to each Mortgage Note and
Mortgage, was the sole owner thereof and had full right to pledge the Mortgage
Loan to Lender free and clear of any other Lien;

         (b) To the knowledge of Borrower, there is no default, breach,
violation or event of acceleration existing under any Mortgage or the related
Mortgage Note and there is no event which, with the passage of time or with
notice and/or the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration and no such default, breach,
violation or event of acceleration has been waived;

         (c) To the knowledge of Borrower, the physical condition of the
Property subject to the Mortgage has not deteriorated since the date of
origination of the related secured Mortgage Loan (normal wear and tear excepted)
and there is no proceeding pending for the total or partial condemnation of any
Mortgaged Property;

         (d) Each Mortgage contains customary and enforceable provisions such as
to render the rights and remedies of the holder thereof adequate for the
realization against the related Property subject to the Mortgage of the benefits
of the security provided thereby, including, (i) in the case of a Mortgage
designated as a deed of trust, by trustee's sale, and (ii) otherwise, by
judicial foreclosure;

         (e) Each Mortgage Loan is a first lien or second lien
one-to-eight-family loan, and has been underwritten by the originator thereof in
accordance with such originator's then current underwriting guidelines; provided
that the aggregate amount of Second Lien Loans does not exceed the Second Lien
Sublimit;

         (f) Each Mortgage Note is payable in monthly installments of principal
and interest, with interest payable in arrears, and requires a monthly payment
which is sufficient to amortize the original principal balance over the original
term and to pay interest at the related interest rate; and no Mortgage Note
provides for any extension of the original term;

         (g) No Mortgage Loan is a loan in respect of either the purchase of a
manufactured home or mobile home or the purchase of the land on which a
manufactured home or mobile home will be placed;

         (h) The origination practices used by the originator of the Mortgage
Loans and the collection practices used by the Borrower with respect to each
Mortgage Loan have been in all material respects legal, proper, prudent and
customary in the loan origination and servicing business;

         (i) Each Mortgage Loan was originated in compliance with all applicable
Laws and no fraud or misrepresentation was committed by any Person in connection
therewith;

         (j) Each Mortgage Loan matures within thirty (30) years after the date
of origination thereof.

                                       30
<PAGE>

         Section 4.22 Environmental Matters. In the ordinary course of each
Related Person's business, the officers and managers of each Related Person
consider the effect of Environmental Laws on the business of such Related
Person, in the course of which they identify and evaluate potential risks and
liabilities accruing to such Related Person due to Environmental Laws. On the
basis of this consideration, each Related Person has reasonably concluded that
neither violation of nor compliance with Environmental Laws can reasonably be
expected to have a Material Adverse Effect on the business or financial
condition of such Related Person or on the ability of Borrower to perform the
Obligations. No Related Person has received any notice to the effect that its
operations are not in material compliance with any of the requirements of
applicable Environmental Laws or are the subject of any federal or state
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment, which
non-compliance or remedial action could reasonably be expected to have a
Material Adverse Effect on the business or financial condition of the Related
Persons, taken as a whole, or on the ability of Borrower to perform the
Obligations.

                                    ARTICLE V

                              AFFIRMATIVE COVENANTS

         Each Related Person shall at all times comply with the covenants
contained in this Article V, from the date hereof and for so long as any part of
the Obligations or the Commitment is outstanding unless Lender has agreed
otherwise.

         Section 5.1 Financial Statements and Reports.

         (a) Borrower shall furnish to Lender the following, all in form and
detail reasonably satisfactory to Lender.

                  (i) Promptly after becoming available, and in any event within
         ninety (90) days after the close of each Fiscal Year, Borrower's
         Consolidated balance sheet as of the end of such Fiscal Year, and the
         related Consolidated statements of income, stockholders' equity and
         cash flows of Borrower for such Fiscal Year, setting forth in each case
         in comparative form the corresponding figures for the preceding Fiscal
         Year, such financial statements shall be unqualified and shall be
         accompanied by the related report of independent certified public
         accountants acceptable to Lender which report shall be to the effect
         that such statements have been prepared in accordance with GAAP applied
         on a basis consistent with prior periods except for such changes in
         such principles with which the independent public accountants shall
         have concurred;

                  (ii) Promptly after becoming available, and in any event
         within ninety (90) days after the close of each Fiscal Year, Parent's
         Consolidated and consolidating balance sheet as of the end of such
         Fiscal Year, and the related Consolidated and consolidating statements
         of income, stockholders' equity and cash flows of Parent for such
         Fiscal Year, setting forth in each case in comparative form the
         corresponding figures for the preceding

                                       31
<PAGE>

         Fiscal Year, such financial statements shall be unqualified and shall
         be accompanied by the related report of independent certified public
         accountants acceptable to Lender which report shall be to the effect
         that such statements have been prepared in accordance with GAAP applied
         on a basis consistent with prior periods except for such changes in
         such principles with which the independent public accountants shall
         have concurred;

                  (iii) Promptly after becoming available, and in any event
         within fifteen (15) days after the end of each calendar month,
         including the twelfth calendar month in each Fiscal Year, a
         Consolidated balance sheet of Borrower as of the end of such month and
         the related Consolidated statements of income and stockholders' equity
         of Borrower for such month and the period from the first day of the
         then current Fiscal Year through the end of such month, certified by
         the chief financial officer or other executive officer of Borrower to
         have been prepared in accordance with GAAP applied on a basis
         consistent with prior periods;

                  (iv) Promptly after becoming available, and in any event
         within forty-five (45) days after the end of each calendar month,
         including the twelfth calendar month in each Fiscal Year, a
         Consolidated and consolidating balance sheet of Parent as of the end of
         such month and the related Consolidated and consolidating statements of
         income, stockholders' equity and cash flows of Parent for such month
         and the period from the first day of the then current Fiscal Year
         through the end of such month, certified by the chief financial officer
         or other executive officer of Parent to have been prepared in
         accordance with GAAP applied on a basis consistent with prior periods;

                  (v) Promptly and in any event within forty-five (45) days
         after the end of each calendar month in each Fiscal Year of Borrower
         (except the last), and within fifteen (15) days after the completion of
         each year-end audit by Borrower's independent public accountants, a
         completed Officer's Certificate in the form of Exhibit E hereto,
         executed by the president or chief financial officer of Borrower;

                  (vi) Promptly and in any event within forty-five (45) days
         after the end of each calendar month, a management report in form
         acceptable to Lender including, without limitation detail on Borrower's
         pipeline position, commitment position, repurchase requests by
         investors and production statistics;

                  (vii) With each Borrowing Notice and in any event within
         thirty (30) days after the end of each calendar month, a Borrowing Base
         Certificate;

                  (viii) Promptly upon receipt thereof, a copy of each other
         report submitted to Borrower by independent accountants in connection
         with any annual, interim or special audit of the books of Borrower; and

                  (ix) such other information concerning the business,
         properties or financial condition of any Related Person as Lender may
         reasonably request.

                                       32
<PAGE>

         Section 5.2 Taxes and Other Liens. Each Related Person shall pay and
discharge promptly all taxes, assessments and governmental charges or levies
imposed upon it or upon its income or upon any of its Property as well as all
claims of any kind (including claims for labor, materials, supplies and rent)
which, if unpaid, might become a Lien upon any or all of its Property; provided,
however, each Related Person shall not be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
diligently conducted by or on behalf of such Related Person and if such Related
Person shall have set up reserves therefor adequate under GAAP.

         Section 5.3 Maintenance. Each Related Person shall (a) maintain its
corporate existence, rights and franchises; (b) observe and comply in all
material respects with all Governmental Requirements, and (c) maintain its
Properties (and any Properties leased by or consigned to it or held under title
retention or conditional sales contracts) in good and workable condition at all
times and make all repairs, replacements, additions, betterments and
improvements to its Properties as are needed and proper so that the business
carried on in connection therewith may be conducted properly and efficiently at
all times. Borrower shall maintain good standing as an approved seller and
servicer for FNMA and FHLMC and as an approved lender with FHA, VA and HUD.

         Section 5.4 Further Assurances. Borrower shall, within three (3)
Business Days after the request of Lender, cure any defects in the execution and
delivery of the Note, this Agreement or any other Loan Document and each Related
Person shall, at its expense, promptly execute and deliver to Lender upon
request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements of each
Related Person in this Agreement and in the other Loan Documents or to further
evidence and more fully describe the collateral intended as security for the
Note, or to correct any omissions in this Agreement or the other Loan Documents,
or more fully to state the security for the obligations set out herein or in any
of the other Loan Documents, or to make any recordings, to file any notices, or
obtain any consents.

         Section 5.5 Reimbursement of Expenses. Borrower shall pay (a) all
reasonable legal fees (including, without limitation, allocated costs for
in-house legal service) incurred by Lender in connection with the preparation,
negotiation, syndication, execution and delivery of this Agreement, the Note and
the other Loan Documents and any amendments, consents or waivers executed in
connection therewith, (b) all fees, charges or taxes for the recording or filing
of the Security Instruments, (c) all reasonable out-of-pocket expenses of Lender
in connection with the administration of this Agreement, the Note and the other
Loan Documents, including courier expenses incurred in connection with the
Mortgage Collateral, (d) all amounts expended, advanced or incurred by Lender to
satisfy any obligation of Borrower under this Agreement or any of the other Loan
Documents or to collect the Note, or to protect, preserve, exercise or enforce
the rights of Lender under this Agreement or any of the other Loan Documents or
to collect the Note, or to protect, preserve, exercise or enforce the rights of
Lender or any Lender under this Agreement or any of the other Loan Documents,
(e) all reasonable out-of-pocket costs and expenses (including fees and
disbursements of attorneys and other experts employed or

                                       33
<PAGE>

retained by such Person) incurred in connection with, arising out of, or in any
way related to (i) consulting during a Default with respect to (A) the
protection, preservation, exercise or enforcement of any of its rights in, under
or related to the Collateral or the Loan Documents or (B) the performance of any
of its obligations under or related to the Loan Documents, or (ii) protecting,
preserving, exercising or enforcing during a Default any of its rights in, under
or related to the Collateral or the Loan Documents, each of (a) through (e)
shall include all underwriting expenses, collateral liquidation costs, court
costs, attorneys' fees (including, without limitation, for trial, appeal or
other proceedings), fees of auditors and accountants, and investigation expenses
reasonably incurred by Lender in connection with any such matters, together with
interest at the post-maturity rate specified in the Note on each item specified
in clause (a) through (e) from thirty (30) days after the date of written demand
or request for reimbursement until the date of reimbursement.

         Section 5.6 Insurance. Borrower shall maintain with financially sound
and reputable insurers, insurance with respect to its Properties and business
against such liabilities, casualties, risks and contingencies and in such types
and amounts as is customary in the case of Persons engaged in the same or
similar businesses and similarly situated, including, without limitation, a
fidelity bond or bonds with financially sound and reputable insurers with such
coverage and in such amounts as is customary in the case of Persons engaged in
the same or similar businesses and similarly situated. The improvements on the
land covered by each Mortgage shall be kept continuously insured at all times by
responsible insurance companies against fire and extended coverage hazards under
policies, binders, letters, or certificates of insurance, with a standard
mortgagee clause in favor of Borrower and its assigns. Each such policy must be
in an amount equal to the lesser of the maximum insurable value of the
improvements or the original principal amount of the Mortgage Note, without
reduction by reason of any co-insurance, reduced rate contribution, or similar
clause of the policies or binders. Upon request of Lender, Borrower shall
furnish or cause to be furnished to Lender from time to time a summary of the
insurance coverage of Borrower in form and substance satisfactory to Lender and
if requested shall furnish Lender copies of the applicable policies.

         Section 5.7 Accounts and Records; Servicing Records. Each Related
Person shall keep books of record and account in which full, true and correct
entries will be made of all dealings or transactions in relation to its business
and activities, in accordance with GAAP. Each Related Person shall maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate all records pertaining to the performance of
such Related Person's obligations under the Servicing Agreements in the event of
the destruction of the originals of such records) and keep and maintain all
documents, books, records, computer tapes and other information reasonably
necessary or advisable for the performance by each Related Person of its
obligations under the Servicing Agreements.

         Section 5.8 Right of Inspection. Each Related Person shall permit
authorized representatives of Lender to discuss the business, operations, assets
and financial condition of such Related Person with their officers and
employees, to examine their Servicing Records and books of records and account
and make copies or extracts thereof and to visit and inspect any of the
Properties of each Related Person, all at such reasonable times and as often as
Lender may

                                       34
<PAGE>

request. Each Related Person will provide its accountants with a copy of this
Agreement promptly after the execution hereof and will instruct its accountants
to answer candidly any and all questions that the officers of Lender or any
authorized representatives of Lender may address to them in reference to the
financial condition or affairs of any Related Person as those conditions or
affairs relate to this Agreement. Each Related Person may have its
representatives in attendance at any meetings between the officers or other
representatives of Lender and such Related Person's accountants held in
accordance with this authorization.

         Section 5.9 Notice of Certain Events. Borrower shall promptly notify
Lender upon (a) the receipt of any notice from, or the taking of any other
action by, the holder of any promissory note, debenture or other evidence of
Indebtedness of any Related Person with respect to a claimed default, together
with a detailed statement by a responsible officer of Borrower specifying the
notice given or other action taken by such holder and the nature of the claimed
default and what action Borrower is taking or proposes to take with respect
thereto; (b) the commencement of, or any determination in, any legal, judicial
or regulatory proceedings between any Related Person and any Governmental
Authority or any other Person which, if adversely determined, could have a
Material Adverse Effect; (c) any change in senior management of Borrower; (d)
any material adverse change in the business, operations, prospects or financial
condition of any Related Person, including, without limitation, the insolvency
of any Related Person, (e) any event or condition which, if adversely
determined, could have a Material Adverse Effect or (f) the occurrence of any
Termination Event.

         Section 5.10 Performance of Certain Obligations and Information
Regarding Investors. Borrower shall perform and observe in all material respects
each of the provisions of each Take-Out Commitment and each of the Servicing
Agreements on its part to be performed or observed and will cause all things to
be done which are necessary to have each item of Mortgage Collateral covered by
a Take-Out Commitment comply with the requirements of such Take-Out Commitment.
Upon request by Lender, Borrower will deliver to Lender financial information
concerning any Person Lender is reviewing to determine whether to approve such
Person as an Investor; all such financial information must be delivered to
Lender prior to any request by Borrower for Mortgage Collateral to be delivered
to such Person.

         Section 5.11 Use of Proceeds; Margin Stock. The proceeds of all Loans
shall be used by Borrower solely for the origination and purchase of Eligible
Mortgage Loans pending sale to an Investor. None of such proceeds shall be used
for the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U, or for the purpose of reducing or retiring any Indebtedness which
was originally incurred to purchase or carry margin stock or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of such Regulation U. Neither Borrower nor any Person acting on behalf
of Borrower shall take any action in violation of Regulation U or Regulation X
or shall violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.

         Section 5.12 Notice of Default. Borrower shall furnish to Lender
immediately upon becoming aware of the existence of any Default or Event of
Default, a written notice specifying

                                       35
<PAGE>

the nature and period of existence thereof and the action which Borrower is
taking or proposes to take with respect thereto.

         Section 5.13 Compliance with Loan Documents. Each Related Person shall
promptly comply with any and all covenants and provisions of this Agreement the
Note and the other Loan Documents to be complied with by such Related Person.

         Section 5.14 Operations and Properties. Each Related Person shall
comply with all rules, regulations and guidelines applicable to it. Borrower
shall act prudently and in accordance with customary industry standards in
managing and operating its Property.

         Section 5.15 Environmental Matters.

         (a) Each Related Person will comply in all material respects with all
Environmental Laws now or hereafter applicable to such Related Person and shall
obtain, at or prior to the time required by applicable Environmental Laws, all
environmental, health and safety permits, licenses and other authorizations
necessary for its operations and will maintain such authorizations in full force
and effect.

         (b) Borrower will promptly furnish to Lender all written notices of
violation, orders, claims, citations, complaints, penalty assessments, suits or
other proceedings received by Borrower, or of which it has notice, pending or
threatened against Borrower, by any governmental authority with respect to any
alleged violation of or non-compliance with any Environmental Laws or any
permits, licenses or authorizations in connection with its ownership or use of
its properties or the operation of its business.

                                   ARTICLE VI

                               NEGATIVE COVENANTS

         Each Related Person shall at all times comply with the covenants
contained in this Article VI, from the date hereof and for so long as any part
of the Obligations or the Commitment is outstanding unless Lender has agreed
otherwise:

         Section 6.1 No Merger; Limitation on Issuance of Securities. Neither
Parent nor any Related Person shall merge or consolidate with or into any Person
except that Parent may merge or consolidate with Newmark Homes Corp. No Related
Person shall acquire by purchase, or otherwise, all or substantially all of the
assets or capital stock of any Person. Borrower will not issue any securities
other than shares of its common stock and any options or warrants giving the
holders thereof only the right to acquire such shares. No Subsidiary of Borrower
will issue any additional shares of its capital stock or other securities or any
options, warrants or other rights to acquire such additional shares or other
securities except to Borrower and only to the extent not otherwise forbidden
under the terms hereof. No Subsidiary of Borrower which is a partnership will
allow any diminution of Borrower's interest (direct or indirect) therein.

                                       36
<PAGE>

         Section 6.2 Limitation on Indebtedness. No Related Person shall incur,
create, contract, assume, have outstanding, guarantee or otherwise be or become,
directly or indirectly, liable in respect of any Indebtedness or Guaranty
Obligations except:

         (a) the Obligations;

         (b) trade debt, equipment leases, equipment loans and liens for taxes
and assessments not yet due and payable owed in the ordinary course of business;
and

         (c) unsecured Guaranty Obligations of Borrower with respect to
Indebtedness arising under the Parent Debt Agreements.

         (d) Indebtedness of the Related Persons under agreements and in the
amount described on the Disclosure Schedule.

         Section 6.3 Fiscal Year, Method of Accounting. Neither Parent nor any
Related Person shall change its Fiscal Year or make any material change in its
method of accounting.

         Section 6.4 Business. No Related Person shall, directly or indirectly,
engage in any business which differs materially from that currently engaged in
by Borrower.

         Section 6.5 Liquidations, Consolidations and Dispositions of
Substantial Assets. No Related Person shall dissolve or liquidate or sell,
transfer, lease or otherwise dispose of any material portion of their property
or assets or business; provided, however, nothing in this Section 6.5 shall be
construed to prohibit any Related Person from selling rights to service mortgage
loans and pools of mortgage loans or Mortgage Note in the ordinary course of
their business.

         Section 6.6 Loans, Advances, and Investments. No Related Person shall
make any loan (other than Mortgage Loans), advance, or capital contribution to,
or investment in (including any investment in any Subsidiary, joint venture or
partnership), or purchase or otherwise acquire any of the capital stock,
securities, or evidences of indebtedness of, any Person (collectively,
"INVESTMENT"), or otherwise acquire any interest in, or control of, another
Person, except for the following:

         (a) Cash Equivalents;

         (b) Any acquisition of securities or evidences of indebtedness of
others when acquired by a Related Person in settlement of accounts receivable or
other debts arising in the ordinary course of its business, so long as the
aggregate amount of any such securities or evidences of indebtedness is not
material to the business or condition (financial or otherwise) of such Related
Person; and

                                       37
<PAGE>

         (c) Mortgage Notes acquired by Borrower in the ordinary course of
Borrower's business.

         (d) Investments in Subsidiaries which are Guarantors.

         (e) Loans to Parent.

         Section 6.7 Use of Proceeds. Borrower shall not permit the proceeds of
the Loans to be used for any purpose other than those permitted by Section 5.11
hereof. Borrower shall not, directly or indirectly, use any of the proceeds of
the Loans for the purpose, whether immediate, incidental or ultimate, of buying
any "margin stock" or of maintaining, reducing or retiring any Indebtedness
originally incurred to purchase a stock that is currently any "margin stock," or
for any other purpose which might constitute this transaction a "purpose
credit," in each case within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 C.F.R. 207, as amended), or
Regulation U, or otherwise take or permit to be taken any action which would
involve a violation of such Regulation G or Regulation U or of Regulation T (12
C.F.R. 220, as amended) or Regulation X (12 C.F.R. 224, as amended) or any other
regulation of such board.

         Section 6.8 Actions with Respect to Mortgage Collateral. Borrower shall
not:

         (a) Compromise, extend, release, or adjust payments on any Mortgage
Collateral, accept a conveyance of mortgaged property in full or partial
satisfaction of any Mortgage Collateral, or release any Mortgage securing or
underlying any Mortgage Collateral;

         (b) Agree to the amendment or termination of any Take-Out Commitment in
which Lender has a security interest or to substitution of a Take-Out Commitment
for a Take-Out Commitment in which Lender has a security interest hereunder, if
such amendment, termination or substitution may reasonably be expected (as
determined by Lender in its sole discretion) to have a Material Adverse Effect;

         (c) Transfer, sell, assign, or deliver any Mortgage Collateral pledged
to Lender to any Person other than Lender, except pursuant to a Take-Out
Commitment; or

         (d) Grant, create, incur, permit or suffer to exist any Lien upon any
Mortgage Collateral except for Liens granted to Lender to secure the Note and
Obligations and such non-consensual Liens as may be deemed to arise as a matter
of law pursuant to any Take-Out Commitment.

         Section 6.9 Transactions with Affiliates. Borrower shall not enter into
any transactions including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transactions are otherwise permitted under this Agreement, are in the
ordinary course of Borrower's business and are upon fair and reasonable terms no
less favorable to Borrower than it would obtain in a comparable arm's length
transaction with a Person not an Affiliate.

                                       38
<PAGE>

         Section 6.10 Liens. No Related Person shall grant, create, incur,
assume, permit or suffer to exist any Lien, upon any of its Property, including
without limitation any and all of Borrower's Mortgage Note, and Servicing Rights
and the proceeds from any thereof, other than (a) Liens which secure payment of
the Obligations, (b) first Liens on Property subject to Second Lien Mortgages,
so long as the aggregate amount of the Mortgage Notes secured thereby does not
exceed the Second Mortgage Sublimit, (c) to the extent not otherwise prohibited
hereunder, Liens which secure payment of the Indebtedness described in Section
6.2(b) or Section 6.2(d) on Property other than Collateral, (d) statutory liens
for taxes, assessments or other governmental charges or levies which are not yet
delinquent or which are being contested in good faith by appropriate action and
for which adequate reserves have been maintained in accordance with GAAP on
Property other than Collateral, and (e) landlords', operators', carriers',
warehousemen's, repairmen's, mechanics', materialmen's, or other like Liens
which do not secure Indebtedness, in each case only to the extent arising in the
ordinary course of business and only to the extent securing obligations which
are not delinquent or which are being contested in good faith by appropriate
proceedings and for which adequate reserves have been maintained in accordance
with GAAP on Property other than Collateral.

         Section 6.11 ERISA Plans. No Related Person shall adopt or agree to
maintain or contribute to any ERISA Plan. Borrower shall promptly notify Lender
in writing in the event an ERISA Affiliate adopts an ERISA Plan.

         Section 6.12 Change of Principal Office. No Related Person shall move
its principal office, executive office or principal place of business from the
address set forth in Section 10.1 without giving written notice to Lender within
ten (10) Business Days after the date of such move.

         Section 6.13 Tangible Net Worth. As of the end of each calendar month,
the Consolidated Tangible Net Worth of Borrower shall not be less than
$5,000,000.

         Section 6.14 Total Debt to Tangible Net Worth Ratio. The ratio of the
Consolidated Total Debt of Borrower to the Consolidated Tangible Net Worth of
Borrower shall never be more than 10.0 to 1.0.

         Section 6.15 Profitability. As of the end of each Fiscal Quarter,
Borrower's Consolidated net income for such Fiscal Quarter shall be a positive
number equal to or greater than $1.

                                       39
<PAGE>

                                   ARTICLE VII

                                EVENTS OF DEFAULT

         Section 7.1 Nature of Event. An Event of Default shall exist if any one
or more of the following occurs:

         (a) Borrower or any Guarantor fails to make any payment of principal of
or interest on the Note, or payment of any fee, expense or other amount due
hereunder, under the Note, or under any other Loan Document, on or before the
date such payment is due;

         (b) Default is made in the due observance or performance by any Related
Person of any covenant set forth in Article V of this Agreement (other than
Section 5.9) and such Default continues for a period of thirty (30) days after
Lender gives Borrower notice thereof;

         (c) Default is made in the due observance or performance by any Related
Person of any of the covenants or agreements contained in this Agreement other
than those described in subsections (a) or (b) immediately above;

         (d) Any Related Person or any Guarantor defaults in the due observance
or performance or any of the covenants or agreements contained in any other Loan
Document to which it is a party, and (unless such default otherwise constitutes
a Default pursuant to other provisions of this Section 7.1) such default
continues unremedied beyond the expiration of any applicable grace period which
may be expressly allowed under such other Loan Document;

         (e) Any material statement, warranty or representation by or on behalf
of any Related Person or any Guarantor contained in this Agreement, the Note or
any other Loan Document to which it is a party, or in any Borrowing Request,
officer's certificate or other writing furnished in connection with this
Agreement, proves to have been incorrect or misleading in any material respect
as of the date made or deemed made;

         (f) Any Related Person or any Guarantor:

                  (i) suffers the entry against it of a judgment, decree or
         order for relief by a court of competent jurisdiction in an involuntary
         proceeding commenced under any applicable bankruptcy, insolvency or
         other similar law of any jurisdiction now or hereafter in effect,
         including the federal Bankruptcy Code, as from time to time amended, or
         has any such proceeding commenced against it which remains undismissed
         for a period of sixty (60) days; or

                  (ii) commences a voluntary case under any applicable
         bankruptcy, insolvency or similar law now or hereafter in effect,
         including the federal Bankruptcy Code, as from time to time amended; or
         applies for or consents to the entry of an order for relief in an
         involuntary case under any such law; or makes a general assignment for
         the benefit of creditors; or fails generally to pay (or admits in
         writing its inability to pay) its debts as

                                       40
<PAGE>

         such debts become due; or takes corporate or other action to authorize
         any of the foregoing; or

                  (iii) suffers the appointment of or taking possession by a
         receiver, liquidator, assignee, custodian, trustee, sequestrator or
         similar official of all or a substantial part of its assets or of any
         part of the Mortgage Collateral in a proceeding brought against or
         initiated by it, and such appointment or taking possession is neither
         made ineffective nor discharged within sixty (60) days after the making
         thereof, or such appointment or taking possession is at any time
         consented to, requested by, or acquiesced to by it; or

                  (iv) suffers the entry against it of a final judgment for the
         payment of money in excess of $500,000 (not covered by insurance
         satisfactory to Lender in its discretion), unless the same is
         discharged within thirty (30) days after the date of entry thereof or
         an appeal or appropriate proceeding for review thereof is taken within
         such period and a stay of execution pending such appeal is obtained; or

                  (v) suffers a writ or warrant of attachment or any similar
         process to be issued by any court against all or any substantial part
         of its assets or any part of the Mortgage Collateral;

         (g) Any Related Person fails to make when due or within any applicable
grace period any payment on any Indebtedness (other than the Obligations) with
an unpaid principal balance of over $1,000,000; or any event or condition occurs
under any provision contained in any agreement under which such obligation is
governed, evidenced or secured (or any other material breach or default under
such obligation or agreement occurs) if the effect thereof is to cause or permit
the holder or trustee of such obligation to cause such obligation to become due
prior to its stated maturity; or any such obligation becomes due (other than by
regularly scheduled payments) prior to its stated maturity; or any of the
foregoing occurs with respect to any one or more items of Indebtedness of any
Related Person with unpaid principal balances exceeding, in the aggregate,
$1,000,000;

         (h) Any event or condition occurs under any provision contained in the
Parent Debt Agreements (or any other material breach or default under any Parent
Debt Agreement occurs) if the effect thereof is to cause or permit the holder or
trustee of such obligation to cause such obligation to become due prior to its
stated maturity;

         (i) This Agreement, the Note or any other Loan Document shall for any
reason cease to be in full force and effect, or be declared null and void or
unenforceable in whole or in part as the result of any action initiated by any
Person other than Lender; or the validity or enforceability of any such document
shall be challenged or denied by any Person other than Lender other than by
reason of illegality;

         (j) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Code in excess of $75,000 exists with respect to any ERISA
Plan, whether or not waived by the Secretary of the Treasury or his delegate, or
(ii) any Termination Event occurs with respect to

                                       41
<PAGE>

any ERISA Plan and the then current value of such ERISA Plan's benefits
guaranteed under Title IV of ERISA exceeds the then current value of such ERISA
Plan's assets available for the payment of such benefits by more than $10,000
(or in the case of a Termination Event involving the withdrawal of a substantial
employer, the withdrawing employer's proportionate share of such excess exceeds
such amount) or (iii) any Related Person or any ERISA Affiliate withdraws from a
multiemployer plan resulting in liability under Title IV of ERISA of an amount
in excess of $10,000 in the case of any Related Person or $100,000 in the case
of any other ERISA Affiliate; or

         (k) A Change of Control occurs.

         Section 7.2 Default Remedies. Upon the occurrence of an Event of
Default, Lender may declare the Commitment to be terminated and/or declare the
entire principal and all interest accrued on the Note to be, and the Note,
together with all Obligations, shall thereupon become, forthwith due and
payable, without any presentment, demand, protest, notice of protest and
nonpayment, notice of acceleration or of intent to accelerate or other notice of
any kind, all of which hereby are expressly waived. Notwithstanding the
foregoing, if an Event of Default specified in Subsections 7.1 (f)(i), (ii) or
(iii) above occurs with respect to Borrower, the Commitment shall automatically
and immediately terminate and the Note and all other Obligations shall become
automatically and immediately due and payable, both as to principal and
interest, without any action by Lender and without presentment, demand, protest,
notice of protest and nonpayment, notice of acceleration or of intent to
accelerate, or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein, in the Note to the contrary notwithstanding.

                                  ARTICLE VIII

                                 INDEMNIFICATION

         Section 8.1 Indemnification. Borrower agrees to indemnify Lender and
each director, officer, agent, attorney, employee, representative and Affiliate
of Lender (each an "Indemnified Party"), upon demand, from and against any and
all liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements (including reasonable fees of
attorneys, accountants, experts and advisors) of any kind or nature whatsoever
(in this Section 8.1 collectively called "liabilities and costs") which to any
extent (in whole or in part) may be imposed on, incurred by, or asserted against
any Indemnified Party growing out of, resulting from or in any other way
associated with any of the Mortgage Collateral, the Loan Documents, and the
transactions and events (including the enforcement or defense thereof) at any
time associated therewith or contemplated therein (including any violation or
noncompliance with any Environmental Laws by any Related Person).

         THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
         LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR
         IN PART, UNDER ANY CLAIM OR THEORY OF

                                       42
<PAGE>

         STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR PART, BY ANY NEGLIGENT ACT
         OR OMISSION OF ANY KIND BY SUCH INDEMNIFIED PARTY,

provided only that such indemnified party shall be not entitled under this
section to receive indemnification for that portion, if any, of any liabilities
and costs which is proximately caused by its own individual gross negligence or
willful misconduct. All amounts payable by Borrower shall be immediately due
upon Lender's request for the payment thereof.

         Section 8.2 Limitation of Liability. None of Lender, its directors,
officers, agents, attorneys, employees, representatives or affiliates shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with this Agreement. THE FOREGOING EXCULPATION SHALL APPLY TO ANY
NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY SUCH PERSON, PROVIDED THAT SUCH
PERSON SHALL BE LIABLE FOR ITS OWN INDIVIDUAL GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.

                                   ARTICLE IX

                                   [RESERVED]

                                    ARTICLE X

                                  MISCELLANEOUS

         Section 10.1 Notices. Any notice or request required or permitted to be
given under or in connection with this Agreement, the Note or the other Loan
Documents (except as may otherwise be expressly required therein) shall be in
writing and shall be mailed by first class or express mail, postage prepaid, or
sent by telex, telegram, telecopy or other similar form of rapid transmission,
confirmed by mailing (by first class or express mail, postage prepaid) written
confirmation at substantially the same time as such rapid transmission, or
personally delivered to an officer of the receiving party. All such
communications shall be mailed, sent or delivered to the parties hereto at their
respective addresses as follows:

         Borrower:                  Preferred Home Mortgage Company
                                    123 NW 13th Street, Suite 300
                                    Boca Raton, FL 33432
                                    Attn:  Paul Leikert
                                    FAX:   (561) 391-9653
                                    TEL:   (561) 391-4012 Ex. 128

                                       43
<PAGE>

                                    with a copy to:

                                    Holly Hubenak
                                    Technical Olympic U.S.A., Inc.
                                    1200 Soldiers Field Drive
                                    Sugarland, Texas 77479
                                    FAX:  (281) 243-0100
                                    TEL:  (281) 243-0116

         Lender:                    Guaranty Bank
                                    8333 Douglas Avenue
                                    Dallas, Texas 75225
                                    Attention:  Carolyn Eskridge
                                    FAX:  (214) 360-1660
                                    TEL:  (214) 360-3357

or at such other addresses or to such individual's or department's attention as
any party may have furnished the other party in writing. Any communication so
addressed and mailed shall be deemed to be given when so mailed, except that
Borrowing Requests, and communications related thereto shall not be effective
until actually received by Lender or Borrower, as the case may be; and any
notice so sent by rapid transmission shall be deemed to be given when receipt of
such transmission is acknowledged, and any communication so delivered in person
shall be deemed to be given when receipted for by, or actually received by, an
authorized officer of Borrower or Lender, as the case may be.

         Section 10.2 Amendments, Etc. No amendment or waiver of any provision
of this Agreement, the Security Instruments, the Note, or any other Loan
Document, nor consent to any departure by any Related Person from the terms
thereof, shall in any event be effective unless the same shall be in writing and
signed by (i) if such party is Borrower, by Borrower and (ii) if such party is
Lender, by Lender.

         Section 10.3 CHOICE OF LAW; VENUE. THIS AGREEMENT SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF TEXAS. ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR
IN CONNECTION WITH THIS AGREEMENT SHALL BE BROUGHT AND MAINTAINED IN THE
APPLICABLE STATE OR FEDERAL COURT IN DALLAS COUNTY, TEXAS. THIS AGREEMENT IS
PERFORMABLE IN DALLAS COUNTY, TEXAS AND THE PARTIES HERETO WAIVE ANY RIGHT THEY
MAY HAVE TO BE SUED ELSEWHERE. THE PARTIES HERETO CONSENT TO PERSONAL
JURISDICTION IN DALLAS COUNTY, TEXAS. SECTION 346 OF THE TEXAS FINANCE CODE
(WHICH REGULATES CERTAIN REVOLVING LOAN ACCOUNTS AND REVOLVING TRIPARTY
ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS.

         Section 10.4 Invalidity. In the event that any one or more of the
provisions contained in the Note, this Agreement or any other Loan Document
shall, for any reason, be held invalid,

                                       44
<PAGE>

illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of such document.

         Section 10.5 Survival of Agreements. All covenants and agreements
herein and in any other Loan Document not fully performed before the date hereof
or the date thereof, and all representations and warranties herein or therein,
shall survive until payment in full of the Obligations and termination of the
Commitment.

         Section 10.6 Renewal, Extension or Rearrangement. All provisions of
this Agreement and of the other Loan Documents shall apply with equal force and
effect to each and all promissory Note hereafter executed which in whole or in
part represent a renewal, extension for any period, increase or rearrangement of
any part of the Obligations originally represented by the Note or of any part of
such other Obligations.

         Section 10.7 Waivers. No course of dealing on the part of Lender, or
any of its officers, employees, consultants or agents, nor any failure or delay
by Lender with respect to exercising any right, power or privilege of Lender
under the Note, this Agreement or any other Loan Document shall operate as a
waiver thereof, except as otherwise provided in Section 10.2 hereof.

         Section 10.8 Cumulative Rights. The rights and remedies of Lender under
the Note, this Agreement, and any other Loan Document shall be cumulative, and
the exercise or partial exercise of any such right or remedy shall not preclude
the exercise of any other right or remedy.

         Section 10.9 Limitation on Interest. Lender, each Related Person and
any other parties to the Loan Documents intend to contract in strict compliance
with applicable usury Law from time to time in effect. In furtherance thereof
such Persons stipulate and agree that none of the terms and provisions contained
in the Loan Documents shall ever be construed to create a contract to pay, for
the use, forbearance or detention of money, interest in excess of the maximum
amount of interest permitted to be charged by applicable Law from time to time
in effect. Neither each Related Person nor any present or future guarantors,
endorsers, or other Persons hereafter becoming liable for payment of any
Obligation shall ever be liable for unearned interest thereon or shall ever be
required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable Law from time to time in effect, and the
provisions of this section shall control over all other provisions of the Loan
Documents which may be in conflict or apparent conflict herewith. Lender
expressly disavows any intention to charge or collect excessive unearned
interest or finance charges in the event the maturity of any Obligation is
accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
Lender or any other holder of any or all of the Obligations shall otherwise
collect moneys which are determined to constitute interest which would otherwise
increase the interest on any or all of the Obligations to an amount in excess of
that permitted to be charged by applicable Law then in effect, then all such
sums determined to constitute interest in excess of such legal limit shall,
without penalty, be promptly applied to reduce the then outstanding principal of
the related Obligations or, at Lender's or such holder's option, promptly
returned to each Related Person or the other payor thereof upon such

                                       45
<PAGE>

determination. In determining whether or not the interest paid or payable, under
any specific circumstance, exceeds the maximum amount permitted under applicable
Law, Lender and each Related Persons (and any other payors thereof) shall to the
greatest extent permitted under applicable Law, (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to time thereunder and the maximum legal
rate of interest from time to time in effect under applicable Law in order to
lawfully charge the maximum amount of interest permitted under applicable Law.
In the event applicable Law provides for an interest ceiling under Section 303
of the Texas Finance Code, that ceiling shall be the weekly ceiling.

         Section 10.10 Bank Accounts; Offset. To secure the repayment of the
Obligations each Related Person hereby grants to Lender and to each financial
institution which hereafter acquires a participation or other interest in the
Loans or Note (in this section called a "Participant") a security interest, a
lien, and a right of offset, each of which shall be in addition to all other
interests, liens, and rights of Lender or any Participant at common law, under
the Loan Documents, or otherwise, and each of which shall be upon and against
(a) any and all moneys, securities or other property (and the proceeds
therefrom) of any Related Person now or hereafter held or received by or in
transit to Lender, any Lender or Participant from or for the account any Related
Person, whether for safekeeping, custody pledge, transmission, collection or
otherwise, (b) any and all deposits (general or special, time or demand,
provisional or final) of any Related Person with Lender or any Participant, and
(c) any other credits and claims of any Related Person at any time existing
against Lender, any Lender or Participant, including claims under certificates
of deposit. Upon the occurrence of any Default, each of Lender and Participants
is hereby authorized to foreclose upon, offset, appropriate, and apply, at any
time and from time to time, without notice to Borrower, any and all items
hereinabove referred to against the Obligations then due and payable.

         Section 10.11 Assignments, Participations.

         (a) Assignments. Lender shall have the right to sell, assign or
transfer all or any part of Note, Loans and rights and the associated rights and
obligations under all Loan Documents to one or more financial institutions, with
minimum assets of $5,000,000,000, and the assignee, transferee or recipient
shall have, to the extent of such sale, assignment, or transfer, the same
rights, benefits and obligations of Lender. Within five (5) Business Days after
any such assignment, the assignee shall notify Borrower of the outstanding
principal balance of the Note payable to assignee and Borrower shall execute and
deliver to assignee a new Note evidencing such assignee's assigned Loans and, if
the assignor Lender has retained a portion of its Loans, replacement Note in the
principal amount of the Loans retained by the assignor Lender (such Note to be
in exchange for, but not in payment of, the Note held by such Lender).

         (b) Participations. Lender shall have the right to grant participations
in all or any part of the Note, Loans and the associated rights and obligations
under all Loan Documents to one or more financial institutions with minimum
assets of $5,000,000,000.

                                       46
<PAGE>

         (c) Distribution of Information. Subject to Section 10.17, it is
understood and agreed that Lender may provide to assignees and participants and
prospective assignees and participants financial information and reports and
data concerning Borrower's properties and operations which was provided to
Lender pursuant to this Agreement.

         Section 10.12 Exhibits. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein, except that in the event of any conflict between any of
the provisions of such exhibits and the provisions of this Agreement, the
provisions of this Agreement shall prevail.

         Section 10.13 Titles of Articles, Sections and Subsections. All titles
or headings to articles, sections, subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties and
shall not be construed to have any effect or meaning with respect to the other
content of such articles, sections, subsections or other divisions, such other
content being controlling as to the agreement between the parties hereto.

         Section 10.14 Counterparts. This Agreement may be executed in
counterparts, and it shall not be necessary that the signatures of both of the
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all counterparts together shall constitute one
and the same instrument.

         Section 10.15 ENTIRE AGREEMENT. THE NOTE, THIS AGREEMENT, AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS AMONG THE PARTIES.

         Section 10.16 Termination; Limited Survival. In its sole and absolute
discretion Borrower may at any time that no Obligations are owing elect in a
notice delivered to Lender to terminate this Agreement. Upon receipt by Lender
of such a notice, if no Obligations are then owing, this Agreement and all other
Loan Documents shall thereupon be terminated and the parties thereto released
from all prospective obligations thereunder. Notwithstanding the foregoing or
anything herein to the contrary, any waivers or admissions made by any Person in
any Loan Documents, any Obligations, and any obligations which any Person may
have to indemnify or compensate Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of Borrower,
Lender shall prepare and execute all necessary instruments to reflect and effect
such termination of the Loan Documents.

         Section 10.17 Confidential Information. Lender shall use any
confidential non-public information concerning the Borrower, the Parent, and
their Subsidiaries that is furnished to Lender by or on behalf of the Borrower,
the Parent and their Subsidiaries in connection with the Loan Documents
(collectively, "Confidential Information") solely for the purpose of evaluating
and providing products and services to them and administering and enforcing the
Loan

                                       47
<PAGE>

Documents, and shall hold the Confidential Information in confidence.
Notwithstanding the foregoing, Lender may disclose Confidential Information (a)
to its Affiliates or any of its or its Affiliates' directors, officers,
employees, advisors, or representatives (collectively, the "Representatives")
whom it determines need to know such information for the purposes set forth in
this Section; (b) to any bank or financial institution or other entity to which
such Lender has assigned or desires to assign an interest or participation in
the Loan Documents or the Obligations, provided that any such foregoing
recipient of such Confidential Information agrees to keep such Confidential
Information confidential as specified herein; (c) to any Governmental Authority
having or claiming to have authority to regulate or oversee any aspect of
Lender's business or that of its Representatives in connection with the exercise
of such authority or claimed authority; (d) to the extent necessary or
appropriate to effect or preserve Lender's or any of its Affiliates' security
(if any) for any Obligation or to enforce any right or remedy or in connection
with any claims asserted by or against Lender or any of its Representatives; and
(e) pursuant to any subpoena or any similar legal process. For purposes hereof,
the term "Confidential Information" shall not include information that (x) is in
Lender's possession prior to its being provided by or on behalf of the Borrower,
the Parent or their Subsidiaries, provided that such information is not known by
Lender to be subject to another confidentiality agreement with, or other legal
or contractual obligation of confidentiality to, the Borrower, Parent or their
Subsidiaries, (y) is or becomes publicly available (other than through a breach
hereof by Lender), or (z) becomes available to Lender on a nonconfidential
basis, provided that the source of such information was not known by Lender to
be bound by a confidentiality agreement or other legal or contractual obligation
of confidentiality with respect to such information.

         Section 10.18 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES,
TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, ITS RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF
ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH
RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. EACH OF THE PARTIES
HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT
TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE
THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE
OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT AND ANY OTHER LOAN DOCUMENTS.

         Section 10.19 CONSEQUENTIAL DAMAGES. NEITHER BORROWER, NOR LENDER SHALL
HAVE ANY LIABILITY WITH RESPECT TO, AND EACH SUCH

                                       48
<PAGE>
PERSON HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE EACH OTHER SUCH PERSON FOR,
ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES SUFFERED BY SUCH OTHER PERSON IN
CONNECTION WITH ANY CLAIM RELATED TO THE LOAN DOCUMENTS OR THE TRANSACTIONS
CONTEMPLATED HEREIN.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]

                                       49
<PAGE>

         IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed as of the date first above written.

BORROWER:                                  PREFERRED HOME MORTGAGE COMPANY

                                           By:    /s/ Paul Leikert
                                                  ------------------------------
                                                  Paul Leikert
                                                  President

LENDER:                                    GUARANTY BANK

                                           By:    /s/ Carolyn Eskridge
                                                  ------------------------------
                                                  Carolyn Eskridge
                                                  Vice President

                                       50
<PAGE>
                                                                       EXHIBIT A

                                PROMISSORY NOTE

$20,000,000                       Dallas, Texas                     July 5, 2001

         FOR VALUE RECEIVED, the undersigned, PREFERRED HOME MORTGAGE COMPANY, a
Florida corporation ("Borrower"), promises to pay to the order of GUARANTY BANK
(herein called "Lender"), the principal sum of Twenty Million Dollars
($20,000,000) or, if less, the aggregate unpaid principal amount of the Loans
made under this Note by Lender to Borrower pursuant to the terms of the Credit
Agreement (as hereinafter defined), together with interest on the unpaid
principal balance thereof as hereinafter set forth, both principal and interest
payable as herein provided in lawful money of the United States of America at
the offices of the Lender, 8333 Douglas Avenue, Dallas, Texas or at such other
place within Dallas County, Texas, as from time to time may be designated by the
holder of this Note.

         This Note (a) is issued and delivered under that certain Credit
Agreement of even date herewith between Borrower and Lender (herein, as from
time to time supplemented, amended or restated, called the "Credit Agreement"),
and is a Note as defined therein, (b) is subject to the terms and provisions of
the Credit Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Instruments (as identified and defined in the Credit Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Credit Agreement. Reference is hereby made to the Credit Agreement for a
description of certain rights, limitations of rights, obligations and duties of
the parties hereto and for the meanings assigned to terms used and not defined
herein and to the Security Instruments for a description of the nature and
extent of the security thereby provided and the rights of the parties thereto.

         The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on the Drawdown Termination Date.

         So long as no Event of Default has occurred and is continuing, all Base
Rate Loans (exclusive of any past due principal or interest) from time to time
outstanding shall bear interest on each day outstanding at the Base Rate in
effect on such day. If an Event of Default has occurred and is continuing, all
Base Rate Loans (exclusive of any past due principal or interest) from time to
time outstanding shall bear interest on each day outstanding at the applicable
Default Rate in effect on such day. On the fifteenth (15th) day of each calendar
month, beginning on the fifteenth (15th) day of the calendar month immediately
following the calendar month in which this Note is executed, Borrower shall pay
to the holder hereof all unpaid interest which has accrued on all Base Rate
Loans through and including the last day of the immediately preceding calendar
month.
<PAGE>
        So long as no Event of Default has occurred and is continuing, each
Eurodollar Loan (exclusive of any past due principal or interest) shall bear
interest on each day during the related Interest Period at the related Adjusted
Eurodollar Rate in effect on such day. If an Event of Default has occurred and
is continuing, all Eurodollar Loans (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the applicable Default Rate in effect on such day. On the last
day of the related Interest Period, Borrower shall pay to the holder hereof all
unpaid interest which has accrued on such Eurodollar Loan to but not including
such day; provided that if an Event of Default exists under Section 7.1(a) of
the Credit Agreement, on the fifteenth (15th) day of each calendar month
Borrower shall pay to the holder hereof all unpaid interest which has accrued on
such Eurodollar Loan through and including the last day of the immediately
preceding calendar month. All past due principal of and past due interest on the
Loans shall bear interest on each day outstanding at the applicable Default Rate
in effect on such day, and such interest shall be due and payable daily as it
accrues. Notwithstanding the foregoing provisions of this paragraph: a. this
Note shall never bear interest in excess of the Maximum Rate, and b. if at any
time the rate at which interest is payable on this Note is limited by the
Maximum Rate (by the foregoing subsection (a) or by reference to the Maximum
Rate in the definitions of Base Rate, Eurodollar Rate, and Default Rate), this
Note shall bear interest at the Maximum Rate and shall continue to bear interest
at the Maximum Rate until such time as the total amount of interest accrued
hereon equals (but does not exceed) the total amount of interest which would
have accrued hereon had there been no Maximum Rate applicable hereto.

        Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Credit Agreement which more fully set out the limitations on
how interest accrues hereon. In the event applicable law provides for a ceiling
under Section 303 of the Texas Finance Code, that ceiling shall be the weekly
rate ceiling and shall be used in this Note for calculating the Maximum Rate and
for all other purposes. The term "applicable law" as used in this Note shall
mean the laws of the State of Texas or the laws of the United States, whichever
laws allow the greater interest, as such laws now exist or may be changed or
amended or come into effect in the future.

         If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, Borrower and all endorsers, sureties
and guarantors of this Note jointly and severally agree to pay reasonable
attorneys' fees and collection costs to the holder hereof in addition to the
principal and interest payable hereunder.

         Except as otherwise provided in the Credit Agreement, Borrower and all
endorsers, sureties and guarantors of this Note hereby severally waive demand,
presentment, notice of demand and of dishonor and nonpayment of this Note,
protest, notice of protest, notice of intention to accelerate the maturity of
this Note, declaration or notice of acceleration of the maturity of this Note,
diligence in collecting, the bringing of any suit against any party and any
notice of or defense on account of any extensions, renewals, partial payments or
changes in any manner of or in this Note or in any of its terms,

                                       2
<PAGE>
provisions and covenants, or any releases or substitutions of any security, or
any delay, indulgence or other act of any trustee or any holder hereof, whether
before or after maturity.

        No waiver by Lender of any of its rights or remedies hereunder or under
any other document evidencing or securing this Note or otherwise shall be
considered a waiver of any other subsequent right or remedy of Lender; no delay
or omission in the exercise or enforcement by Lender of any rights or remedies
shall ever by construed as a waiver of any right or remedy of Lender; and no
exercise or enforcement of any such rights or remedies shall ever be held to
exhaust any right or remedy of Lender.

         Borrower reserves the right to prepay the outstanding principal balance
of this Note, in whole or in part at any time and from time to time without
premium or penalty, in accordance with the terms of the Credit Agreement.

            [THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

                                       3
<PAGE>
         THIS NOTE AND THE RIGHTS AND DUTIES OF THE PARTIES HERETO SHALL BE
GOVERNED BY THE LAWS OF THE STATE OF TEXAS, EXCEPT TO EXTENT THE SAME ARE
GOVERNED BY APPLICABLE FEDERAL LAW.

                                 PREFERRED HOME MORTGAGE COMPANY

                                 By: _______________________________
                                     Name:
                                     Title:

THE STATE OF TEXAS            )
                              )
COUNTY OF DALLAS              )

         This instrument was acknowledged before me on ________________________,
2001, by _________________________, _________________________ of PREFERRED HOME
MORTGAGE COMPANY, a Florida corporation, on behalf of said corporation.

                                  _______________________________________
                                  Notary Public, State of Texas

                                  _______________________________________
                                 (printed name)

My Commission Expires:

________________________
<PAGE>

                                                                       EXHIBIT B

                                BORROWING REQUEST

FROM:           PREFERRED HOME MORTGAGE COMPANY ("Borrower")

TO:             GUARANTY BANK ("Lender")

I.      Borrower hereby requests Loans in the amount and on the date specified
        below, pursuant to the Credit Agreement among Borrower and Lender dated
        as of July 5, 2001 (as amended, modified or restated from time to time,
        the "Agreement"). Capitalized terms used herein and defined in the
        Agreement shall be used herein as so defined.

II.     Loans requested:

        (a)    Borrower hereby requests Loans in the aggregate principal amount
               of  $_________________.

        (b)    Type of Loans in Borrowing:____________________.

        (c)    Requested Advance date:____________________, 200_.

        (d)    Length of Interest Period for Eurodollar Loans (1,2 or 3 months):
               ________________.

        If combined with existing Loans
        see attached Continuation/Conversion Notice.

III.    The undersigned officer of Borrower represents and warrants to Lender
        and each Lender:

        (a)     Borrower is entitled to receive the requested Loan under the
                terms and conditions of the Agreement;

        (b)     all items which Borrower is required to furnish to Lender
                pursuant to the Agreement accompany this Borrowing Request (or,
                if Wet Mortgage Loans shall be delivered to Lender in accordance
                with the Agreement);

        (c)     all Mortgage Loans offered hereby conform in all respects with
                the applicable requirements set forth in the Agreement;

<PAGE>
(d)     no Event of Default has occurred and is continuing under the Agreement;

(e)     no change or event which with notice and/or the passage of time would
        constitute an Event of Default;

(f)     after giving effect to the Loan requested hereby the aggregate amount of
        the outstanding principal balance of the Loan will not exceed the
        lesser of (1) the Collateral Value of the Borrowing Base and (2) the
        Commitment; and

Borrower has attached and submits herewith Submission Lists describing all
Eligible Mortgage Loans included in the Collateral Value of the Borrowing Base,
other than Wet Mortgage Loans (the "Dry Submission Lists") and Submission Lists
describing all Wet Mortgage Loans included in the Collateral Value of the
Borrowing Base (the "Wet Submission Lists"). Borrower has submitted--or is
submitting to Lender concurrently herewith--the Required Mortgage Documents with
respect to each Mortgage Note described or referred to in the Dry Submission
Lists. Borrower hereby grants to Lender a security interest in all such new
Mortgage Collateral described in the Dry Submission Lists and the Wet Submission
Lists and all related Required Mortgage Documents, and all of the foregoing are
hereby made subject to the security interest of Lender created by the Security
Agreement. Borrower hereby agrees to deliver the Required Mortgage Documents
with respect to each Mortgage Note described or referred to in the Wet
Submission Lists within seven (7) Business Days following the date hereof.

Borrower represents and warrants that, except as permitted under the Agreement,
Borrower holds with respect to each of the Mortgage Notes hereby offered the
following:

(a)     unless delivered herewith, the original filed copy of the Mortgage
        relating to such Mortgage Note;

(b)     mortgagee policies of title insurance conforming to the requirements of
        the Lender or binding commitments for the issuance of same;

(c)     insurance policies insuring the mortgaged premises as required by the
        Lender; and

(d)     unless delivered herewith, an original of any executed Take-Out
        Commitment relating to such Mortgage Note.

Borrower agrees that it holds the above referenced items in trust for Lender,
and will at any time deliver the same to Lender upon request or, upon written
instructions from Lender, to any Person designated by Lender. Borrower further
agrees that it will not deliver any of the above items, nor give, transfer, or
assign any interest in same, to any Person other than Lender (or the Person or
Persons designated by Lender) without the prior written consent of Lender.
<PAGE>

        The representations and warranties of Borrower contained in the
        Agreement and those contained in each other Loan Document to which
        Borrower is a party are true and correct in all respects on and as of
        the date hereof.

                                             PREFERRED HOME MORTGAGE COMPANY

Date:__________________, 200_                By:_____________________________
                                                Name:
                                                Title:
<PAGE>
                                  SCHEDULE B-I
                              DRY SUBMISSION LISTS

<PAGE>
                                 SCHEDULE B-II
                              WET SUBMISSION LISTS

<PAGE>
                                                                       EXHIBIT C

                               APPROVED INVESTORS

Countrywide Home Loan
Homeside Lending Inc.
Principal Residential Mortgage
Bank of America
Wells Fargo
Washington Mutual Home Loans
Chase Manhattan
Greenpoint Mortgage
Ohio Mortgage Banking
Bank United
World Savings

SUBPRIME APPROVED INVESTORS:

Countrywide Home Loan Subprime
Acredited Home Lenders
Greenpoint Mortgage Subprime
First Franklin Financial
Impac Lending
BNC Mortgage Inc.
Lakeland Regional Mortgage
<PAGE>
                                                                       EXHIBIT D

                            SUBSIDIARIES OF BORROWER

<TABLE>
<CAPTION>
        Name                 State of Incorporation       Percentage Ownership
        ----                 ----------------------       --------------------

<S>                          <C>                          <C>
Technical Mortgage, L.P.           Texas                                 50.01%
</TABLE>
<PAGE>
                                                                       EXHIBIT E

                            CERTIFICATE ACCOMPANYING
                              FINANCIAL STATEMENTS

         Reference is made to that certain Credit Agreement dated as of July 5,
2001 (as from time to time amended, the"Agreement"), by and among PREFERRED HOME
MORTGAGE COMPANY ("Borrower") and GUARANTY BANK, as Lender ("Lender"), which
Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.

         This Certificate is furnished pursuant to Section 5.1(a)(v) of the
Agreement. Together herewith Borrower is furnishing to Lender and Borrower's
audited annual financial statements or monthly financial statements (the
"Financial Statements") dated ___________, 200_ (the "Reporting Date"). Borrower
hereby represents, warrants, and acknowledges to Lender and each Lender that:

         (a)      the officer of Borrower signing this instrument is the duly
                  elected, qualified and acting _____ of Borrower and as such is
                  Borrower's [President/chief financial officer];

         (b)      the Financial Statements are prepared in accordance with GAAP;

         (c)      attached hereto is Schedule E-1 showing Borrower's compliance
                  as of the Reporting Date with the requirements of Sections
                  6.13 through 6.15 of the Agreement *[and Borrower's
                  non-compliance as of such date with the requirements of
                  Section(s) ______ of the Agreement];

         (d)      on the Reporting Date Borrower was, and on the date hereof
                  Borrower is, in full compliance with the disclosure
                  requirements of Article V of the Agreement, and no Default
                  otherwise existed on the Reporting Date or otherwise exists on
                  the date of this instrument [except for Default(s) under
                  Section (s) ______ of the Agreement, which (is/are] more fully
                  described on a schedule attached hereto).

         The officer of Borrower signing this instrument hereby certifies that
he has reviewed the Loan Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of Borrower and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
<PAGE>
         IN WITNESS WHEREOF, this instrument is executed as of _______________,
200_.

                                    PREFERRED HOME MORTGAGE COMPANY

                                    By:  _______________________________
                                         Name:
                                         Title:

STATE OF ____________________      )
                                   )
COUNTY OF ___________________      )

         This instrument was ACKNOWLEDGED before me the ____ day of
__________________, 200__, by __________________, ______________ of Preferred
Home Mortgage Company, a Florida corporation, on behalf of said corporation.

                                      ________________________________________
                                      Notary Public - State of _______________
                                      Printed Name of Notary

My Commission expires:

______________________      [SEAL]
<PAGE>
                                  SCHEDULE E-1

<TABLE>
<CAPTION>
Financial Covenants                  Required                           Actual [or in compliance
-------------------                  --------                           ------------------------

<S>                                  <C>                                <C>

1.      Minimum Consolidated
        Tangible Net Worth           Not less than $5,000,000                       ____________

2.      Total Debt to
        Tangible Net Worth           Not more than 10.0 to 1.0                      ____________

3.      Minimum Profitability        Not less than $1.00                        ________________
</TABLE>

                                  PREFERRED HOME MORTGAGE COMPANY

                                  By:_______________________________
                                      Name:
                                      Title:

_________________________
        (Date)
<PAGE>
                                                                       EXHIBIT F

                           FORM OF SECURITY AGREEMENT
                           --------------------------
<PAGE>
                               SECURITY AGREEMENT

         THIS SECURITY AGREEMENT (this "Security Agreement") is made and dated
as of July 5, 2001, by Preferred Home Mortgage Company, a Florida corporation
(the "Debtor"), and GUARANTY BANK ("Secured Party").

                                    RECITALS

         A. Pursuant to that certain Credit Agreement of even date herewith
between Debtor and Secured Party (as from time to time amended, supplemented or
restated, the "Credit Agreement"), Secured Party agreed to extend credit to
Debtor on the terms and subject to the conditions set forth therein. Capitalized
terms not otherwise defined herein are used with the same meanings as in the
Credit Agreement.

         B. As a condition precedent to the effectiveness of the Credit
Agreement, Secured Party has required the execution and delivery of this
Security Agreement in order to, among other things, create a first priority
perfected security interest in the Collateral in favor of Secured Party to
secure payment of the Obligations.

         NOW, THEREFORE, in consideration of the above Recitals and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Debtor agrees with Secured Party as follows:

                                   AGREEMENTS

         1. Delivery of Collateral. Debtor shall deliver Submission Lists to
Secured Party from time to time identifying Mortgage Loans that Debtor intends
to include in Collateral by delivering to Secured Party the mortgage documents
described on Schedule A attached hereto for each such Mortgage Loan (the
"Required Mortgage Documents").

         2. Grant of Security Interest. Debtor hereby pledges, assigns and
grants to Secured Party for the benefit of the Lender, a first priority security
interest in the property described in Paragraph 3 below (collectively and
severally, the "Collateral"), to secure payment of (i) the Obligations, (ii) all
costs reasonably incurred by Secured Party (a) to obtain, preserve, perfect and
enforce the security interest granted hereby and all other liens and security
interests securing payment of the Obligations, (b) to collect the Obligations,
and (c) to maintain, preserve and collect the Collateral, including, but not
limited to, taxes, assessments, insurance premiums, repairs, reasonable
attorneys' fees and legal expenses (including, without limitation, allocated
costs for in-house legal services), rent, storage charges, advertising costs,
brokerage fees and expenses of sale; and (iii) all renewals, extensions and
modifications of the indebtedness referred to in the foregoing clauses, or any
part thereof. The loans, advances, indebtedness, obligations, liabilities and
costs described in this section are collectively

<PAGE>
referred to herein as the "Secured Indebtedness." All proceeds hereof shall be
applied by Secured Party to the Secured Indebtedness in accordance with the
Credit Agreement.

         3. Collateral. The Collateral shall consist of all right, title and
interest of Debtor, of every kind and nature, in and to all of the following
property, assets and rights of Debtor, wherever located, whether now existing or
hereafter arising, and whether now or hereafter owned or acquired by or accruing
or owing to Debtor, and all proceeds and products thereof (including all
proceeds in the Settlement Account from time to time):

         (a) Any and all Instruments, Certificated Securities, Uncertificated
Securities, and Investment Property of Debtor in the actual or constructive
possession of Secured Party, any Person designated as a bailee ("Bailee") of
Mortgage Notes by Secured Party until payment is made for such Notes or they are
returned to Secured Party, or of Debtor in trust for Secured Party, or in
transit to or from Secured Party or Bailee as collateral for the Secured
Indebtedness or designated by Debtor as collateral for the Secured Indebtedness
(whether or not delivered to Secured Party or Bailee), and any and all
agreements and documents related to any thereof including, without limitation,
all Mortgage Notes and Mortgages delivered, or to be delivered, to Secured Party
or Bailee or to be held by Debtor in trust for Secured Party or Bailee,
including without limitation:

                  (i) any and all rights, titles and interests Debtor may now or
         hereafter have in and to any and all promissory notes, Mortgages,
         guaranties, bonds, insurance policies, commitments, and other
         Instruments, documents, or agreements ever executed and delivered to
         Debtor in connection with its mortgage lending business relating to
         such Mortgage Notes and Mortgages;

                  (ii) any and all present and future Accounts, Chattel Paper,
         documents, Instruments, General Intangibles, Payment Intangibles and
         other personal property now owned or hereafter acquired by Debtor
         arising from or by virtue of any transactions related to its mortgage
         lending business and related to such Mortgage Notes and Mortgages;

                  (iii) any and all proceeds from the sale, financing or other
         disposition of the items described in (i) and (ii) above; and

                  (iv) all Software, files, surveys, certificates,
         correspondence, appraisals, computer programs, tapes, discs, cards,
         accounting records, and other records, information, and data of Debtor
         relating to the Mortgage Loans (including without limitation all
         information, data, programs, tapes, discs and cards necessary to
         administer and service such Mortgage Loans).

         (b) All Take-Out Commitments relating to the Mortgage Notes described
in paragraph (a) above.

                                       2
<PAGE>
         (c) All right, title and interest of Debtor under all agreements
between Debtor and Persons other than Debtor pursuant to which Debtor undertakes
to service Mortgage Loans, including without limitation, the rights of Debtor to
income and reimbursement thereunder.

        (d) All purchase agreements, credit agreements or other agreements
pursuant to which Debtor acquired such Mortgage Loans and all promissory notes,
security agreements and other instruments and documents executed by Debtor
pursuant thereto or in connection therewith, insofar as such agreements,
instruments and documents relate to the Mortgage Notes and Mortgages described
in paragraph (a) above.

         (e) All other money or property of Debtor in the possession of Secured
Party including, without limitation, (i) the Funding Account, the Settlement
Account, the Operating Account, all Deposit Accounts established with Secured
Party and any other accounts established by Debtor with Secured Party, (ii) all
amounts on deposit in the Funding Account, the Settlement Account, the Operating
Account, such Deposit Accounts or any other accounts established by Debtor with
Secured Party and (iii) the obligations of Secured Party to Debtor arising out
of such deposits.

         (f) All right, title and interest of Debtor in and to any other asset
of Debtor which has been or hereafter at any time is delivered to Secured Party
or Bailee hereunder.

         (g) All proceeds of whatever kind or nature from any of such collateral
described in paragraphs (a), (b), (c), (d), (e) and (f) above.

         As used in this Security Agreement, the terms "Accounts," "Certificated
Securities," "Chattel Paper," "Deposit Accounts," "General Intangibles,"
"Instruments," "Investment Property," "Payment Intangibles," "Software," and
"Uncertificated Securities" and shall have the respective meanings assigned to
them in the Texas Uniform Commercial Code, as amended by Revised Article 9 which
becomes effective on July 1, 2001, and as the same may hereafter be amended.

         4. Handling of Collateral; Settlement Account; Redemption of
Collateral.

         (a) So long as no Default or Event of Default exists, Secured Party may
from time to time release documentation relating to Mortgage Loans to Debtor
against a trust receipt executed by Debtor in the form of Exhibit 1 hereto.
Debtor hereby represents and warrants that any request by Debtor for release of
Collateral under this subparagraph (a) shall be solely for the purposes of
correcting clerical or other non-substantial documentation problems in
preparation of returning such Collateral to Secured Party for ultimate sale or
exchange and that Debtor has requested such release in compliance with all terms
and conditions of such release set forth herein and in the Credit Agreement.

         (b) So long as no Default or Event of Default exists, upon delivery by
Debtor to Secured Party of a shipping request substantially in the form of that
attached hereto as Exhibit 2, together with an air bill or other form of
shipping label properly completed with the name and address of the respective

                                       3
<PAGE>
Investor, Secured Party will transmit, or cause to be transmitted, Mortgage
Loans held by it as directed by Debtor under cover of a transmittal letter
substantially in the form of that attached hereto as Exhibit 3 (or such other
form as may be approved by Secured Party).

         (c) All amounts payable on account of the sale of Collateral will be
instructed to be paid directly by the purchaser to the Settlement Account.
Debtor will not be credited for any amounts due from any purchaser until Secured
Party has actually received immediately available funds. Pursuant to paragraph 3
above Debtor has granted to Secured Party a security interest in and lien upon
the Settlement Account and in any and all amounts at any time held therein. This
Paragraph 4(c) shall further constitute irrevocable notice to Secured Party
that the accounts referred to in Paragraph 3(e) above are "no access" accounts
to Debtor.

         (d) So long as no Default or Event of Default exists, Secured Party
shall take such steps as they may be reasonably directed from time to time by
Debtor in writing which are not inconsistent with the provisions of this
Security Agreement and the other Loan Documents and which Debtor deems necessary
to enable Debtor to perform and comply with Take-Out Commitments and with other
agreements for the sale or other disposition in whole or in part of Mortgage
Loans. Mortgage Collateral may be sold pursuant to a Take-Out Commitment so long
as no Default or Event of Default exists.

         (e) So long as no Default or Event of Default exists, upon receipt of a
Collateral Release Request in the form attached hereto as Exhibit 4, Secured
Party is hereby authorized, and does hereby agree, to release free and clear of
the security interest granted to Secured Party by this Security Agreement any
Mortgage Loan, together with all other documentation relating thereto, to Debtor
or as directed by Debtor; provided that after giving effect to such release, the
Collateral Value of the Borrowing Base is equal or greater than the Loan
Balance. In the event any Collateral Release Request is received by Secured
Party prior to 2:15 pm. (Dallas time) on any Business Day, said Collateral shall
be released on the following Business Day. Secured Party agrees to transmit all
Collateral released pursuant to this section as directed by Debtor at the
expense of Debtor, and, upon request by Debtor, to complete the endorsements of
the related instruments and the assignments of the related instruments, to
execute the appropriate form of UCC financing statement release, if necessary,
and to execute such other appropriate instruments of transfer or release as
Debtor shall reasonably request. Secured Party shall be fully protected in
relying on any delivery instructions from Debtor in which Debtor purports to be
entitled to direct delivery of the items identified therein, and Debtor shall
reimburse Secured Party for all expenses incurred in connection with the
delivery of any item held by it under this section.

         (f) So long as no Default or Event of Default exists, Debtor may obtain
the release of the security interest in favor of Secured Party in all or any
part of the Mortgage Collateral at any time, and from time to time, by paying
to Secured Party, as a prepayment under the Credit Agreement, the Unit
Collateral Value of the Mortgage Collateral to be so released (such Unit
Collateral Value being determined as of the date of such release). In the event
that the Unit Collateral Value of the Mortgage Collateral designated by Secured
Party, as determined on the date in question, is less than the Unit

                                       4
<PAGE>
Collateral Value of such Mortgage Collateral as determined on the date that such
Mortgage Collateral was first delivered to Secured Party reasonably shall deem
impaired its ability to satisfy the Secured Indebtedness by recourse to such
Mortgage Collateral, Debtor shall, within two (2) Business Days after the
reasonable written request of Secured Party at any time during the term hereof
either:

                  (i) pay to Secured Party in immediately available funds an
         amount equal to the aggregate Unit Collateral Value of any Mortgage
         Collateral designated by Secured Party (such Unit Collateral Value
         being determined as of the date of such redemption), or

                  (ii) deliver to Secured Party other Mortgage Collateral in
         substitution for such designated Mortgage Collateral, the aggregate
         Unit Collateral Value of which substituted Mortgage Collateral
         (determined at the time of substitution) is equal to or greater than
         the aggregate Unit Collateral Value of the Mortgage Collateral being
         replaced (determined as of the date such Mortgage Collateral was first
         delivered to Secured Party hereunder).

         (g) A Mortgage Loan which has been delivered to Secured Party under
this Security Agreement shall be and remain Collateral until released pursuant
to Section 4(f) or until this Security Agreement is terminated, notwithstanding
(i) any defect in any document delivered to Secured Party pursuant to the Credit
Agreement or this Security Agreement, (ii) the failure of such Mortgage Loan to
have or retain Unit Collateral Value, (iii) the failure of Debtor to make timely
delivery of any document required to be delivered to Secured Party under this
Security Agreement or the Credit Agreement, or (iv) any other fact,
circumstance, condition or event whatsoever. For purposes of the preceding
sentence, the funding of the origination or purchase of a Mortgage Loan from the
proceeds of a Loan and/or the assignment of Unit Collateral Value to such
Mortgage Loan by Secured Party shall be deemed to be conclusive evidence of the
delivery of such Mortgage Loan under the Credit Agreement, notwithstanding any
subsequent determination by Secured Party that the documentation delivered for
such Mortgage Loan was incomplete or defective in any respect or that such
Mortgage Loan should not have been assigned Unit Collateral Value.

         5. Costs and Expenses. Debtor pay all costs and expenses of Secured
Party directly relating to Secured Party's performance of this Security
Agreement and the enforcement of the rights and remedies of Secured Party
hereunder and such costs and expenses, including, without limitation, reasonable
fees and expenses of legal counsel to Secured Party as provided in the Credit
Agreement.

         6. Representations and Warranties. Debtor warrants that: (a) Debtor is
the sole owner of the Collateral (or, in the case of after-acquired Collateral,
at the time Debtor acquires rights in the Collateral, will be the sole owner
thereof), subject only to the rights of Investors under the Take-Out
Commitments; (b) except for security interests in favor of Secured Party any
other security interests permitted under the Credit Agreement, no Person has
(or, in the case of after-acquired Collateral, at the time Debtor acquires
rights therein, will have) any right, title, claim or interest in, against or to
the Collateral and, in any event, so long as Secured Party complies with the
procedures relating to possession of Collateral set forth in this Security
Agreement, Secured Party shall have a perfected, first

                                       5
<PAGE>
priority security interest therein for the benefit of the Lenders; (c) no
consent of any Person is required that has not been obtained for the granting of
the security interests provided for herein, nor will any consent be required for
Secured Party to exercise its rights under this Security Agreement in accordance
with the terms of this Security Agreement; (d) to the best of Debtor's
knowledge, all information heretofore, herein or hereafter supplied to Secured
Party by or on behalf of Debtor with respect to the Collateral is or will be
accurate and complete in all material respects; (e) the Take-Out Commitments
covering such Collateral may be collaterally assigned to Secured Party as
described herein; (f) each Mortgage Loan is, at all dates included in the
computation of the Collateral Value of the Borrowing Base an Eligible Mortgage
Loan; (g) to the best of Debtor's knowledge, no material dispute, right of
setoff, counterclaim or defense exists with respect to all or any part of the
Collateral; (h) this Security Agreement constitutes the legal, valid and binding
obligation of Debtor enforceable against Debtor and the Collateral in accordance
with its terms (subject to limitations as to enforceability which might result
from bankruptcy, reorganization, insolvency or other similar laws affecting
creditors' rights generally and general principles of equity); (i) in making and
closing each Mortgage Loan originated by a third party, Debtor has or will have
fully complied with, and all collateral documents delivered with respect to such
Mortgage Loan comply or will comply with, all applicable federal, state and
local laws, regulations and rules, including, but not limited to, (1) usury
laws, (2) the Real Estate Settlement Procedures Act of 1974, (3) the Equal
Credit Opportunity Act, (4) the Federal Truth in Lending Act, (5) Regulation Z
of the Board of Governors of the Federal Reserve System and (6) all other
consumer protection and truth-in-lending laws which may apply, and in each case
with the regulations promulgated in connection therewith, as the same may be
amended from time to time; and Debtor shall maintain sufficient documentary
evidence in its files with respect to such Mortgage Loans to substantiate such
compliance; (j) upon the delivery of the Mortgage Note evidencing a Mortgage
Loan to Secured Party, Secured Party shall have a valid and perfected first
priority security interest in such Mortgage Loan; and (k) immediately upon (1)
the execution and delivery of the Credit Agreement, the Note and the other Loan
Documents, (2) the acquisition by Debtor of rights in such Collateral and (3)
the filing with the Secretary of State of Texas of a financing statement showing
Debtor, as debtor, and Secured Party, as secured party, and describing the
Collateral, Secured Party shall have a valid and perfected first priority
security interest in the Collateral which is other than as described in clause
(j) above, to the extent that a security interest in such other Collateral can
be perfected by filing a financing statement.

         7. Covenants of Debtor. Debtor hereby agrees: (a) to procure, execute
and deliver from time to time any endorsements, assignments, financing
statements and other writings deemed necessary or appropriate by Secured Party
to perfect, maintain and protect Secured Party's security interest hereunder and
the priority thereof and to deliver promptly to Secured Party all originals of
any Collateral or proceeds thereof consisting of chattel paper or instruments;
(b) not to surrender or lose possession of (other than to Secured Party), sell,
encumber, or otherwise dispose of or transfer, any Collateral or right or
interest therein other than shipment of Mortgage Loans under Take-Out
Commitments and as otherwise permitted under Paragraph 5 above or the Credit
Agreement; (c) not to grant to any Investor any other security interest in any
Collateral, or otherwise acknowledge the creation of any ownership rights of any
Investor with respect to any Collateral unless and until Secured

                                       6
<PAGE>
Party has received the proceeds of such Collateral as described herein; (d) at
all times to account fully for and promptly to deliver to Secured Party, in the
form received, all Collateral or proceeds thereof received, endorsed to Secured
Party or in blank as appropriate and accompanied by such assignments and powers,
duly executed, as Secured Party shall request, and until so delivered all
Collateral and proceeds thereof shall be held in trust for Secured Party for the
benefit of the Lenders, separate from all other property of Debtor and
identified as the property of Secured Party for the benefit of the Lenders; (e)
to keep accurate and complete records of the Collateral and at any reasonable
time and at Secured Party's expense (provided that during the continuation of
any Event of Default, the following shall be at Debtor's expense), upon demand
by Secured Party, to exhibit to and allow inspection of the Collateral and the
records, reports and information concerning the Collateral by Secured Party (or
Persons designated by Secured Party); (f) to keep the records concerning the
Collateral at the location(s) set forth in Paragraph 15 below and not to remove
the records from such location(s) without the prior written consent of Secured
Party; (g) not to materially modify, compromise, extend, rescind or cancel any
deed of trust, mortgage, note or other document, instrument or agreement
connected with any Mortgage Loan pledged under this Security Agreement or any
document relating thereto or connected therewith or consent to a postponement of
strict compliance on the part of any party thereto with any term or provision
thereof in any material respect; (h) to keep the Collateral insured against
loss, damage, theft, and other risks customarily covered by insurance, and such
other risks as Secured Party may reasonably request; (i) to do all acts that a
prudent investor would deem necessary or desirable to maintain, preserve and
protect the Collateral; (j) not knowingly to use or permit any Collateral to be
used unlawfully or in violation of any provision of this Security Agreement, the
Credit Agreement or any applicable statute, regulation or ordinance or any
policy of insurance covering the Collateral; (k) to pay (or require to be paid)
prior to their becoming delinquent all taxes, assessments, insurance premiums,
charges, encumbrances and liens now or hereafter imposed upon or affecting any
Collateral except as otherwise permitted in the Credit Agreement; (l) to notify
Secured Party before any such change shall occur of any change in Debtor's name,
identity, structure or jurisdiction through merger, consolidation or otherwise;
(m) to appear in and defend, at Debtor's cost and expense, any action or
proceeding which may affect its title to or Secured Party's interest for the
benefit of the Lenders in the Collateral; and (n) to comply in all material
respects with all laws, regulations and ordinances relating to the possession,
operation, maintenance and control of the Collateral.

         8.  Collection of Collateral Payments.

         (a) Until Secured Party gives notice to Debtor pursuant to Paragraph
8(b) below or exercises the Secured Party's rights under Paragraph 10 hereof,
Debtor shall be entitled to receive all collections on any and all of the
Mortgage Notes, Mortgages and any documents related to the foregoing
(hereinafter collectively called "Collections") and use the same in the normal
course of business. Upon notice from Secured Party to Debtor given after the
occurrence and during the continuation of an Event of Default, Debtor shall
furnish to Secured Party not later than the tenth Business Day after the end of
each month a report on all Collections received during the preceding month and
provide the same accounting therefor as Debtor customarily furnishes the
Investors therein, including with respect to Collections on each Mortgage Loan:
(1) the name of the Obligor, (2) Debtor's

                                       7
<PAGE>
loan number for the Mortgage Loan, (3) current principal balance of the Mortgage
Loan, (4) current escrow balance with respect to the Mortgage Loan, (5) number
and amount of past due payments on the Mortgage Loan and (6) the amount of the
Collections received during such month with respect to the Mortgage Loan,
itemized to show (A) principal portion, (B) interest portion and (C) portion
thereof representing amounts paid in escrow for real estate taxes and insurance.

         (b) Upon notice from Secured Party to Debtor given after the occurrence
and during the continuation of an Event of Default, Debtor shall hold all
Collections representing principal payments and prepayments and escrows for
real estate taxes and insurance in trust for Secured Party and shall promptly
remit the same to Secured Party. All amounts representing the principal payments
and prepayments on Mortgage Loans which are delivered to Secured Party pursuant
to the preceding sentence shall be deposited in the Settlement Account and all
amounts representing real estate tax and insurance escrows for Mortgage Loans
which are delivered to Secured Party pursuant to the preceding sentence shall be
deposited in an escrow account with any bank satisfactory to Debtor and Secured
Party, to be held for the payment of the applicable real estate taxes and
insurance premiums.

         (c) Debtor hereby agrees to indemnify, defend and save harmless Secured
Party and its officers, employees and representatives (collectively, the
"Indemnified Persons") from and against all liabilities and expenses on account
of any adverse claim asserted against Secured Party relating to any moneys
received by Secured Party on account of any Collections WHETHER OR NOT SUCH
LIABILITIES AND EXPENSES ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN
PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED IN WHOLE OR
IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY ANY INDEMNIFIED PERSON
(except for any such liabilities or expenses arising as a direct result of the
gross negligence or willful misconduct of such Indemnified Person) and such
obligation of Debtor shall continue in effect after and notwithstanding the
discharge of the Secured Indebtedness and/or the release of the security
interest granted in Paragraph 3 above.

         9. Authorized Action by Secured Party. Debtor hereby irrevocably
appoints Secured Party its attorney in fact, with full power of substitution,
for and on behalf and in the name of Debtor, which power of attorney shall
become effective upon the occurrence and remain effective during the continuance
of an Event of Default, to (i) endorse and deliver to any Person any check,
instrument or other paper coming into Secured Party's possession and
representing payment made in respect of any Mortgage Note delivered to and held
by Secured Party hereunder as Mortgage Collateral or in respect of any other
Collateral or Take-Out Commitment; (ii) prepare, complete, execute, deliver and
record any assignment to Secured Party or to any other Person of any Mortgage
relating to any Mortgage Note delivered to and held by Secured Party hereunder
as Mortgage Collateral; (iii) endorse and deliver any Mortgage Note delivered to
and held by Secured Party hereunder as Mortgage Collateral and do every other
thing necessary or desirable to effect transfer of all or any part of the
Mortgage Collateral to Secured Party or to any other Person; (iv) take all
necessary and appropriate action with respect to all Secured Indebtedness and
the Mortgage Collateral to be delivered to Secured Party or held by Debtor in
trust for Secured Party; (v) commence, prosecute, settle, discontinue, defend,
or

                                       8
<PAGE>
otherwise dispose of any claim relating to any Take-Out Commitment or any part
of the Mortgage Collateral; and (vi) sign Debtor's name wherever appropriate to
effect the enforcement of Secured Party's rights and remedies set forth in this
Agreement relating to the Secured Indebtedness and/or the Mortgage Collateral.
This Paragraph 9 shall be liberally, not restrictively, construed so as to give
the greatest latitude to Secured Party's power, as Debtor's attorney-in-fact, to
collect, sell, and deliver any of the Mortgage Collateral and all other
documents relating thereto. The powers and authorities herein conferred on
Secured Party may be exercised by Secured Party through any Person who, at the
time of the execution of a particular instrument, is an authorized officer of
Secured Party. The power of attorney conferred by this Paragraph 9 is granted
for a valuable consideration and is coupled with an interest and irrevocable so
long as the Secured Indebtedness, or any part thereof, shall remain unpaid or
the Commitment is outstanding. All Persons dealing with Secured Party, or any
officer thereof acting pursuant hereto shall be fully protected in treating the
powers and authorities conferred by this Paragraph 9 as existing and continuing
in full force and effect until advised by Secured Party that the Secured
Indebtedness have been fully and finally paid and satisfied and the Commitment
has been terminated. Debtor hereby authorizes Secured Party to file, without the
signature of Debtor where permitted by law, one or more financing statements,
continuation statements or initial financing statements and amendments thereto
indicating the Collateral. Debtor further agrees that a carbon, photographic or
other reproduction of this Agreement or any financing statement describing any
Collateral is sufficient as a financing statement and may be filed in any
jurisdiction by Secured Party.

         10. Default and Remedies.

         (a) While an Event of Default exists under any Loan Document, Secured
Party may, without notice to or demand upon Debtor: (a) foreclose or otherwise
enforce Secured Party's security interest for the benefit of the Lenders in the
Collateral in any manner permitted by law or provided for hereunder; (b) sell or
otherwise dispose of in a commercially reasonable manner the Collateral or any
part thereof at one or more public or private sales or at any broker's board or
on any securities exchange, whether or not such Collateral is present at the
place of sale, for cash or credit or future delivery and without assumption of
any credit risk, on such terms and in such manner as Secured Party may
determine; (c) require Debtor to assemble the Collateral and/or books and
records relating thereto and make such available to Secured Party at a place to
be designated by Secured Party; (d) enter into property where any Collateral or
books and records relating thereto are located and take possession thereof with
or without judicial process; and (e) prior to the disposition of the Collateral,
prepare it for disposition in any manner and to the extent Secured Party deems
appropriate. Whether or not Secured Party exercises any right given pursuant to
this section upon the occurrence of any Event of Default, Secured Party on
behalf of the Lenders shall have as to any Collateral all other rights and
remedies provided for herein and all rights and remedies of a secured party
under the Texas Uniform Commercial Code and, in addition thereto and not in lieu
thereof, all other rights or remedies at law or in equity existing or conferred
upon Secured Party on behalf of the Lenders by other jurisdictions or other
applicable law or given to Secured Party on behalf of the Lenders pursuant to
any security agreement, other instrument or agreement heretofore, now, or
hereafter given as security for Debtor's obligations hereunder.

                                       9

<PAGE>

        (b) Secured Party is authorized, at any such sale, if it deems it
advisable so to do, to restrict the prospective bidders or purchasers to Persons
who will represent and agree that they are purchasing for their own account, for
investment, and not with a view to the distribution or sale of any of the
Collateral. Upon any sale or other disposition pursuant to this Security
Agreement, Secured Party shall have the right to deliver, assign and transfer to
the purchaser thereof the Collateral or portion thereof so sold or disposed of
and all proceeds thereof shall be promptly distributed in accordance with the
terms of the Credit Agreement. Each purchaser at any such sale or other
disposition shall hold the Collateral free from any claim or right of whatever
kind, including any equity or right of redemption of Debtor, and Debtor
specifically waives (to the extent permitted by law) all rights of redemption,
stay or appraisal which it has or may under any rule of law or statute now
existing or hereafter adopted. Secured Party shall give Debtor only such notice
and shall publish such notice as may be required by the Texas Uniform
Commercial Code or by other applicable law of the intention to make any such
public or private sale or sale at broker's board or on a securities exchange.
Debtor acknowledges and agrees that a private sale of any Collateral pursuant to
any Take-Out Commitment shall be deemed to be a sale of such Collateral in a
commercially reasonable manner, provided that such sale is substantially on the
terms and conditions of such Take-Out Commitment. Any such public sale shall be
held at such time or times within the ordinary business hours and at such place
or places permitted by the Texas Uniform Commercial Code. At any such sale the
Collateral may be sold in one lot as an entirety or in separate parcels, as
Secured Party may determine. Secured Party may adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of all or any
part of the Collateral on credit or for future delivery, (i) the Collateral so
sold may be retained by Secured Party until the selling price is paid by the
purchaser thereof, (ii) none of the Lenders or Secured Party shall incur any
liability in case of the failure of such purchaser to take up and pay for the
Collateral so sold, and (iii) in case of any such failure, such Collateral may
again be sold as provided herein. Nothing contained in this Security Agreement
shall prohibit any Lender or Lenders from purchasing the Collateral at such
sale.

         11. Waiver. Neither Secured Party nor any Lender shall incur any
liability as a result of the sale of the Collateral in a commercially reasonable
manner, or any part thereof, at any public or private sale. Debtor each hereby
waives any claims it may have against Secured Party or any Lender arising by
reason of the fact that the price at which the Collateral may have been sold at
such private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Secured Indebtedness
then outstanding.

        12. Binding Upon Successors. All rights of Secured Party and the Lenders
under this Security Agreement shall inure to the benefit of Secured Party and
the Lenders and their successors and assigns, and all obligations of Debtor
shall bind their successors and assigns; provided that Debtor shall not have the
right to assign its rights or obligations under this Security Agreement without
the consent of all the Lenders.

                                       10

<PAGE>

         13. Entire Agreement; Severability. This Security Agreement and the
Credit Agreement contains the entire security agreement and collateral agency
agreement with respect to the Collateral among Lenders, Secured Party and
Debtor and supersedes all prior written or oral agreements and understandings
relating thereto. All waivers by Debtor provided for in this Security Agreement
have been specifically negotiated by the parties with full cognizance and
understanding of their rights. If any of the provisions of this Security
Agreement shall be held invalid or unenforceable, this Security Agreement shall
be construed as if not containing such provisions, and the rights and
obligations of the parties hereto shall be construed and enforced accordingly.

         14. Choice of Law. This Security Agreement shall be construed in
accordance with and governed by the laws of the State of Texas, except to the
extent that the perfection and the effect of perfection or non-perfection of the
security interest created hereunder, in respect of any of the Collateral, are
governed by the laws of a jurisdiction other than the State of Texas. Where
applicable and except as otherwise defined herein or in the Credit Agreement,
terms used herein have the meanings given them in the Texas Uniform Commercial
Code.

         15. Place of Business; Records. Debtor represents and warrants that its
principal place of business and chief executive office is at the address set
forth beneath its signature below, and that its books and records concerning the
Collateral are kept at its principal place of business and chief executive
office. Debtor shall not change its principal place of business and chief
executive office without 30 days' prior written notice to Secured Party.

         16. Notice. Except where instructions or notices are expressly
authorized elsewhere in this Security Agreement to be given by telephone or by
other means of transmission, all instructions, notices and other communications
to be given to any party hereto shall be given as provided in the Credit
Agreement.

         17. Modification of Agreement. No provisions of this Agreement may be
amended or waived (except for waivers expressly provided for hereunder) unless
such amendment or waiver is in writing and is signed by Debtor and Secured
Party.

              [THE BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       11

<PAGE>

         EXECUTED as of the day and year fast above written.

                                PREFERRED HOME MORTGAGE COMPANY

                                By: _________________________________________
                                    Name:  __________________________________
                                    Title: __________________________________

                                    Address for Notices:

                                    123 NW 13th Street, Suite 300
                                    Boca Raton, FL 33432
                                    Attention: Paul Leikert
                                    Fax: (561) 391-9653
                                    Tel: (561) 391-4012 Ex. 128

                                    with a copy to:
                                    Holly Hubenak
                                    Technical Olympic U.S.A., Inc.
                                    1200 Soldiers Field Drive
                                    Sugarland, Texas 77479
                                    FAX: (281) 243-0100
                                    TEL: (281) 243-0116

                                GUARANTY BANK

                                By: _________________________________________
                                    Carolyn Eskridge, Vice President

                                    Address for Notices:

                                    8333 Douglas Avenue
                                    Dallas, Texas 75225
                                    Attention: Carolyn Eskridge
                                    Fax: (214) 360-1660
                                    Tel: (214) 360-3357

<PAGE>

                             EXHIBITS AND SCHEDULES
                                       TO
                               SECURITY AGREEMENT

SCHEDULE                                                                DOCUMENT
--------                                                                --------

A                                                    Required Mortgage Documents

B                                         Additional Required Mortgage Documents

EXHIBIT                                                                 DOCUMENT
-------                                                                 --------

1                                                   Form of Debtor Trust Receipt

2                                                       Form of Shipping Request

3                                             Form of Bailee Letter to Investors

4                                             Form of Collateral Release Request

<PAGE>

                                   SCHEDULE A

                          REQUIRED MORTGAGE DOCUMENTS

         A. Original of Mortgage Note executed in favor of Debtor or the
originator who sold such Mortgage Note to Debtor (with a complete series of
endorsements without recourse from the original payee thereof, through any
subsequent holders to Debtor if purchased by Debtor and endorsed by an
authorized signatory of Debtor in blank).

         B. Recorded Mortgage securing the above Mortgage Note, noting the
presence of the MIN of the Mortgage (if applicable) and language indicating that
the Mortgage Loan is a MOM Loan if the Mortgage Loan is a MOM Loan. In lieu of a
recorded document, Secured Party may accept a copy certified as being out for
recordation by the escrow company, title insurance company or closing Secured
Party, or in the case of refinanced transactions, a copy of such Mortgage
certified by an authorized signatory of Debtor.

         C. Unless the Mortgage is registered on the MERS(R) System, an
assignment of the Mortgage by an authorized signatory of Debtor in blank, in
recordable form and the original or copy (which is certified as being out for
recordation by the records office or escrow or title insurance company or
Debtor) of a proper assignment or assignments of the related Mortgage from the
original holder, through any subsequent transferees, to Debtor.

         D. If the Mortgage is registered on the MERS(R) System and noting the
presence of a MIN, an assignment of the Mortgage executed by the Debtor in favor
of MERS, in recordable form and the original or copy (which is certified as
being out for recordation by the records office or escrow or title insurance
company or Debtor) of a proper assignment or assignments of the related Mortgage
from me original holder, through any subsequent transferees, to Debtor.

         E. A copy, certified by the title insurance company or the closing
Secured Party, of all applicable and necessary powers-of-attorney and assumed
name certificates.

         F. Within three (3) Business Days after the Mortgage Loan is included
in the Collateral Value of the Borrowing Base, a copy of the executed master
Take-Out Commitment relating to such Mortgage Note, a certificate of Debtor
confirming such Mortgage Loan will be delivered under such Take-Out Commitment
and a copy of Seller's internally-prepared Status of Outstanding Negotiated
Commitments.

<PAGE>

                                   SCHEDULE B

                     ADDITIONAL REQUIRED MORTGAGE DOCUMENTS

         1. The original recorded Mortgage securing the Mortgage Note if not
delivered to Lender.

         2. Evidence of fire and extended coverage insurance in an amount not
less than the highest of the following. (a) the amount of the Mortgage Loan, (b)
90% of the insurable value of the improvements, and (c) an amount sufficient to
prevent co-insurance. Secured Party reserves the right to obtain a loss payable
endorsement in its favor if it so desires.

         3. Evidence of Notice to Customer required by the federal
Truth-in-Lending Law and Federal Reserve Regulation Z.

         4. In the case of an FHA Mortgage Note, an FHA insurance certificate or
a commitment to deliver such; in the case of a VA mortgage note; a VA guaranty
certificate or a commitment to deliver such and in the case of a conventional
mortgage note, an appraisal.

         5. A certified copy of the preliminary policy of or commitment for
title insurance insuring the Mortgage as a first lien on the property subject
thereto written by a title company and in amount and containing exceptions
satisfactory to Secured Party.

         6. Evidence of certificate of completion, as appropriate under the
circumstances.

         7. Other documentation as Secured Party may reasonably deem
appropriate, as well as documentation necessary to ME requirements of the
Take-Out Commitments.

         8. Such additional documents as may be necessary in the opinion of
Secured Party to transfer to Secured Party, for the benefit of the Lenders, the
title to any Collateral pledged and/or hypothecated pursuant to the Security
Agreement.

<PAGE>

                                                                       EXHIBIT 1

                                 TRUST RECEIPT

DATE: _______________ , 2001

GUARANTY BANK
8333 Douglas Avenue
11th Floor
Dallas, Texas 75225

Attn: Carolyn Eskridge

Pursuant to Paragraph 4 of the Security Agreement by and among Guaranty Bank and
Preferred Home Mortgage Company, as "Debtor" (as amended, supplemented or
restated from time to time, the "Security Agreement"), Debtor requests the
temporary transfer of the original Mortgage Note(s) as listed below to allow
Debtor to make corrections to such Mortgage Notes. We acknowledge that these
Mortgage Notes are being used as Mortgage Collateral for the warehouse line of
credit established by the Credit Agreement dated as of July 5, 2001 by and among
Secured Party and Debtor (as amended, supplemented or restated from time to
time, the "Credit Agreement").

           Obligor             Loan Amount          Collateral Value
           -------             -----------          ----------------

__________________________ __________________ _______________________________

         Debtor agrees to hold the Mortgage Notes in trust for Secured Party, as
a custodian, bailee and agent for the benefit of Secured Party. Debtor agrees to
do the following within ten (10) days of this date:

         (a) Return the Mortgage Notes to Secured Party, or

         (b) Pay to Secured Party the aggregate Unit Collateral Value of the
Mortgage Notes.

         In the event Debtor is unable for any reason to comply with the terms
of this Trust Receipt, Debtor shall immediately return the Mortgage Notes to
Secured Party.

         By accepting the Mortgage Notes, Debtor shall be bound by the terms of
this Trust Receipt. Secured Party requests that Debtor acknowledge the receipt
of the Mortgage Notes and this Trust

<PAGE>

Receipt by signing below. Capitalized terms not defined herein are used as
defined in the Credit Agreement.

REQUESTED BY:

PREFERRED HOME MORTGAGE COMPANY

By: ________________________
    Name:
    Title:

STATE OF TEXAS              )
                            )
                            )
                            )
COUNTY OF DALLAS            )

        This instrument was ACKNOWLEDGED before me the ______ day of
______________, 200__, by ________________________________________________ of
__________________________________________________________________________, a
_______________________, on behalf of said _________________________________.

                                        ______________________________________
                                        Notary Public - State of _____________

My Commission expires:                  ______________________________________
_________________________               Printed Name of Notary

                                       2

<PAGE>

                                                                       EXHIBIT 2

                            FORM OF SHIPPING REQUEST

Date: ____________, 2001

GUARANTY BANK
8333 Douglas Avenue
Dallas, Texas 75225
Attention: Carolyn Eskridge
FAX: (214) 360-1660
Telephone: (214) 360-3357

This letter is to serve as authorization for you to endorse and ship the
following loans:

        Loan Number            Obligor Name                  Note Amount
        -----------            ------------                  -----------

to the following address under Take-Out Commitment # __________________ (the
"Commitment") from an Investor as follows:

NAME:
ADDRESS:

ATTENTION:

Please endorse the notes as follows:

Please ship the loan documents either by ____________ or by such other courier
service as we have designated to you as "approved." The courier shall act as an
independent contractor bailee acting solely on your behalf, but we acknowledge
and agree that you are not responsible for any delays in shipment caused by
courier or any other actions or inactions of the courier, including, without
limitation, any loss of any loan documents; however, because the Commitment
expires on ____________, 200__, we ask that you deliver the loan documents to
the courier no later than ____________, 200__.

<PAGE>

Please have the courier bill us by using our acct. #________. If you should have
any questions, or should feel the need for additional documentation, please do
not hesitate to call ___________________.

                                                PREFERRED HOME MORTGAGE COMPANY

                                                By: ___________________________
                                                    Name:
                                                    Title:

                                       2

<PAGE>
                                                                       EXHIBIT 3

                          BAILEE LETTER FOR INVESTORS

____________________                                               GUARANTY BANK
____________________                                         8333 Douglas Avenue
____________________                                         Dallas, Texas 75225
                                                     Attention: Carolyn Eskridge
                                                     Mortgage Finance Department
                                                             FAX: (214) 360-1660
                                                       Telephone: (214) 360-3357

The enclosed mortgage notes and other documents (the "COLLATERAL") as more
particularly described on the attached schedule, have been assigned and pledged
to GUARANTY BANK ("SECURED PARTY") as collateral under the Credit Agreement (as
renewed, extended, amended, or restated, the "CREDIT AGREEMENT") dated as of
July 5, 2001, between Preferred Home Mortgage Company ("BORROWER") and Secured
Party.

The Collateral itself is being delivered to you for purchase. Either payment in
full for the Collateral or the collateral itself must be received by Secured
Party within forty-five (45) days after the date of this letter. Until that
time, you are deemed to be holding the Collateral in trust as bailee for Secured
Party, subject to the security interest granted Secured Party in accordance with
the applicable provisions of the Uniform Commercial Code. No property interest
in the Collateral is transferred to you until Secured Party receives the greater
of either (i) the agreed purchase price of the Collateral or (ii) $_____________
which is the full amount of the advances under the Credit Agreement in respect
of the Collateral. If you receive conflicting instructions regarding the
Collateral from Borrower and Secured Party, you agree to act in accordance with
Secured Party's instructions. SECURED PARTY RESERVES THE RIGHT, AT ANY TIME
BEFORE IT RECEIVES FULL PAYMENT, TO NOTIFY YOU AND REQUIRE THAT YOU RETURN THE
COLLATERAL TO SECURED PARTY

Payment for the Collateral must be made by wire transfer of immediately
available funds to:

        GUARANTY BANK                                Account Number ____________
        Secured Party                                Attn:
        ABA Number:                                  TEL:
        Further Credit:                              FAX:
<PAGE>
BY ACCEPTING THE COLLATERAL DELIVERED TO YOU WITH THIS LETTER, YOU CONSENT TO BE
SECURED PARTY'S BAILEE ON THE TERMS DESCRIBED IN THIS LETTER. SECURED PARTY
REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED COLLATERAL AND THIS
LETTER BY SIGNING AND RETURNING TO SECURED PARTY THE ENCLOSED COPY OF THIS
LETTER, BUT YOUR FAILURE TO DO SO DOES NOT NULLIFY YOUR CONSENT. If you fail to
make full payment to Secured Party for it within forty-five (45) days after the
date of this letter, you are instructed to return all of the Collateral to
Secured Party.

This letter binds you and your successors, assigns, trustees, conservators, and
receivers and inures to Secured Party, Lenders, and their respective successors
and assigns.

                                   Very truly yours,

                                   GUARANTY BANK

                                   By:___________________________________
                                        Name:
                                        Title:

Acknowledged and Agreed as of _________________, 2001

[NAME OF BAILEE]

By:____________________________
    Name:
    Title:

                                       2
<PAGE>
                                                                       EXHIBIT 4

                           COLLATERAL RELEASE REQUEST

TO:      GUARANTY BANK as Secured Party                        Date:____________

1.       Preferred Home Mortgage Company, hereby requests the release of the
         Mortgage Collateral herein specified, pursuant to Paragraph 4(f) of the
         Security Agreement (as amended, supplemented or restated from time to
         time, the "Agreement") between Debtor and Guaranty Bank ("Secured
         Party"), and hereby directs Secured Party, in accordance with the
         provisions of the Agreement and that certain Credit Agreement dated as
         of July 5, 2001, between Debtor and Secured Party and the Lenders named
         therein (as from time to time amended, supplemented or restated, the
         "Credit Agreement") to hold or deliver the Mortgage Collateral
         described on the attached schedule as directed herein. Capitalized
         terms used herein and defined in the Credit Agreement shall be used
         herein as so defined.

2.       Release Requested:

         Debtor hereby requests that Secured Party release any security interest
         it may have in each Mortgage Note (the "Identified Notes") described on
         Schedule I attached hereto.

3.       Delivery Instructions:

         Debtor hereby directs Secured Party to (check applicable blank):

         _______  To hold the Identified Notes pending written delivery
                  instructions from Borrower.

         _______  To deliver the Identified Notes to the Person described in the
                  attached instructions in accordance with the attached
                  instructions.

4.       The undersigned officer of Debtor represents and warrants to Secured
         Party:

         (a)      Debtor is entitled to receive the requested release under the
                  terms and conditions of the Agreement and the Credit
                  Agreement;

         (b)      no Default or Event of Default has occurred and is continuing
                  under the Credit Agreement;
<PAGE>
         (c)      no change or event which constitutes a Material Adverse Effect
                  has occurred; and

         (d)      (i) the Collateral Value of the Borrowing Base (after giving
                  effect to the release requested pursuant to Paragraph 2 of
                  this Collateral Release Request) is $________

                  (ii) the Loan Balance is $_________

                  (vii) Debtor is entitled to such release. (Requirement of
                  Agreement: item (i) not less than item (ii).

5.       The representations and warranties of Debtor contained in the Credit
         Agreement and those contained in each other Loan Document to which
         Debtor is a party (other than those representations and warranties
         which are by their terms limited to the date of the agreement in which
         they were initially made) are true and correct in all material respects
         on and as of the date hereof.

                                 PREFERRED HOME MORTGAGE COMPANY

                                 By:_____________________________________
                                      Name:______________________________
                                      Title:_____________________________

                                       2
<PAGE>
                                   SCHEDULE I

                         MORTGAGE NOTES TO BE RELEASED

<TABLE>
<CAPTION>
                        Original
 Loan                   Principal     Collateral                             Interest     Maturity
Number      Date         Amount          Value         Maker      Payee        Rate         Date
------      ----         ------       ----------       -----      -----        ----         ----
<S>         <C>         <C>           <C>              <C>        <C>        <C>          <C>

</TABLE>

                        COLLATERAL DELIVERY INSTRUCTIONS
<PAGE>
                                                                       EXHIBIT G

                         OPINION OF BORROWER'S COUNSEL

                                  July 5, 2001

Guaranty Bank
8333 Douglas Avenue
Dallas, Texas 75225

Ladies and Gentlemen:

         We have acted as special counsel to Preferred Home Mortgage Company, a
Florida corporation (the "Borrower") and Engle Homes, Inc., a Florida
corporation ("Guarantor") in connection with (i) the Credit Agreement, dated as
of July 5, 2001 (the "Credit Agreement"), among the Borrower and Guaranty Bank,
as Lender and the transactions contemplated thereby, and (ii) the Mortgage Loan
Purchase and Sale Agreement by and between the Borrower, as Seller, and the
Lender, as Buyer, dated as of even date with the Credit Agreement (the "Purchase
Agreement") and the transactions contemplated thereby. The Borrower and the
Guarantor are hereinafter collectively referred to as the "Loan Parties".

         The opinions expressed below are furnished to you pursuant to Section
3.1(a)(vi) of the Credit Agreement. Unless otherwise defined herein, terms
defined in the Credit Agreement or the Purchase Agreement and used herein shall
have the meanings given to them in the Credit Agreement or the Purchase
Agreement, as the case may be.

         A. BASIS OF OPINION

         In arriving at the opinions expressed below, we have examined and
relied upon:

         (a) originals, or copies certified or otherwise identified to our
satisfaction, of each of (1) the Credit Agreement, (2) the Note, (3) the
Security Agreement, (4) the Guarantee, (5) the Purchase Agreement and (6) the
MERS Agreements (the documents listed in (1) through (6) above being hereinafter
referred to collectively as the "Loan Documents");

         (b) copies of such corporate documents and records of the Loan Parties,
certificates of officers and representatives of certain of the Loan Parties, and
such other agreements, documents, instruments and certificates of public
officials and other Persons as we

<PAGE>
Guaranty Bank
Page 2
July 5, 2001

have deemed necessary or appropriate for the purposes of rendering the opinions
expressed herein; and

         (c) such matters of law as we have deemed necessary or appropriate as a
basis for the opinions expressed herein.

         B. ASSUMPTIONS

         In rendering the opinions expressed below, we have assumed, with your
permission, without independent investigation or inquiry, (a) the due
authorization, execution and delivery of the Loan Documents by all parties to
such documents (other than the Loan Parties) and that the Loan Documents are
valid, binding and enforceable (subject to the limitations on enforceability of
the types referred to in the qualifications below) against the parties thereto
(other than the Loan Parties), (b) the legal capacity of natural persons, (c)
the genuineness of all signatures on all documents that we examined, (d) the
authenticity of all documents submitted to us as originals, and (e) the
conformity to authentic originals of all documents submitted to us as certified,
conformed or photostatic copies.

         As to questions of fact material to the opinions hereinafter expressed,
we have relied without investigation upon the representations and warranties of
the Borrower and the Guarantor made in the Loan Documents. We have made no
examination or investigation to verify the accuracy or completeness of any
financial, accounting, or statistical information set forth in the Loan
Documents or otherwise furnished to you and, accordingly, express no opinion
with respect thereto.

         C. OPINIONS

         Based upon our examination and review as set forth in Section A hereof,
and subject to the assumptions, exceptions, qualifications, and limitations set
forth in Sections B and D hereof, we are of the opinion that:

         1. Each of Borrower and Guarantor (a) is a corporation duly organized,
validly existing and in good standing under the laws of the State of Florida,
(b) has the corporate power and authority to conduct the business in which it is
currently engaged and (c) is duly qualified as a foreign corporation and in good
standing under the laws of each jurisdiction where the conduct of its business
requires such qualification, except to the extent that the failure to be so
qualified could not, individually or in the aggregate, have a Material Adverse
Effect.

         2. Each of Borrower and Guarantor has the corporate power and authority
to make, deliver and perform the Loan Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Loan Documents to which it is a party.

         3. Except for any which may have been obtained, made or taken, as the
case may be, to the best of our knowledge, no consent or authorization of,
approval by, notice to, filing with or other act by or in respect of, any
Governmental Authority or any other Person is required

<PAGE>
Guaranty Bank
Page 3
July 5, 2001

in connection with the borrowings under the credit Agreement and the Note or
with the execution, delivery, performance, validity or enforceability by each
Loan Party of the Credit Agreement, the Purchase Agreement and each of the other
Loan Documents.

         4. Each of the Loan Documents to which any Loan Party is a party has
been duly executed and delivered on behalf of such Loan Party.

         5. Each of the Loan Documents to which any Loan Party is a party
constitutes a legal, valid and binding obligation of such Loan Party,
enforceable against such Loan Party in accordance with its terms.

         6. The execution and delivery of the Loan Documents, the performance by
each Loan Party of its obligations thereunder, the consummation of the
transactions contemplated thereby, and the compliance by the Loan Parties with
any of the provisions thereof (a) will not violate any provision of the
organizational documents of such Loan Party, (b) will not conflict with or
constitute or result in a violation of any Law and (c) to the best of our
knowledge, will not constitute or result in a breach of or a default under or
result in the maturing of any Indebtedness pursuant to any indenture, mortgage,
deed of trust, note or loan agreement, material license agreement, or other
material agreement or instrument to which such Loan Party is a party or by which
any of its properties are bound. To the best of our knowledge, no Loan Party is
in default under or with respect to any obligation, which default, if not cured
or waived, either individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.

         7. Except as set forth in the Disclosure Schedule to the Credit
Agreement, to the best of our knowledge, no litigation, investigation or
proceeding of or before any arbitrator or Governmental Authority is pending or
threatened by or against any Loan Party or against any of their respective
properties or revenues (a) with respect to the Credit Agreement, the Purchase
Agreement or any other Loan Document, or (b) which is otherwise required to be
disclosed under the Loan Documents, which, either individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

         8. None of the Loan Parties is an "investment company", or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.

         D. QUALIFICATIONS AND EXCEPTIONS

         The opinions rendered above are subject in all respects to the
following qualifications

         1. Our opinion in paragraph 1 above, as to the due organization, valid
existence and good standing of each of Borrower and Guarantor, is rendered
solely in reliance on the accuracy of relevant certificates given by the
Secretary of State of the State of Florida and dated June 25, 2001.
<PAGE>
Guaranty Bank
Page 4
July 5, 2001

         2. Our opinion in paragraph 5 above, as to enforceability, is subject
to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally.

         3. Our opinions are subject to the effect of general principles of
equity (whether considered in a proceeding in equity or at law). In rendering
our opinions, we have assumed that the parties to the Loan Documents will
perform their obligations and exercise their rights under such documents within
the standards of reasonableness, good faith and fair dealing imposed by
applicable law.

         4. We express no opinion with respect to the legality, validity,
binding nature, or enforceability of any of the following provisions found in
the Loan Documents, if any: (1) provisions relating to waivers, precluding a
party from asserting certain claims or defenses or from obtaining or exercising
certain rights, releases, and remedies, or excusing a party from damages,
liability, or obligations to the extent such provisions may violate public
policy or otherwise violate applicable law; (ii) provisions relating to
subrogation rights, delay or omission of enforcement of rights or remedies,
severability, or set offs that violate applicable law; (iii) provisions
obligating a party to submit to the jurisdiction or venue of any court; (iv)
provisions purporting to establish evidentiary standards for suits or
proceedings to enforce the Loan Documents; (v) provisions that decisions by a
party are conclusive; and (vi) provisions purporting to effect the automatic
service of process on any person.

         5. As used in the opinions expressed herein, the phrase "to the best of
our knowledge," refers solely to the actual current knowledge of those attorneys
who have given attention to the Borrower and the Guarantor in connection with
the Loan Documents and does not (a) include constructive notice of matters or
information, or (b) except for our conversations with certain officers of the
Borrower and the Guarantor and our review of the Loan Documents and certificates
of executive officers of the Borrower, imply that we have undertaken any
independent investigation (i) with any persons outside of our firm, or (ii) as
to the accuracy or completeness of any factual representation or other factual
information made or furnished in connection with the transactions contemplated
by the Loan Documents. Furthermore, such reference means only that we do not
know of any fact or circumstance contradicting the statement that follows, and
does not imply that we know the statement to be correct or have any basis (other
than the Loan Documents) for the statement. Although we have acted as special
counsel to the Borrower and the Guarantor in connection with the Loan Documents,
we have not represented Borrower prior to this engagement. Consequently, there
may exist matters of a legal nature involving the Borrower in connection with
which we do not have knowledge.

         6. We are members of the bar of the State of Texas and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
Texas and the Federal laws of the United States of America. With respect to the
MERS Agreements, we have assumed for all purposes herein, with your permission,
that the laws of the State of Virginia and the State of New York, respectively,
do not differ in any way from the laws of the State of Texas.

<PAGE>

Guaranty Bank
Page 5
July 5, 2001

         7. This opinion letter is limited to the matters stated herein and no
opinions may be implied or inferred beyond the matters expressly stated herein.

         8. The opinions expressed herein are as of the date hereof, and we
assume no obligation to update or supplement such opinions to reflect any facts
or circumstances that may hereafter come to our attention or any changes in law
that may hereafter occur.

<PAGE>

Guaranty Bank
Page 6
July 5, 2001

         9. This opinion has been rendered solely for your benefit and for the
benefit of your Assignees in connection with the Credit Agreement and the
transactions contemplated thereby and may not be used, circulated, quoted,
relied upon or otherwise referred to for any other purpose without our prior
written consent; provided, however, that this opinion may be delivered to your
regulators, accountants, attorneys and other professional advisers and may be
used in connection with any legal or regulatory proceeding relating to the
subject matter of this opinion.

                                                        Very truly yours,

                                                        VINSON & ELKINS L.L.P.

<PAGE>

                                                                       EXHIBIT H

                           BORROWING BASE CERTIFICATE

                              _____________, 200__

         Reference is made to that certain Credit Agreement dated as of July 5,
2001 (as from time to time amended, the "Agreement") by and among PREFERRED HOME
MORTGAGE COMPANY ("Borrower") and GUARANTY BANK ("Lender"). Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement

         This Certificate is being furnished pursuant to Section 5.01(a)(vii) of
the Agreement. Borrower hereby certifies to Lender as follows:

         i.        The officer of Borrower signing this instrument is the duly
              elected, qualified and acting __________________ of Borrower and
              as such is authorized to submit this Certificate on behalf of
              Borrower;

         ii.       As of the close of business on ________________, the
              Collateral Value of Borrowing Base was computed as follows:

         COLLATERAL VALUE OF THE BORROWING BASE:

         A.   Unit Collateral Value of Eligible Mortgage Loans:     $__________

              Ninety-eight percent (98%) of the least of:           $__________

              (i) the outstanding principal balance of the
              Mortgage Note constituting such Mortgage Loan;        $__________

              (ii) the actual out-of-pocket cost to Borrower of
              such Mortgage Loan minus the amount of principal
              paid under such Mortgage Loan and delivered to
              Lender for application to the prepayment of the
              Loans;                                                $__________

              (iii) the amount at which an Investor has committed
              to purchase the Mortgage Loan pursuant to a
              Take-Out Commitment not to exceed 100% of the
              original principal balance of the Mortgage Note;
              or                                                    $__________

<PAGE>

              (iv) the Market Value of the Mortgage Note
              constituting such Mortgage Loan.                      $__________

              Total of A:                                           $__________

         B.   COLLATERAL VALUE OF THE BORROWING BASE
              TOTAL OF A                                            $__________

         C.   LOAN BALANCE                                          $__________

         E.   MAXIMUM AVAILABILITY
              UNDER THE BORROWING BASE (B-C)                        $__________

        The officer of Borrower signing this Borrowing Base Certificate
certifies that, to the best of his knowledge after due inquiry, the above
certifications of Borrower are true, correct and complete.

                                                PREFERRED HOME MORTGAGE COMPANY

                                                By:____________________________
                                                     Name:
                                                     Title:

                                       2

<PAGE>

                                                                       EXHIBIT I

                         CONTINUATION/CONVERSION NOTICE

         Reference is made to that certain Credit Agreement dated as of July 5,
2001 (as from time to time amended, the "Agreement"), by and among PREFERRED
HOME MORTGAGE COMPANY ("Borrower") and GUARANTY BANK ("Lender"). Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.

         Borrower hereby requests a Conversion or Continuation of existing Loans
into a new Borrowing pursuant to Section 2.6 of the Agreement as follows:

         Existing Borrowing(s) to be continued or converted:

                  $______________ of Eurodollar Loans with Interest Period
                  ending _______________

                  $______________ of Base Rate Loans

                  If being combined with new Loans, $______________ of new Loans
to be advanced on ____________

         Aggregate amount of new Borrowing:                    $_______________

         Type of Loans in new Borrowing:                        _______________

         Date of Continuation or Conversion:                    _______________

         Length of Interest Period for Eurodollar Loans
         (1, 2 or 3 months):                                    ________ months

         To meet the conditions set out in the Agreement for such
conversion/continuation, Borrower hereby represents, warrants, acknowledges, and
agrees to and with Agent and each Lender that:

                  I. The officer of Borrower signing this instrument is the duly
         elected, qualified and acting officer of Borrower as indicated below
         such officer's signature hereto having all necessary authority to act
         for Borrower in making the request herein contained.

                  II. There does not exist on the date hereof any condition or
         event which constitutes a Default which has not been waived in writing
         as provided in Section 10.2 of the Agreement.

<PAGE>

                  III. The Loan Documents have not been modified, amended or
         supplemented by any unwritten representations or promises, by any
         course of dealing, or by any other means not provided for in Section
         10.2 of the Agreement. The Agreement and the other Loan Documents are
         hereby ratified, approved, and confirmed in all respects.

         The officer of Borrower signing this instrument hereby certifies that,
to the best of his knowledge after due inquiry, the above representations,
warranties, acknowledgments, and agreements of Borrower are true, correct and
complete.

         IN WITNESS WHEREOF this instrument is executed as of ______________ .

                                                PREFERRED HOME MORTGAGE COMPANY

                                                By: ___________________________
                                                    Name:
                                                    Title

                                       2Employment Agreement - David C. Wittig

  
 Exhibit 10.1 
 EMPLOYMENT AGREEMENT 
  
 THIS AGREEMENT is entered into as of the 23rd day of September,
2002 by and between Westar Energy, Inc., a Kansas corporation (the “Company”), and David C. Wittig (“Executive”). This Agreement amends and restates in its entirety the Employment Agreement between the Company (then
named Western Resources, Inc.) and Executive, dated September 19, 2000, as amended. 
  
 W I T N E S S E T H 

 
 WHEREAS, the Company considers the establishment and maintenance of a sound and vital management to be essential to protecting
and enhancing the best interests of the Company and its stockholders; and 
  
 WHEREAS, the Board (as defined in
Section 1) has determined that it is in the best interests of the Company and its stockholders to secure Executive’s continued services; and 
  
 WHEREAS, the Company also recognizes that the possibility of a change in control could arise which may result in the distraction of management to the detriment of the Company and its shareholders. It
is important that Executive be able to advise the Board whether a proposed change in control would be in the best interests of the Company and its shareholders and to take action regarding such proposal as the Board directs, without being influenced
by the uncertainties of Executive’s own situation. 
  
 WHEREAS, the Board has authorized the Company to enter
into this Agreement. 
  
 NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and
agreements herein contained, the Company and Executive hereby agree as follows: 
  
 1.     Definitions.    As used in this Agreement, the following terms shall have the respective meanings set forth below: 
  
 (a)    “Adjusted Base Salary” shall mean ninety percent (90%) of the annual salary job value for the pay grade of Executive and other
remuneration for current services (but excluding all bonuses, stock based awards and other incentive compensation) paid to or for the benefit of Executive. 
  
 (b)    “Base Salary” shall mean all salary, cash compensation and other remuneration for current services (but excluding all bonuses, stock based awards and other
incentive compensation) paid to, for the benefit of or deferred by Executive, together (without duplication) with the compensation that would have been payable in cash to Executive if such compensation had not been converted into Restricted Share
Units pursuant to the Western Resources, Inc. Executive Stock for Compensation Program. 
  
 (c)    “Board” means the Board of Directors of the Company. 
  
 (d)    “Bonus Amount” means the greater of (a) the highest annual incentive bonus payable to or for the benefit of or deferred by Executive from the Company (or its affiliates) for the last three (3)
completed fiscal years of the Company immediately preceding Executive’s Date of Termination 

 

 (annualized in the event Executive was not employed by the Company (or its affiliates) for the whole of any such fiscal year), or (b) the
Executive’s target bonus amount for the year of termination of employment. 
  
 (e)    “Cause” means (i) the willful and continued failure of Executive to perform substantially his duties with the Company (other than any such failure resulting from Executive’s incapacity due to
physical or mental illness or any such failure subsequent to Executive being delivered a Notice of Termination without Cause by the Company or delivering a Notice of Termination for Good Reason to the Company) after a written demand for substantial
performance is delivered to Executive by the Chairman of the Board which specifically identifies the manner in which Executive has not substantially performed Executive’s duties, or (ii) the willful engaging by Executive in illegal conduct
which is demonstrably and materially injurious to the Company. For purposes of this paragraph (e), no act or failure to act by Executive shall be considered “willful” unless done or omitted to be done by Executive in bad faith and without
reasonable belief that Executive’s action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, based upon the advice
of counsel for the Company or upon the instructions of the Company’s chief executive officer or another senior officer of the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best
interests of the Company. Executive’s attention to matters not directly related to the business of the Company shall not provide a basis for termination for Cause if the Company has not objected to such activity in writing. Cause shall not
exist unless and until the Company has delivered to Executive a copy of a resolution duly adopted by three-quarters (3/4) of the entire Board (excluding any Board member who is an employee of the Company) at a meeting of the Board called and held
for such purpose (after reasonable notice to Executive and an opportunity for Executive, together with counsel, to be heard before the Board), finding that in the good faith opinion of the Board an event set forth in clauses (i) or (ii) has occurred
and specifying the particulars thereof in detail. 
  
 (f)    “Change in Control” means
the occurrence of any one of the following events: 
  
 (i)    individuals who, on
September 23, 2002, constitute the Board (the “Incumbent Directors”) cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to September 23, 2002, whose election or
nomination for election was approved by a vote of at least three-fourths of the Incumbent Directors then on the Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be an Incumbent Director; provided, however, that no individual initially elected or nominated as a director of the Company as a result of an actual or threatened election
contest with respect to directors or as a result of any other actual or threatened solicitation of proxies or consents, by or on behalf of any person other than the Board shall be deemed to be an Incumbent Director; 
  
 (ii)    any “person” (as such term is defined in Section 3(a)(9) of the Securities Exchange
Act of 1934 (the “Exchange Act”) and as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under the 

 
 2 

 Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power
of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, that the event described in this paragraph (ii) shall not be deemed to be
a Change in Control by virtue of any of the following acquisitions: (A) by the Company or any Subsidiary, (B) by any employee benefit plan (or related trust) sponsored or maintained by the Company or any Subsidiary, (C) by any underwriter
temporarily holding securities pursuant to an offering of such securities, (D) pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii)), (E) pursuant to any acquisition by Executive or any group of persons including Executive (or any
entity controlled by Executive or any group of persons including Executive); 
  
 (iii)    the consummation of a merger, consolidation,. statutory share exchange or similar form of corporate transaction involving the Company or any of its Subsidiaries (a “Business Combination”),
unless immediately following such Business Combination: (A) more than 60% of the total voting power of (x) the corporation resulting from such Business Combination (the “Surviving Corporation”), or (y) if applicable, the ultimate parent
corporation that directly or indirectly has beneficial ownership of 100% of the voting securities eligible to elect directors of the Surviving Corporation (the “Parent Corporation”), is represented by Company Voting Securities that were
outstanding immediately prior to such Business Combination (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Business Combination), and such voting power among the holders thereof
is in substantially the same proportion as the voting power of such Company Voting Securities among the holders thereof immediately prior to the Business Combination, (B) no person (other than any employee benefit plan (or related trust) sponsored
or maintained by the Surviving Corporation or the Parent Corporation) is or becomes the beneficial owner, directly or indirectly, of 20% or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent
Corporation (or, if there is no Parent Corporation, the Surviving Corporation) and (C) at least a majority of the members of the board of directors of the Parent Corporation (or, if there is no Parent Corporation, the Surviving Corporation)
following the consummation of the Business Combination were Incumbent Directors at the time of the Board’s approval of the execution of the initial agreement providing for such Business Combination (any Business Combination which satisfies all
of the criteria specified in (A), (B) and (C) above shall be deemed to be a “Non-Qualifying Transaction”); or 
  
 (iv)    the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or a sale of all or substantially all of the Company’s assets other than the
Company’s interests in Protection One, Inc. or ONEOK, Inc. 
  
 (g)    “Date of
Termination” means (i) if Executive’s employment is to be terminated for Disability, 30 days after Notice of Termination is given (provided that Executive shall not have returned to the performance of Executive’s duties on a full-time
basis during such 30 day period), (ii) if Executive’s employment is to be terminated by the Company for Cause or by Executive for Good Reason, the date specified in the Notice of Termination, (iii) if Executive’s employment is to be
terminated by the Company for any reason other than Cause, the date specified in the Notice of Termination, which shall be 90 days after the Notice of Termination is given, unless an earlier date 

 
 3 

 has been expressly agreed to by Executive in writing, (iv) if Executive’s employment terminates by reason of death, the date of death of
Executive; or (v) if Executive’s employment is terminated by Executive other than for Good Reason, the date specified in Executive’s Notice of Termination, but not more than 30 days after the Notice of Termination is given, unless
expressly agreed to by the Company in writing. 
  
 (h)    “Disability” means
termination of Executive’s employment by the Company due to Executive’s absence from Executive’s duties with the Company on a full-time basis for at least one hundred eighty (180) consecutive days as a result of Executive’s
incapacity due to physical or mental illness, unless within 30 days after Notice of Termination is given to Executive following such absence Executive shall have returned to the full time performance of Executive’s duties. 

 
 (i)    “Good Reason” shall mean termination based on any of the following events: 

 
 (i) (A)    any change in the duties or responsibilities (including reporting
responsibilities) of Executive that is inconsistent in any material and adverse respect with Executive’s position(s), duties, responsibilities or status with the Company (including any adverse diminution of such duties or responsibilities) or
(B) the failure to reappoint or reelect Executive to any position held by Executive without Executive’s consent; provided, however, that Good Reason shall not be deemed to occur upon a change in duties or responsibilities (other
than reporting responsibilities) that is solely and directly a result of the Company no longer being a publicly traded entity and does not involve any other event set forth in this paragraph; 
  

(ii)    a reduction by the Company in Executive’s Base Salary, annual target bonus opportunity or targeted long-term incentive
value (including any material and adverse change in the formula for such annual bonus target or long-term incentive target) as in effect immediately prior to the date hereof or as the same may be increased from time to time thereafter; 

 
 (iii)    any requirement of the Company that Executive (A) be required to relocate more
than 100 miles from Executive’s present place of employment or (B) travel on Company business to an extent substantially greater than the travel obligations of Executive immediately prior to the date hereof; 
  
 (iv)    the failure of the Company to (A) continue in effect any employee benefit plan, welfare
benefit plan or fringe benefit plan in which Executive is participating immediately prior to the date hereof or, if more favorable, which may be available from time to time hereafter to Executive or other executives of the Company, or the taking of
any action by the Company which would materially and adversely affect Executive’s participation in or reduce Executive’s benefits under any such plan, unless Executive is permitted to participate in other plans providing Executive with
substantially equivalent benefits (at no greater cost to Executive with respect to welfare benefit plans), or (B) provide Executive with paid vacation and sick leave in accordance with the most favorable policies of the Company as in effect for
Executive immediately prior to the date hereof or, if more favorable, as may be available for Executive or other executives of the Company after the date hereof; provided however, that prior to a Change in Control, changes in any such plans which
constitute in the aggregate 

 
 4 

 less than 10% of Executive’s aggregate benefits under such plans and which are applied to all employees of the
Company shall not constitute “Good Reason”; 
  
 (v)    any refusal by
the Company to permit Executive to engage in activities not directly related to the business of the Company which Executive was, or other executives of the Company are, permitted to engage in; 
  

(vi)    any purported termination of Executive’s employment which is not effectuated pursuant to Section 17(b) (and which will
not constitute a termination hereunder); 
  
 (vii)    the failure of the Company
to obtain the assumption (and, if applicable, guarantee) agreement contemplated in Section 16(b); or 
  
 (viii)    the Company’s termination of this Agreement or the failure of the Company to renew this Agreement as provided in Section 4 hereof. 
  
 For purposes of this Agreement, any good faith determination of Good Reason by Executive shall be conclusive, provided however, that an isolated, insubstantial and
inadvertent action taken in good faith and which is remedied by the Company within ten (10) days after receipt of notice thereof given by Executive shall not constitute Good Reason. Executive’s right to terminate employment for Good Reason
shall not be affected by Executive’s incapacities due to mental or physical illness and Executive’s continued employment shall not constitute consent to, or a waiver of rights with respect to, any event or condition constituting Good
Reason; provided, however, that Executive must provide notice of termination of employment within one hundred eighty (180) days following Executive’s knowledge of an event constituting Good Reason or such event shall not constitute Good Reason
under this Agreement. 
  
 (j)    “Notice of Termination” means a written notice of
termination of employment given by one party to the other party pursuant to Section 17(b). 
  
 (k)    “Qualifying Termination” means a termination of Executive’s employment (i) by the Company other than for Cause; (ii) by Executive for Good Reason; or (iii) by Executive during the 90 day
period after a Change in Control. Termination of Executive’s employment on account of death, Disability or Retirement shall not be treated as a Qualifying Termination. In addition, in the event that Executive (i) is offered employment with a
publicly traded subsidiary of the Company, (ii) accepts such offer, (iii) terminates employment with the Company, and (iv) such publicly traded subsidiary does not provide Executive the benefits described in this Agreement, Executive shall be deemed
to have terminated employment with the Company pursuant to a Qualifying Termination upon commencing such employment with the subsidiary and shall be entitled to the benefits described in this Agreement payable by reason of a Qualifying Termination.

  
 (l)    “Retirement” means Executive’s termination on or after Executive’s
normal retirement date under the terms of the Westar Energy, Inc. Retirement Plan, as in effect immediately prior to Executive’s termination or a Change in Control, whichever is earlier, or in accordance with any retirement arrangement
established with respect to Executive with Executive’s written consent. 

 
 5 

 (m)    “Subsidiary” means any corporation or other entity in which the Company has a direct
or indirect ownership interest of 50% or more of the total combined voting power of the then outstanding securities or interests of such corporation or other entity entitled to vote generally in the election of directors or in which the Company has
the right to receive 50% or more of the distribution of profits or 50% of the assets upon liquidation or dissolution. 
  

	 	2.
	 
	Employment and Duties. 
 

  
 (a)    Term of Employment.    The Company agrees to continue to employ Executive, and Executive agrees to remain in employment of the Company, in accordance with the terms and
provisions of this Agreement, for the Term of this Agreement, unless such employment is sooner terminated by the Company or Executive. 
  
 (b)    Duties.    During the term of Executive’s employment under this Agreement, Executive shall serve as Chief Executive Officer of the Company. Executive shall devote
Executive’s full business time and attention to the affairs of the Company and his duties as its Chief Executive Officer. Executive shall have such duties as are appropriate to Executive’s position as Chief Executive Officer, and shall
have such authority as required to enable Executive to perform these duties. Consistent with the foregoing, Executive shall comply with all reasonable instructions of the Board of Directors of the Company. Executive shall be based at the
headquarters of the Company in Topeka, Kansas and Executive’s services shall be rendered there except insofar as travel may be involved in connection with Executive’s regular duties. Executive shall report directly to the Board of
Directors. 
  
 3.     Obligation of Executive.    In the event of
a tender or exchange offer, proxy contest, or the execution of any agreement which, if consummated, would constitute a Change in Control, Executive agrees not to voluntarily leave the employ of the Company, other than as a result of Disability,
Retirement or an event which would constitute Good Reason, until the Change in Control occurs or, if earlier, such tender or exchange offer, proxy contest, or agreement is terminated or abandoned. 
  
 4.    Term of Agreement.    This Agreement shall continue for a period of three (3) years
from the date hereof provided that on each anniversary of the Agreement, the term shall automatically be extended for one year, unless at least 90 days prior to such date, the Company or Executive shall have given notice to cancel this Agreement at
the end of its then term. 
  

	 	5.
	 
	Salary and Benefits. 
 

  
 (a)    Salary.    The Company shall pay Executive an annual salary at an initial rate equal to Executive’s current Base Salary which shall be reviewed annually by the Human
Resources Committee of the Board for the purpose of considering increases thereof. Executive’s salary shall be paid in accordance with the standard practices for other senior corporate executives of the Company. 
  
 (b)    Bonuses.    Executive shall be eligible to receive annually or otherwise any bonus
awards, whether payable in cash, shares of common stock of the Company or otherwise, which the Company, the Human Resources Committee of the Board or such other authorized committee of the Board determines to award or grant. 

 
 6 

  
 (c)    Benefit
Programs.    Executive shall receive such benefits and awards, including without limitation stock options and restricted share unit awards, as the Human Resources committee of the Board shall determine and shall be eligible
to participate in all employee benefit plans and programs of the Company from time to time in effect for the benefit of senior executives of the Company, including, but not limited to, pension and other retirement plans, 401(k) plans, group life
insurance, hospitalization and surgical and major medical coverages, sick leave, salary continuation arrangements, vacations and holidays, long-term disability, and such other benefits as are or may be made available from time to time to senior
executives of the Company. 
  
 (d)    Business Expenses and
Perquisites.    Executive shall be reimbursed for all reasonable expenses incurred by Executive in connection with the conduct of the business of the Company, provided Executive properly accounts therefor in accordance with
the Company’s policies. Executive shall also be entitled to such other perquisites as are customary for senior executives of the Company. 
  
 (e)    Office and Services Furnished.    The company shall furnish Executive with office space, secretarial assistance and such other facilities and
services as shall be suitable to Executive’s position and adequate for the performance of Executive’s duties hereunder. 
  

	 	6.
	 
	Payments Upon Termination of Employment. 
 

  
 (a)    Qualifying Termination.    If during the Term of this Agreement the employment of Executive shall terminate pursuant to a Qualifying Termination,
then the Company shall provide to Executive: 
  
 (i)    within 30 days following
the Date of Termination a lump-sum cash amount equal to the sum of (A) Executive’s Base Salary through the Date of Termination and any bonus amounts which have become payable to the extent not theretofore paid or deferred, (B) a pro
rata portion of Executive’s annual bonus for the fiscal year in which Executive’s Date of Termination occurs in an amount at least equal to (1) Executive’s Bonus Amount, multiplied by (2) a fraction, the numerator of which is
the number of days in the fiscal year in which the Date of Termination occurs through the Date of Termination and the denominator of which is three hundred sixty-five (365), and reduced by (3) any amounts paid from the Company’s annual
incentive plan for the fiscal year in which Executive’s Date of Termination occurs, (C) any accrued vacation pay, and (D) the cash equivalent of any accumulated sick leave; in each case to the extent not theretofore paid; 

 
 (ii)    within 30 days following the Date of Termination, a lump-sum cash amount equal to
2.99 times the lesser of (A) the sum of Executive’s average annual Base Salary for the three-year period immediately prior to Executive’s Date of Termination and Executive’s average annual incentive bonus earned for the three calendar
years immediately preceding the calendar year in which Executive’s Date of Termination occurs, or (B) the sum of Executive’s Adjusted Base Salary and target annual incentive bonus for the calendar year in which Executive’s Date of
Termination occurs (except that, if Executive’s target annual incentive bonus has not been established at the time of termination of his employment, Executive’s actual 

 
 7 

 annual incentive bonus for the immediately preceding calendar year will be substituted for such target annual incentive
bonus); 
  
 (iii)    the Company shall continue to provide, for a period of three
(3) years following Executive’s Date of Termination, Executive (and Executive’s dependents, if applicable) with the same level of medical, dental, accident, disability and life insurance benefits and following such three year period
retiree medical and dental benefits for the life of Executive and eligible dependents upon substantially the same terms and conditions (including contributions required by Executive for such benefits) as existed on Executive’s Date of
Termination; provided, that, if Executive cannot continue to participate in the Company plans providing such benefits or the Company shall modify or terminate any such plans, the Company shall otherwise provide such benefits on the
same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare
benefits described herein shall be secondary to such benefits during the period of Executive’s eligibility, but only to the extent that the Company reimburses Executive for any increased cost and provides any additional benefits necessary to
give Executive the benefits provided hereunder; 
  
 (iv)    Executive shall be
entitled to the provisions of the Executive Salary Continuation Plan and, notwithstanding anything to the contrary in such Plan, (i) shall be deemed to be sixty-five years of age as of the Date of Termination for purposes of determining the
Retirement Benefit and commencement of payment thereof under Section 4.1 of the Plan (without regard to Executive’s actual age or date of commencement of retirement benefit payments under the Westar Energy, Inc. Retirement Plan) and Vesting
under Section 4.3 of the Plan and (ii) Compensation for purposes of calculating the Retirement Benefit thereunder shall be deemed to be the lesser of (A) the sum of Executive’s average annual Base Salary for the three-year period immediately
prior to Executive’s Date of Termination and Executive’s average annual incentive bonus earned for the three calendar years immediately preceding the calendar year in which Executive’s Date of Termination occurs, or (B) the sum of
Executive’s Adjusted Base Salary and target annual incentive bonus for the calendar year in which Executive’s Date of Termination occurs (except that, if Executive’s target annual incentive bonus has not been established at the time
of termination of his employment, Executive’s actual annual incentive bonus for the immediately preceding calendar year will be substituted for such target annual incentive bonus); 
  
 (v)    continuation of participation in the Company’s matching gift program as in effect on the date hereof or if more favorable to
the Executive, as may be available to Executive or other comparable executives of the Company thereafter, as if Executive continued as a senior executive of the Company, for three (3) years following Executive’s Date of Termination;

  
 (vi)    each stock option (and related dividend equivalent) granted to
Executive by the Company and outstanding immediately prior to the Qualifying Termination shall remain outstanding and shall continue to vest and become exercisable as if Executive had remained in employment following his Date of Termination;

 
 8 

 (vii)    each restricted share granted to Executive by the Company and still subject
to restrictions immediately prior to the Qualifying Termination shall remain outstanding and shall continue to vest as if Executive had remained in employment following his Date of Termination; 
  

(viii)    each restricted share unit granted to Executive by the Company which has not vested prior to the Qualifying Termination
shall remain outstanding and shall continue to vest as if Executive had continued in employment following his Date of Termination, provided, however, that each restricted share unit granted to Executive in January 2002 shall vest on the tenth
anniversary of the grant date unless it has vested pursuant to its terms prior to that date; and 
  
 (ix)    each other stock or stock equivalent grant granted to Executive by the Company which has not vested prior to the Qualifying Termination shall remain outstanding and shall continue to vest as if Executive
had remained in employment following his Date of Termination. 
  
 (b)    If during the Term of
this Agreement the employment of Executive shall terminate other than by reason of a Qualifying Termination, then the Company shall pay to Executive within ten (10) days following the Date of Termination, a lump-sum cash amount equal to the sum of
(1) Executive’s Base Salary through the Date of Termination and any Bonus Amounts which have become payable, to the extent not theretofore paid or deferred, and (2) any accrued vacation pay and accumulated sick leave, in each case to the extent
not theretofore paid. The Company may make such additional payments, and provide such additional benefits, to Executive as the Company and Executive may agree in writing. 
  

	 	7.
	 
	Gross-Up Provision. 
 

  
 (a)    Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment, award, benefit or distribution (or any acceleration of any payment, award, benefit
or distribution) by the Company (or any of its affiliated entities) or any entity which effectuates a change in ownership or control described in Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) (or any of its
affiliated entities) to or for the benefit of Executive (whether pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 7) (the “Payments”) would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively
referred to as the “Excise Tax”), then the Company shall pay to Executive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by Executive of all taxes (including any Excise Tax) imposed upon the
Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax imposed upon the Payments and (y) the product of any deductions disallowed because of the inclusion of the Gross-up Payment in
Executive’s adjusted gross income and the highest applicable marginal rate of federal income taxation for the calendar year in which the Gross-up Payment is to be made. For purposes of determining the amount of the Gross-up Payment, the
Executive shall be deemed to (i) pay federal income taxes at the highest marginal rates of federal income taxation for the calendar year in which the Gross-Up Payment 

 
 9 

 is to be made (ii) pay applicable state and local income taxes at the highest marginal rate of taxation for the calendar year in which the
Gross-up Payment is to be made, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes and (iii) have otherwise allowable deductions for federal income tax purposes at least equal to
those which could be disallowed because of the inclusion of the Gross-up Payment in the Executive’s adjusted gross income. Executive and the Company shall use their best efforts to mitigate the cost to the Company of making a Gross-up Payment.

  
 (b)    Subject to the provisions of Section 7(a), all determinations required to be made
under this Section 7, including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment, and the assumptions to be utilized in arriving at such determinations, shall be made by the public accounting firm that is retained
by the Company as of the date immediately prior to the change in ownership or control (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Executive within fifteen (15) business days of the
receipt of notice from the Company or the Executive that there has been a Payment, or such earlier time as is requested by the Company (collectively, the “Determination”). In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the change in ownership or control, Executive may appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company and the Company shall enter into any agreement requested by the Accounting Firm in connection with the performance of
the services hereunder. The Gross-up Payment under this Section 7 with respect to any Payments shall be made no later than thirty (30) days following such Payment. If the Accounting Firm determines that no Excise Tax is payable by Executive, it
shall furnish Executive with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on Executive’s applicable federal income tax return will not result in the imposition of a negligence or similar
penalty. The Determination by the Accounting Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the Determination, it is possible that Gross-Up Payments
which will not have been made by the Company should have been made (“Underpayment”) or Gross-up Payments are made by the Company which should not have been made (“Overpayment”), consistent with the calculations required to be
made hereunder. In the event that the Executive thereafter is required to make payment of any Excise Tax or additional Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment
(together with interest at the rate provided in Section 1274(b) (2) (B) of the Code and any penalties payable by Executive) shall be promptly paid by the Company to or for the benefit of Executive. In the event the amount of the Gross-up Payment
exceeds the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount of the Overpayment that has been made and any such Overpayment (together with interest at the rate provided in Section 1274
(b) (2) of the Code) shall be promptly paid by Executive (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. Executive shall cooperate, to the
extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax. 

 
 10 

 8.    Confidential Information.    Executive acknowledges that: (i) the
business of the Company and its subsidiaries and affiliates is intensely competitive and that Executive’s engagement by the Company requires that Executive have access to and knowledge of confidential information of the Company and its
subsidiaries and affiliates, including, but not limited to, the identity of customers, the identity of the representatives of customers with whom the Company and its subsidiaries and affiliates have dealt, the kinds of services provided by the
Company and its subsidiaries and affiliates to customers and offered to be performed for potential customers, the manner in which such services are performed or offered to be performed, the service needs of actual or prospective customers, pricing
information, information concerning the creation, acquisition or disposition of products and services, customer maintenance listings, computer software applications and other programs, personnel information and other trade secrets ‘ (the
“Confidential Information”); (ii) the direct and indirect disclosure of such Confidential Information to existing or potential competitors of the Company and its subsidiaries and affiliates would place the Company and its subsidiaries and
affiliates at a competitive disadvantage and would do damage, monetary or otherwise, to the business of the Company and its subsidiaries and affiliates; and (iii) the engaging by Executive in any of the activities prohibited by this Section 8 may
constitute improper appropriation and/or use of such information and trade secrets. Notwithstanding the foregoing, Confidential Information shall not include information which (x) is or becomes part of the public domain through a source other than
Executive, (y) is or becomes available to Executive from a source independent of the Company and its subsidiaries and affiliates, or (z) constitutes general industry knowledge possessed by Executive by virtue of Executive’s employment with the
Company. Executive expressly acknowledges the trade secret status of the Confidential Information and that the Confidential Information constitutes a protectable business interest of the Company and its subsidiaries and affiliates. Accordingly, the
Company and Executive agree as follows: 
  
 (a)    During the Term of this Agreement and for
three years following Executive’s Date of Termination, Executive shall not, directly or indirectly, whether individually, as a director, stockholder, owner, partner, employee, principal or agent of any business, or in any other capacity, make
known, disclose, furnish, make available or use any of the Confidential Information, other than in the proper performance of the duties contemplated herein or as required by law or by a court of competent jurisdiction or other administrative or
legislative body; provided, however, that prior to disclosing any of the Confidential Information to a court or other administrative or legislative body, Executive shall promptly notify the Company so that the Company may seek a protective order or
other appropriate remedy. 
  
 (b)    Executive agrees to return all Confidential Information,
including all photocopies, extracts and summaries thereof, and any such information stored electronically on tapes, computer disks or in any other manner to the Company at anytime upon request of the Company and upon the termination of
Executive’s employment for any reason. 
  
 9.    Nonsolicitation.    During the Term of this Agreement and for a period of two years after the Date of Termination Executive shall not, directly or indirectly, solicit, interfere
with, hire, offer to hire or induce any person who is an employee of the Company or any of its subsidiaries or affiliates and whose total compensation is in excess of $100,000 to discontinue his or her relationship with the Company or any of its
subsidiaries or affiliates and accept employment by, or enter into a business relationship with, Executive or any other person or entity. 

 
 11 

	 	10.
	 
	Antidisparagement. 
 

  
 (a)    Unless otherwise required by a court of competent jurisdiction or pursuant to any recognized subpoena power, Executive agrees and promises that Executive shall not make any oral or written
statements or reveal any information to any person, company or agency which (i) is negative, disparaging or damaging to the name, reputation or business of the Company or any of its subsidiaries or affiliates, or any of their shareholders,
directors, officers or employees, or (ii) has or would have a negative financial impact, whether directly or indirectly, on the Company or any of its subsidiaries and affiliates, or any of their shareholders, directors, officers or employees.

  
 (b)    Unless otherwise required by a court of competent jurisdiction or pursuant to any
recognized subpoena power, the Company agrees and promises that neither it nor any of its subsidiaries and affiliates shall make any oral or written statements or reveal any information to any person, company or agency which (i) is negative,
disparaging or damaging to the name, reputation or business of Executive or (ii) has or would have a negative financial impact, whether directly or indirectly, on Executive. 
  

	 	11.
	 
	Injunctive Relief. 
 

  
 (a)    Executive acknowledges that a breach of the undertakings in Sections 8, 9 or 10(a) of this Agreement would cause irreparable damage to the Company and its subsidiaries and affiliates, the exact
amount of which shall be difficult to ascertain, and that remedies at law for any such breach would be inadequate. Executive agrees that, if Executive breaches or attempts or threatens to breach any of the undertakings in Sections 8, 9 or 10(a) of
this Agreement, then the Company shall be entitled to injunctive relief without posting bond or other security, in addition to any other remedy or remedies available to the Company at law or in equity. 
  
 (b)    The Company acknowledges that a breach of the undertakings in Section 10(b) of this Agreement would cause
irreparable damage to Executive, the exact amount of which shall be difficult to ascertain, and that remedies at law for any such breach would be inadequate. The Company agrees that, if the Company or any of its subsidiaries or affiliates breaches
or attempts or threatens to breach any of the undertakings in Section 10(b) of this Agreement, then Executive shall be entitled to injunctive relief, without posting bond or other security, in addition to any other remedy or remedies available to
Executive at law or in equity. 
  
 12.    Withholding Taxes.    The
Company may withhold from all payments due to Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom. 
  
 13.    Indemnity.    The Company shall hold harmless and indemnify Executive against any
and all expenses (including attorneys’ fees), judgements, fines and amounts paid in settlement actually and reasonably incurred by Executive in connection with any threatened, pending, or completed action, suit, or proceeding whether civil,
criminal, administrative, or investigative (including an action by or in the right of the corporation) to which Executive is, was, or at anytime becomes a party, or is threatened to be made a party, by reason of the fact that Executive is, was, or
at anytime becomes a director, officer, employee, or agent of Company, or is, or was serving, or at anytime serves at the 

 
 12 

 request of Company as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise; or
otherwise to the fullest extent as may be provided to Executive by Company under the nonexclusivity provisions of Article XVIII of The Articles of Incorporation of Company and Kansas law. 
  
 14.    Reimbursement of Expenses; Mitigation.    (a) If any contest or dispute shall arise under this Agreement involving
termination of Executive’s employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse Executive, on a current basis, for all legal fees and
expenses, if any, incurred by Executive in connection with such contest or dispute or incurred by Executive in seeking advice with respect to any such matters (regardless of the result thereof), together with interest in an amount equal to the prime
rate of JPMorgan Chase Bank from time to time in effect, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives Executive’s statement for such fees and
expenses through the date of payment thereof, regardless of whether or not Executive’s claim is upheld by an arbitration panel or court. 
  
 (b)    Executive shall not be required to mitigate any payment the Company becomes obligated to make to Executive under this Agreement. 
  
 15.    Scope of Agreement.    Nothing in this Agreement shall be deemed to entitle
Executive to continued employment with the Company or its Subsidiaries; provided, however, that any termination of Executive’s employment during the Term of this Agreement shall be subject to all of the provisions of this Agreement.

  
 16.    Successors; Binding Agreement.    (a) This Agreement shall
not be terminated by any sale, merger or other business combination. In the event of any such sale, merger or other business combination, the provisions of this Agreement shall be binding upon the surviving corporation, and such surviving
corporation shall be treated as the Company hereunder. 
  
 (b)    The Company agrees that in
connection with the sale, merger or other business combination, it will cause any successor entity to the Company unconditionally to assume (and for any Parent Corporation in such business combination to guarantee), by written instrument delivered
to Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. 
  
 (c)    This Agreement shall inure to the benefit of and be enforceable by Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If
Executive shall die while any amounts would be payable to Executive hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons
appointed in writing by Executive to receive such amounts or, if no person is so appointed, to Executive’s estate. 
  
 17.    Notice.    (a) For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given
when delivered or five (5) days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed as follows: 

 
 13 

  
 If to the Executive: 
  
 David C. Wittig 
 521 SW Westchester Road

 Topeka, KS 66606 
  
 If to the Company: 
  
 Westar Energy, Inc. 
 818 S. Kansas Avenue 
 Topeka, KS 66612

 Attention: Corporate Secretary 
  
 or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. 
  
 (b)    A written notice of Executive’s Date of Termination by the Company or Executive, as the case may be, to
the other, shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s
employment under the provision so indicated, and (iii) specify the Date of Termination. The failure by Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of Executive or the Company hereunder or preclude Executive or the Company from asserting such fact or circumstance in enforcing Executive’s or the Company’s rights hereunder. 
  
 18.    Full Settlement; Resolution of Disputes.    The Company’s obligation to make
any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall be in lieu and in full settlement of all other severance payments to Executive under any other severance or employment agreement between Executive
and the Company, and any severance plan of the Company. The Company’s obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or
others. In no event shall Executive be obligated to seek other employment or take other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and except as otherwise provided in Section
6(a)(iii), such amounts shall not be reduced whether or not Executive obtains other employment. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Topeka, Kansas by three
arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators’ award in any court having jurisdiction. The Company shall bear all costs and expenses arising in
connection with any arbitration proceeding pursuant to this Section. 
  
 19.    Employment
with Subsidiaries.    Employment with the Company for purposes of this Agreement shall include employment with any Subsidiary. 
  
 20.    Survival.    The respective obligations and benefits afforded to the Company and Executive as provided in Sections 6 (to the extent that payment or
benefits are owed as a result of a termination of employment that occurs during the term of this Agreement), 7, 8, 9, 10, 11, 12, 13, 14, 16, 18, and 21 shall survive the termination of this Agreement. 

 
 14 

  
 21.    GOVERNING LAW;
VALIDITY.    THE INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF KANSAS WITHOUT REGARD TO THE PRINCIPLE OF
CONFLICTS OF LAWS. THE INVALIDITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS AGREEMENT SHALL NOT AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT, WHICH OTHER PROVISIONS SHALL REMAIN IN FULL FORCE AND EFFECT.

  
 22.    Counterparts.    This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument. 
  
 23.    Miscellaneous.    No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by Executive and by a
duly authorized officer of the Company. No waiver by either party hereto at anytime of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by Executive or the Company to insist upon strict compliance with any provision of this Agreement or to assert any right Executive or
the Company may have hereunder, including without limitation, the right of Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as
otherwise specifically provided herein, the rights of, and benefits payable to, Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, Executive, his estate or his
beneficiaries under any other employee benefit plan or compensation program of the Company. 

 
 15 

  
 IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a
duly authorized officer of the Company and Executive has executed this Agreement as of the day and year first above written. 
  
  
 
	 WESTAR ENERGY, INC.
 
	 
	 By:
 	 	 /S/    BRUCE A. AKIN
 

	  	 	 Name:    Bruce A. Akin
 
	  	 	 Title:    Vice President, Business Services
 

 
  
 
	 
	 By:
 	 	 /S/    DAVID C. WITTIG
 

	  	 	 David C. Wittig
 Chairman, President and
     Chief Executive Officer
 

 
  
 The following non-employee members of the Board of Directors are executing this Agreement
to evidence their approval thereof pursuant to a duly adopted resolution of the Company’s Board of Directors. 
  
  
 
	 /S/    FRANK J. BECKER
 
	  	 /S/    JOHN C. DICUS
 

	 Frank J. Becker
 	  	 John C. Dicus
 
	 
	 /S/    GENE A. BUDIG
 
	  	 /S/    R.A. EDWARDS
 

	 Gene A. Budig
 	  	 R.A. Edwards
 
	 
	 
	  	 /S/    JOHN C. NETTELS,
JR.
 

	 Charles Q. Chandler, IV
 	  	 John C. Nettels, Jr.
 

 

 
 16

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00045-of-00352.parquet"}]]