Document:

<PAGE>

                                 EXHIBIT 10.1

                       Pooling and Servicing Agreement
                                 July 1, 2000
<PAGE>

                      FIRST HORIZON ASSET SECURITIES INC.

                                   Depositor

                      FIRST HORIZON HOME LOAN CORPORATION

                          Seller and Master Servicer

                                      and

                             THE BANK OF NEW YORK,

                                    Trustee

             _____________________________________________________

                        POOLING AND SERVICING AGREEMENT

                           Dated as of July 1, 2000

            _____________________________________________________

               FIRST HORIZON MORTGAGE PASS-THROUGH TRUST 2000-3

               MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 2000-3
<PAGE>

                              TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                                                Page
                                                                                                                                ----
<S>                                                                                                                             <C>
 ARTICLE I - DEFINITIONS.....................................................................................................    5

 ARTICLE II - CONVEYANCE OF MORTGAGE LOANS; REPRESENTATIONS AND WARRANTIES...................................................    35
         SECTION 2.1  Conveyance of Mortgage Loans...........................................................................    35
         SECTION 2.2  Acceptance by Trustee of the Mortgage Loans............................................................    39
         SECTION 2.3  Representations, Warranties and Covenants of the Seller and Master Servicer............................    41
         SECTION 2.4  Representations and Warranties of the Depositor as to the Mortgage Loans...............................    43
         SECTION 2.5  Delivery of Opinion of Counsel in Connection with Substitutions........................................    43
         SECTION 2.6  Execution and Delivery of Certificates.................................................................    44
         SECTION 2.7  REMIC Matters..........................................................................................    44
         SECTION 2.8  Covenants of the Master Servicer.......................................................................    46

ARTICLE III - ADMINISTRATION AND SERVICING OF MORTGAGE LOANS.................................................................    46
         SECTION 3.1  Master Servicer to Service Mortgage Loans..............................................................    46
         SECTION 3.2  Subservicing; Enforcement of the Obligations of Servicers..............................................    47
         SECTION 3.3  Rights of the Depositor and the Trustee in Respect of the Master Servicer..............................    48
         SECTION 3.4  Trustee to Act as Master Servicer......................................................................    48
         SECTION 3.5  Collection of Mortgage Loan Payments; Certificate Account; Distribution Account........................    48
         SECTION 3.6  Collection of Taxes, Assessments and Similar Items; Escrow Accounts....................................    51
         SECTION 3.7  Access to Certain Documentation and Information Regarding the Mortgage Loans...........................    52
         SECTION 3.8  Permitted Withdrawals from the Certificate Account and Distribution Account............................    52
         SECTION 3.9  Maintenance of Hazard Insurance; Maintenance of Primary Insurance Policies.............................    54
         SECTION 3.10 Enforcement of Due-on-Sale Clauses; Assumption Agreements..............................................    55
         SECTION 3.11 Realization Upon Defaulted Mortgage Loans; Repurchase of Certain Mortgage Loans........................    56
         SECTION 3.12 Trustee to Cooperate; Release of Mortgage Files........................................................    59
         SECTION 3.13 Documents Records and Funds in Possession of Master Servicer to be Held for the Trustee................    59
         SECTION 3.14 Master Servicing Compensation..........................................................................    60
         SECTION 3.15 Access to Certain Documentation........................................................................    60
         SECTION 3.16 Annual Statement as to Compliance......................................................................    61
         SECTION 3.17 Annual Independent Public Accountants' Servicing
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                            <C>
                        Statement; Financial Statements......................................    61
            SECTION 3.18 Errors and Omissions Insurance; Fidelity Bonds......................    61

ARTICLE IV - DISTRIBUTIONS AND ADVANCES BY THE MASTER SERVICER...............................    62
            SECTION 4.1 Advances.............................................................    62
            SECTION 4.2 Priorities of Distribution...........................................    62
            SECTION 4.3 Method of Distribution...............................................    66
            SECTION 4.4 Allocation of Losses.................................................    67
            SECTION 4.5 Reserved.............................................................    68
            SECTION 4.6 Monthly Statements to Certificateholders.............................    68

ARTICLE V - THE CERTIFICATES.................................................................    76
            SECTION 5.1 The Certificates.....................................................    76
            SECTION 5.2 Certificate Register; Registration of Transfer and Exchange of
                        Certificates.........................................................    76
            SECTION 5.3 Mutilated, Destroyed, Lost or Stolen Certificates....................    81
            SECTION 5.4 Persons Deemed Owners................................................    81
            SECTION 5.5 Access to List of Certificateholders' Names and Addresses............    81
            SECTION 5.6 Maintenance of Office or Agency......................................    81

ARTICLE VI - THE DEPOSITOR AND THE MASTER SERVICER...........................................    82
            SECTION 6.1 Respective Liabilities of the Depositor and the Master Servicer......    82
            SECTION 6.2 Merger or Consolidation of the Depositor or the Master Servicer......    82
            SECTION 6.3 Limitation on Liability of the Depositor, the Seller, the
                        Master Servicer and Others...........................................    82
            SECTION 6.4 Limitation on Resignation of Master Servicer.........................    83

ARTICLE VII - DEFAULT........................................................................    83
            SECTION 7.1 Events of Default....................................................    83
            SECTION 7.2 Trustee to Act; Appointment of Successor.............................    85
            SECTION 7.3 Notification to Certificateholders...................................    86

ARTICLE VIII - CONCERNING THE TRUSTEE........................................................    86
            SECTION 8.1 Duties of Trustee....................................................    86
            SECTION 8.2 Certain Matters Affecting the Trustee................................    87
            SECTION 8.3 Trustee Not Liable for Certificates or Mortgage Loans................    89
            SECTION 8.4 Trustee May Own Certificates.........................................    89
            SECTION 8.5 Trustee's Fees and Expenses..........................................    89
            SECTION 8.6 Eligibility Requirements for Trustee.................................    90
            SECTION 8.7 Resignation and Removal of Trustee...................................    90
            SECTION 8.8 Successor Trustee....................................................    91
            SECTION 8.9 Merger or Consolidation of Trustee...................................    91
            SECTION 8.10 Appointment of Co-Trustee or Separate Trustee.......................    92
</TABLE>

<PAGE>

<TABLE>
<S>                                                                                                 <C>
     SECTION 8.11  Tax Matters....................................................................       93
     SECTION 8.12  Periodic Filings...............................................................       95

ARTICLE IX - TERMINATION..........................................................................       95

     SECTION 9.1   Termination upon Liquidation or Purchase of all Mortgage Loans.................       95
     SECTION 9.2   Final Distribution on the Certificates.........................................       96
     SECTION 9.3   Additional Termination Requirements............................................       97

ARTICLE X - CERTAIN MATTERS REGARDING FSA.........................................................       98

     SECTION 10.1  Rights of FSA to Exercise Rights of Holders of Insured Retail Certificates.....       98
     SECTION 10.2  Claims Upon the FSA Policy; FSA Policy Payments Account........................       98
     SECTION 10.3  Effect of Payments by FSA; Subrogations........................................       99
     SECTION 10.4  Notices and Information to FSA.................................................       99
     SECTION 10.5  Trustee to Hold FSA Policy.....................................................       99
     SECTION 10.6  [Reserved].....................................................................      100
     SECTION 10.7  Payment of Insurance Premium...................................................      100

ARTICLE XI - MISCELLANEOUS PROVISIONS.............................................................      100

     SECTION 11.1  Amendment......................................................................      100
     SECTION 11.2  Recordation of Agreement; Counterparts.........................................      102
     SECTION 11.3  Governing Law..................................................................      102
     SECTION 11.4  Intention of Parties...........................................................      102
     SECTION 11.5  Notices........................................................................      103
     SECTION 11.6  Severability of Provisions.....................................................      103
     SECTION 11.7  Assignment.....................................................................      104
     SECTION 11.8  Limitation on Rights of Certificateholders.....................................      104
     SECTION 11.9  Inspection and Audit Rights....................................................      104
     SECTION 11.10 Certificates Nonassessable and Fully Paid......................................      105

                                                 SCHEDULES

Schedule I:    Mortgage Loan Schedule.............................................................    S-I-1
Schedule II:   Representations and Warranties of the Seller/Master Servicer.......................   S-II-1
Schedule III:  Representations and Warranties as to the Mortgage Loans............................  S-III-1
Schedule IV:   Form of Monthly Master Servicer Report.............................................    S-V-1

                                                  EXHIBITS

Exhibit A:     Form of Senior Certificate.........................................................      A-1
Exhibit B:     Form of Subordinated Certificate...................................................      B-1
Exhibit C:     Form of Residual Certificate.......................................................      C-1
Exhibit D:     Form of Reverse of Certificates....................................................      D-1
Exhibit E:     Form of Initial Certification......................................................      E-1
Exhibit F:     Form of Delay Delivery Certification...............................................      F-1
</TABLE>
<PAGE>

<TABLE>
<S>                                                                                                 <C>
Exhibit G:     Form of Final Certification of Custodian.......................................      G-1
Exhibit H:     Transfer Affidavit.............................................................      H-1
Exhibit I:     Form of Transferor Certificate.................................................      I-1
Exhibit J:     Form of Investment Letter [Non-Rule 144A]......................................      J-1
Exhibit K:     Form of Rule 144A Letter.......................................................      K-1
Exhibit L:     Request for Release (for Trustee)..............................................      L-1
Exhibit M:     Request for Release (Mortgage Loan)............................................      M-1
</TABLE>
<PAGE>

     THIS POOLING AND SERVICING AGREEMENT, dated as of July 1, 2000, among FIRST
HORIZON ASSET SECURITIES INC., a Delaware corporation, as depositor (the
"Depositor"), FIRST HORIZON HOME LOAN CORPORATION, a Kansas corporation, as
seller (in such capacity, the "Seller") and as master servicer (in such
capacity, the "Master Servicer"), and THE BANK OF NEW YORK, a banking
corporation organized under the laws of the State of New York, as trustee (the
"Trustee").

                                WITNESSETH THAT

     In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:

                             PRELIMINARY STATEMENT

     The Depositor is the owner of the Trust Fund that is hereby conveyed to the
Trustee in return for the Certificates. The Trust Fund and the Rounding Account
for federal income tax purposes will consist of two separate REMICs.  The
Certificates will represent the entire beneficial ownership interest in the
Trust Fund. The Classes of Certificates designated as the Regular Certificates
will represent "regular interests" in the Upper REMIC.  The Class A-RU
Certificates will represent the sole class of residual interests in the Upper
REMIC and the Class A-RL Certificates will represent the sole class of residual
interests in the Lower REMIC, as described in Section 2.7.  The "latest possible
maturity date" for federal income tax purposes of all interests created hereby
will be the Latest Possible Maturity Date.

     The following table sets forth characteristics of the Certificates,
together with the minimum denominations and integral multiples in excess thereof
in which such Classes shall be issuable (except that one Certificate of each
Class of Certificates may be issued in a different amount and, in addition, one
Residual Certificate representing the Tax Matters Person Certificate may be
issued in a different amount):

                 [Remainder of Page Intentionally Left Blank]
<PAGE>

<TABLE>
<CAPTION>
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      Class                       Initial Class              Pass-Through        Minimum            Integral Multiples in
   Designation                 Certificate Balance                Rate         Denomination           in Excess Minimum
--------------------------------------------------------------------------------------------------------------------------
<S>                            <C>                             <C>             <C>                  <C>
    Class A-1                     $113,365,000                   7.75%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-2                     $ 14,772,000                   7.75%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-3                     $  5,422,000                   8.00%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-4                     $  1,000,000                   8.00%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-5                     $ 12,500,000                   7.50%           $  1,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-6                     $ 17,383,000                   7.75%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-7                          (1)                       0.19%           $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class PO                      $  2,002,055                    (2)            $ 25,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class A-RU                    $         50                   7.75%           $     50                    N/A
--------------------------------------------------------------------------------------------------------------------------
    Class A-RL                    $         50                   7.75%           $     50                    N/A
--------------------------------------------------------------------------------------------------------------------------
    Class B-1                     $  3,042,000                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class B-2                     $  1,826,000                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class B-3                     $    782,000                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class B-4                     $    782,000                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class B-5                     $    435,000                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
    Class B-6                     $ 521,796.39                   7.75%           $100,000                   $1,000
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
_______________________

     (1)  The Class A-7 Certificates are interest only certificates and will
accrue interest during each interest accrual period based on a notional
principal amount. The initial notional principal amount will be $4,050,000.

     (2)  The Class PO Certificates are principal only certificates and will not
accrue interest.

Accretion Directed
Certificates.................      None.

Accrual Certificates.........      None.

Accrual Components...........      None.

Book-Entry Certificates......      All Classes of Certificates other than the
                                   Physical Certificates.

Component Certificates.......      None.

                                      -2-
<PAGE>

Components....................     For purposes of calculating distributions,
                                   the Component Certificates will be comprised
                                   of multiple payment components having the
                                   designations, Initial Component Balances and
                                   Pass-Through Rates set forth below:

                                                   Initial
                                                  Component
                                   Designation     Balance     Pass-Through Rate
                                   -----------    ---------    -----------------
                                       N/A           N/A              N/A

Delay Certificates............     All interest-bearing Classes of Certificates
                                   other than the Non-Delay Certificates, if
                                   any.

ERISA-Restricted
Certificates..................     Residual Certificates and Subordinated
                                   Certificates and, until an ERISA Qualifying
                                   Underwriting has occurred with respect to
                                   such Class, Class PO Certificates.

Floating Rate Certificates....     None.

Insured Retail Certificates...     Class A-5 Certificates.

Interest Only Certificates....     Class A-7 Certificates.

Inverse Floating Rate
Certificates..................     None.

COFI Certificates.............     None.

LIBOR Certificates............     None.

Non-Delay Certificates........     None.

Notional Amount
Certificates..................     Class A-7 Certificates.

Offered Certificates..........     All Classes of Certificates other than the
                                   Private Certificates.

Physical Certificates.........     Class PO, the Private Certificates and the
                                   Residual Certificates.

Planned Principal Classes.....     None.

Primary Planned Principal
Classes.......................     None.

                                      -3-
<PAGE>

Principal Only
Certificates..................     Class PO Certificates.

Private Certificates..........     Class B-4, Class B-5 and Class B-6
                                   Certificates

Rating Agencies...............     S&P and Fitch.

Regular Certificates..........     All Classes of Certificates, other than the
                                   Residual Certificates.

Residual Certificates.........     Class A-RU and Class A-RL Certificates.

Scheduled Principal
Classes.......................     None.

Secondary Planned Principal
Class.........................     None.

Senior Certificates...........     Class A-1, Class A-2, Class A-3, Class A-4,
                                   Class A-5, Class A-6, Class A-7, Class PO,
                                   Class A-RU and Class A-RL Certificates.

Subordinated Certificates.....     Class B-1, Class B-2, Class B-3, Class B-4,
                                   Class B-5 and Class B-6 Certificates.

Support Classes...............     None.

Targeted Principal
Classes.......................     None.

     With respect to any of the foregoing designations as to which the
corresponding reference is "None," all defined terms and provisions herein
relating solely to such designations shall be of no force or effect, and any
calculations herein incorporating references to such designations shall be
interpreted without reference to such designations and amounts. Defined terms
and provisions herein relating to statistical rating agencies not designated
above as Rating Agencies shall be of no force or effect.

                                      -4-
<PAGE>

                                  ARTICLE I
                                 DEFINITIONS

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

     Accretion Directed Certificates: As described in the Preliminary Statement.

     Accrual Certificates: As described in the Preliminary Statement.

     Accrued Certificate Interest: For any Class of Certificates entitled to
distributions of interest for any Distribution Date, the interest accrued during
the related Interest Accrual Period at the applicable Pass-Through Rate on the
Certificate Principal Balance (or Notional Amount, in the case of the Class A-7
Certificates) of such Class of Certificates immediately prior to such
Distribution Date, less such Class' share of any Net Interest Shortfall, the
interest portion of any Excess Losses through the Cross-Over Date and, after the
Cross-Over Date, the interest portion of Realized Losses, including Excess
Losses.

     Adjusted Mortgage Rate: As to each Mortgage Loan, and at any time, the per
annum rate equal to the Mortgage Rate less the Master Servicing Fee Rate.

     Adjusted Net Mortgage Rate: As to each Mortgage Loan, and at any time, the
per annum rate equal to the Mortgage Rate less the related Expense Rate. For
purposes of determining whether any Substitute Mortgage Loan is a Discount
Mortgage Loan or a Non-Discount Mortgage Loan and for purposes of calculating
the applicable PO Percentage and applicable Non-PO Percentage, each Substitute
Mortgage Loan shall be deemed to have an Adjusted Net Mortgage Rate equal to the
Adjusted Net Mortgage Rate of the Deleted Mortgage Loan for which it is
substituted.

     Advance: The payment required to be made by the Master Servicer with
respect to any Distribution Date pursuant to Section 4.1, the amount of any such
payment being equal to the aggregate of payments of principal and interest (net
of the Master Servicing Fee and net of any net income in the case of any REO
Property) on the Mortgage Loans that were due on the related Due Date and not
received as of the close of business on the related Determination Date, less the
aggregate amount of any such delinquent payments that the Master Servicer has
determined would constitute a Nonrecoverable Advance if advanced.

     Agreement: This Pooling and Servicing Agreement and all amendments or
supplements hereto.

     Allocable Share: With respect to any Class of Subordinated Certificates on
any Distribution Date, such Class's pro rata share (based on the Class
Certificate Balance of each Class entitled thereto) of each of the components of
the Subordinated Optimal Principal Amount described below; provided, that,
except as provided in this Agreement, no Class B Certificates (other than the
Class B-1 Certificates) shall be entitled on any Distribution Date to receive
distributions pursuant to clauses (2), (3) and (5) of the definition of
Subordinated Optimal Principal Amount unless the Class Prepayment Distribution
Trigger for the related Class is satisfied for such Distribution Date.

                                      -5-
<PAGE>

     Amount Held for Future Distribution: As to any Distribution Date, the
aggregate amount held in the Certificate Account at the close of business on the
related Determination Date on account of (i) Principal Prepayments received
after the related Prepayment Period and Liquidation Proceeds received in the
month of such Distribution Date and (ii) all Scheduled Payments due after the
related Due Date.

     Appraised Value: With respect to any Mortgage Loan, the Appraised Value of
the related Mortgaged Property shall be: (i) with respect to a Mortgage Loan
other than a Refinancing Mortgage Loan, the lesser of (a) the value of the
Mortgaged Property based upon the appraisal made at the time of the origination
of such Mortgage Loan and (b) the sales price of the Mortgaged Property at the
time of the origination of such Mortgage Loan; (ii) with respect to a
Refinancing Mortgage Loan other than a Streamlined Documentation Mortgage Loan,
the value of the Mortgaged Property based upon the appraisal made at the time of
the origination of such Refinancing Mortgage Loan; and (iii) with respect to a
Streamlined Documentation Mortgage Loan, (a) if the loan-to-value ratio with
respect to the Original Mortgage Loan at the time of the origination thereof was
90% or less, the value of the Mortgaged Property based upon the appraisal made
at the time of the origination of the Original Mortgage Loan and (b) if the
loan-to-value ratio with respect to the Original Mortgage Loan at the time of
the origination thereof was greater than 90%, the value of the Mortgaged
Property based upon the appraisal (which may be a drive-by appraisal) made at
the time of the origination of such Streamlined Documentation Mortgage Loan.

     Available Funds: With respect to any Distribution Date, an amount equal to
     the sum of:

     .    all scheduled installments of interest, net of the Master Servicing
          Fee, the Trustee Fee and any amounts due to First Horizon in respect
          of the Retained Yield on such Distribution Date, and all scheduled
          installments of principal due on the Due Date in the month in which
          the Distribution Date occurs and received before the related
          Determination Date, together with any Advances in respect thereof;

     .    all Insurance Proceeds and all Liquidation Proceeds during the
          calendar month before the Distribution Date, which in each case is net
          of unreimbursed expenses incurred in connection with a liquidation or
          foreclosure and unreimbursed Advances, if any;

     .    all Principal Prepayments received during the related Prepayment
          Period, plus interest received thereon, net of any Prepayment Interest
          Excess;

     .    any Compensating Interest in respect of Principal Prepayments in Full
          received during the related Prepayment Period; and

     .    any Substitution Adjustment Amount or the Purchase Price for any
          Deleted Mortgage Loan or a Mortgage Loan repurchased by the Seller or
          the Master Servicer as of such Distribution Date, reduced by amounts
          in reimbursement for Advances previously made and other amounts that
          the Master Servicer is entitled to be reimbursed for out of the
          Certificate Account pursuant to this Agreement.

     Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as
     amended.

                                      -6-
<PAGE>

     Bankruptcy Coverage Termination Date: The point in time at which the
Bankruptcy Loss Coverage Amount is reduced to zero.

     Bankruptcy Loss: With respect to any Mortgage Loan, a Deficient Valuation
or Debt Service Reduction; provided, however, that a Bankruptcy Loss shall not
be deemed a Bankruptcy Loss hereunder so long as the Master Servicer has
notified the Trustee in writing that the Master Servicer is diligently pursuing
any remedies that may exist in connection with the related Mortgage Loan and
either (A) the related Mortgage Loan is not in default with regard to payments
due thereunder or (B) delinquent payments of principal and interest under the
related Mortgage Loan and any related escrow payments in respect of such
Mortgage Loan are being advanced on a current basis by the Master Servicer, in
either case without giving effect to any Debt Service Reduction or Deficient
Valuation.

     Bankruptcy Loss Coverage Amount: As of any Determination Date, the
Bankruptcy Loss Coverage Amount shall equal the Initial Bankruptcy Coverage
Amount as reduced by (i) the aggregate amount of Bankruptcy Losses allocated to
the Certificates since the Cut-off Date and (ii) any permissible reductions in
the Bankruptcy Loss Coverage Amount as evidenced by a letter of each Rating
Agency to the Trustee to the effect that any such reduction will not result in a
downgrading of the then current ratings assigned to the Classes of Certificates
rated by it.

     Blanket Mortgage: The mortgage or mortgages encumbering the Cooperative
Property.

     Book-Entry Certificates: As specified in the Preliminary Statement.

     Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a day
on which banking institutions in the City of Dallas, or the State of Texas or
the city in which the Corporate Trust Office of the Trustee is located are
authorized or obligated by law or executive order to be closed.

     Certificate: Any one of the Certificates executed by the Trustee in
substantially the forms attached hereto as exhibits.

     Certificate Account: The separate Eligible Account or Accounts created and
maintained by the Master Servicer pursuant to Section 3.5 with a depository
institution in the name of the Master Servicer for the benefit of the Trustee on
behalf of Certificateholders and designated "First Horizon Home Loan Corporation
in trust for the registered holders of First Horizon Asset Securities Inc.
Mortgage Pass-Through Certificates Series 2000-3."

     Certificate Principal Balance: With respect to any Certificate and as of
any Distribution Date, the Certificate Principal Balance on the date of the
initial issuance of such Certificate, as reduced by:

     .    all amounts distributed on previous Distribution Dates on such
          Certificate on account of principal;

     .    the principal portion of all Realized Losses previously allocated to
          such Certificate; and

                                      -7-
<PAGE>

     .    in the case of a Subordinated Certificate, such Certificate's pro rata
          share, if any, of the Subordinated Certificate Writedown Amount and
          the Class PO Deferred Payment Writedown Amount for previous
          Distribution Dates.

     Certificate Owner: With respect to a Book-Entry Certificate, the Person who
is the beneficial owner of such Book-Entry Certificate.

     Certificate Register: The register maintained pursuant to Section 5.2
hereof.

     Certificateholder or Holder: The person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
giving any consent pursuant to this Agreement, any Certificate registered in the
name of the Depositor or any affiliate of the Depositor shall be deemed not to
be Outstanding and the Percentage Interest evidenced thereby shall not be taken
into account in determining whether the requisite amount of Percentage Interests
necessary to effect such consent has been obtained; provided, however, that if
any such Person (including the Depositor) owns 100% of the Percentage Interests
evidenced by a Class of Certificates, such Certificates shall be deemed to be
Outstanding for purposes of any provision hereof that requires the consent of
the Holders of Certificates of a particular Class as a condition to the taking
of any action hereunder. The Trustee is entitled to rely conclusively on a
certification of the Depositor or any affiliate of the Depositor in determining
which Certificates are registered in the name of an affiliate of the Depositor.

     Class: All Certificates bearing the same class designation as set forth in
the Preliminary Statement.

     Class A-6 Percentage: For any Distribution Date, the percentage (carried
to six places rounded up) obtained by dividing (1) the aggregate Class
Certificate Balance of the Class A-6 Certificates immediately preceding such
Distribution Date by (2) the aggregate Class Certificate Balances of the Group I
Senior Certificates and the Class A-6 Certificates immediately preceding such
Distribution Date.

     Class A-6 Prepayment Distribution Percentage: 0% through the Distribution
Date in July 2005; 30% thereafter through the Distribution Date in July 2006;
40% thereafter through the Distribution Date in July 2007; 60% thereafter
through the Distribution Date in July 2008; 80% thereafter through the
Distribution Date in July 2009; and 100% thereafter.

     Class A-6 Principal Distribution Amount:  For any Distribution Date, the
sum of:

          (a)  the total of the amounts described in clauses (1) and (4) of the
     definition of Senior Optimal Principal Amount for such date multiplied by
     the Class A-6 Scheduled Distribution Percentage for such date; and

          (b)  the total of the amounts described in clauses (2), (3) and (5) of
     the definition of Senior Optimal Principal Amount for such date multiplied
     by the product of (x) the Class A-6 Prepayment Distribution Percentage for
     such date and (y) the Class A-6 Percentage for such date.

                                      -8-
<PAGE>

     Notwithstanding the foregoing, (1) on the Group I Final Distribution Date,
the Class A-6 Principal Distribution Amount will be increased by any Senior
Optimal Principal Amount remaining after distributions of principal have been
made on the Group I Senior Certificates, and (2) following the Group I Final
Distribution Date, the Class A-6 Principal Distribution Amount will equal the
Senior Optimal Principal Amount.

     Class A-6 Scheduled Distribution Percentage: As to any Distribution Date,
0% through the Distribution Date in July 2005 and, thereafter, the Class A-6
Percentage for such date.

     Class B Certificates:  The Class B-1, Class B-2, Class B-3, Class B-4,
Class B-5 and Class B-6 Certificates, collectively.

     Class Certificate Balance -- With respect to any Class of Certificates and
as of any Distribution Date, the Class Certificate Balance on the date of the
initial issuance of such Certificate, as reduced by:

     .    all amounts distributed on previous Distribution Dates on such Class
          of Certificates on account of principal;

     .    the principal portion of all Realized Losses previously allocated to
          such Class of Certificates;

     .    in the case of a Subordinated Certificate, such Class of Certificate's
          pro rata share, if any, of the Subordinated Certificate Writedown
          Amount and the Class PO Deferred Payment Writedown Amount for previous
          Distribution Dates;

provided, however, that solely for purposes of determining FSA's rights as
subrogee to the Holders of Insured Retail Certificates, the Class Certificate
Balance of an Insured Retail Certificate shall be deemed to not be reduced by
any principal amounts paid to the Holder thereof from FSA Insurance Payments,
unless such amounts have been reimbursed to FSA.

     Class PO Deferred Amount: With respect to any Distribution Date through the
Cross-Over Date, the sum of (1) the applicable PO Percentage of the principal
portion of Non-Excess Losses on a Discount Mortgage Loan allocated to the Class
PO Certificates on such date, and (2) all amounts previously allocated to the
Class PO Certificates in respect of such losses and not distributed to the Class
PO Certificates on prior Distribution Dates.

     Class PO Deferred Payment Writedown Amount: For any Distribution Date, the
amount, if any, distributed on such date in respect of the Class PO Deferred
Amount pursuant to Section 4.2(a)(iv).  The Subordinated Certificate Writedown
Amount and the Class PO Deferred Payment Writedown Amount will be allocated to
the Classes of Subordinated Certificates in inverse order of priority, until the
Class Certificate Balance of each such Class has been reduced to zero.

     Class PO Principal Distribution Amount: With respect to each Distribution
Date, an amount equal to the sum of:

                                      -9-
<PAGE>

          (1)  the applicable PO Percentage of all Scheduled Payments of
     principal due on each Mortgage Loan on the first day of the month in which
     the Distribution Date occurs, as specified in the amortization schedule at
     the time applicable thereto, after adjustment for previous principal
     prepayments and the principal portion of Debt Service Reductions after the
     Bankruptcy Loss Coverage Amount has been reduced to zero, but before any
     adjustment to such amortization schedule by reason of any other bankruptcy
     or similar proceeding or any moratorium or similar waiver or grace period;

          (2)  the applicable PO Percentage of the Stated Principal Balance of
     each Mortgage Loan which was the subject of a prepayment in full received
     by the Master Servicer during the related Prepayment Period;

          (3)  the applicable PO Percentage of all partial prepayments of
     principal received by the Master Servicer during the related Prepayment
     Period;

          (4)  the applicable PO Percentage of the sum of (a) the net
     Liquidation Proceeds allocable to principal on each Mortgage Loan which
     became a Liquidated Mortgage Loan during the related Prepayment Period,
     other than Mortgage Loans described in clause (b), and (b) the principal
     balance of each Mortgage Loan that was purchased by a private mortgage
     insurer during the related Prepayment Period as an alternative to paying a
     claim under the related Insurance Policy; and

          (5)  the applicable PO Percentage of the sum of (a) the Stated
     Principal Balance of each Mortgage Loan which was repurchased by the seller
     in connection with such Distribution Date and (b) the difference, if any,
     between the Stated Principal Balance of a Mortgage Loan that has been
     replaced by the seller with a Substitute Mortgage Loan pursuant to the
     Agreement in connection with such Distribution Date and the Stated
     Principal Balance of such Substitute Mortgage Loan.

     For purposes of clauses (2) and (5) above, the Stated Principal Balance of
a Mortgage Loan will be reduced by the amount of any Deficient Valuation that
occurred prior to the reduction of the Bankruptcy Loss Coverage Amount to zero.

     Class Prepayment Distribution Trigger: For a Class of Class B Certificates
(other than the Class B-1 Certificates), a trigger that is satisfied on any
Distribution Date on which a fraction (expressed as a percentage), the numerator
of which is the aggregate Class Certificate Balance of such Class and each Class
subordinate thereto, if any, and the denominator of which is the Pool Principal
Balance with respect to such Distribution Date, equals or exceeds such
percentage calculated as of the date of issuance of the Certificates.

     Closing Date: July 26, 2000.

     Code: The Internal Revenue Code of 1986, including any successor or
amendatory provisions.

     COFI: Not applicable.

                                      -10-
<PAGE>

     COFI Certificates: Not applicable.

     Compensating Interest: As to any Distribution Date and any Mortgage Loan
that prepaid in full during the period from the sixteenth day of the month prior
to the month of such Distribution Date through the last day of such month, an
additional payment made by the Master Servicer, to the extent funds are
available from the Master Servicing Fee, equal to the amount of interest at the
Adjusted Net Mortgage Rate for that Mortgage Loan from the date of the
prepayment to the related Due Date; provided that the aggregate of all such
payments shall not exceed 0.0083% of the Pool Principal Balance as of the
related Determination Date.

     Component: Not applicable.

     Component Balance: Not applicable.

     Component Certificates: Not applicable.

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

     Coop Shares: Shares issued by a Cooperative Corporation.

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

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

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

     Corporate Trust Office: The designated office of the Trustee in the State
of New York at which at any particular time its corporate trust business with
respect to this Agreement shall be administered, which office at the date of the
execution of this Agreement is located at The Bank of New York, 101 Barclay
Street, 12E New York, New York 10286 (Attn: Corporate Trust Mortgage-Backed
Securities Group, First Horizon Asset Securities Inc. Series 2000-3), facsimile
no. (212) 815-4135, and which is the address to which notices to and
correspondence with the Trustee should be directed.

     Corresponding Classes of Certificates: As described in Section 2.7.

     Cross-Over Date: The Distribution Date on which the respective Class
Certificate Balances of the Subordinated Certificates have been reduced to zero.

     Custodial Agreement: The Custodial Agreement dated as of July 20, 2000 by
and among the Trustee, the Master Servicer and the Custodian.

                                      -11-
<PAGE>

     Custodian: LaSalle Bank National Association, a national banking
association, and its successors and assigns, as custodian under the Custodial
Agreement.

     Cut-off Date: July 1, 2000.

     Cut-off Date Pool Principal Balance: $173,832,951.39.

     Cut-off Date Principal Balance: As to any Mortgage Loan, the Stated
Principal Balance thereof as of the close of business on the Cut-off Date.

     Debt Service Reduction: With respect to any Mortgage Loan, a reduction by a
court of competent jurisdiction in a proceeding under the Bankruptcy Code in the
Scheduled Payment for such Mortgage Loan which became final and non-appealable,
except such a reduction resulting from a Deficient Valuation or any reduction
that results in a permanent forgiveness of principal.

     Deceased Holder: With respect to a Holder of any Insured Retail
Certificate, as defined in Section 4.8(b).

     Defective Mortgage Loan: Any Mortgage Loan which is required to be
repurchased pursuant to Section 2.2 or 2.3.

     Deficient Valuation: With respect to any Mortgage Loan, a valuation by a
court of competent jurisdiction of the Mortgaged Property in an amount less than
the then-outstanding indebtedness under the Mortgage Loan, or any reduction in
the amount of principal to be paid in connection with any Scheduled Payment that
results in a permanent forgiveness of principal, which valuation or reduction
results from an order of such court which is final and non-appealable in a
proceeding under the Bankruptcy Code.

     Definitive Certificates: Any Certificate evidenced by a Physical
Certificate and any Certificate issued in lieu of a Book-Entry Certificate
pursuant to Section 5.2(e).

     Delay Certificates: As specified in the Preliminary Statement.

     Delay Delivery Mortgage Loans: The Mortgage Loans for which all or a
portion of a related Mortgage File is not delivered to Trustee on the Closing
Date. The number of Delay Delivery Mortgage Loans shall not exceed 25% of the
aggregate number of Mortgage Loans as of the Closing Date.

     Deleted Mortgage Loan: As defined in Section 2.3(c) hereof.

     Denomination: With respect to each Certificate, the amount set forth on the
face thereof as the "Initial Certificate Balance of this Certificate" or the
Percentage Interest appearing on the face thereof.

     Depositor: First Horizon Asset Securities Inc., a Delaware corporation, or
its successor in interest.

                                      -12-
<PAGE>

     Depository: The initial Depository shall be The Depository Trust Company,
the nominee of which is CEDE & Co., as the registered Holder of the Book-Entry
Certificates. The Depository shall at all times be a "clearing corporation" as
defined in Section 8-102(a)(5) of the Uniform Commercial Code of the State of
New York.

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

     Determination Date: As to any Distribution Date, the earlier of (i) the
third Business Day after the 15th day of each month, and (ii) the second
Business Day prior to the related Distribution Date.

     Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net Mortgage
Rate that is less than the Required Coupon.

     Distribution Account: The separate Eligible Account created and maintained
by the Trustee pursuant to Section 3.5 in the name of the Trustee for the
benefit of the Certificateholders and designated "The Bank of New York, in trust
for registered Holders of First Horizon Asset Securities Inc. Mortgage Pass-
Through Certificates, Series 2000-3." Funds in the Distribution Account shall be
held in trust for the Certificateholders for the uses and purposes set forth in
this Agreement.

     Distribution Account Deposit Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

     Distribution Date: The 25th day of each calendar month after the initial
issuance of the Certificates, or if such 25th day is not a Business Day, the
next succeeding Business Day, commencing in August 2000.

     Due Date: With respect to any Distribution Date, the first day of the month
in which the related Distribution Date occurs.

     Eligible Account: Any of (i) an account or accounts maintained with a
federal or state chartered depository institution or trust company the short-
term unsecured debt obligations of which (or, in the case of a depository
institution or trust company that is the principal subsidiary of a holding
company, the debt obligations of such holding company) have the highest short-
term ratings of each Rating Agency at the time any amounts are held on deposit
therein, or (ii) an account or accounts in a depository institution or trust
company in which such accounts are insured by the FDIC or the SAIF (to the
limits established by the FDIC or the SAIF, as applicable) and the uninsured
deposits in which accounts are otherwise secured such that, as evidenced by an
Opinion of Counsel delivered to the Trustee and to each Rating Agency, the
Certificateholders have a claim with respect to the funds in such account or a
perfected first priority security interest against any collateral (which shall
be limited to Permitted Investments) securing such funds that is superior to
claims of any other depositors or creditors of the depository institution or
trust company in which such account is maintained, or (iii) a trust account or
accounts maintained with (a) the trust department of a federal or state
chartered depository institution or (b) a trust company, acting in its fiduciary
capacity or (iv)

                                      -13-
<PAGE>

any other account acceptable to each Rating Agency. Eligible Accounts may bear
interest, and may include, if otherwise qualified under this definition,
accounts maintained with the Trustee.

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

     ERISA Qualifying Underwriting: With respect to any ERISA-Restricted
Certificate that is not a Subordinated Certificate or a Residual Certificate, a
best efforts or firm commitment underwriting or private placement that meets the
requirements of Prohibited Transaction Exemption 89-88 (54 Fed. Reg. 42,581,
October 17, 1989), as amended (or any successor thereto), or any substantially
similar administrative exemption granted by the U.S. Department of Labor (an
"Underwriter's Exemption").

     ERISA-Restricted Certificate: As specified in the Preliminary Statement.

     Escrow Account: The Eligible Account or Accounts established and maintained
pursuant to Section 3.6(a) hereof.

     Event of Default: As defined in Section 7.1 hereof.

     Excess Loss: The amount of any (i) Fraud Loss realized after the Fraud Loss
Coverage Termination Date, (ii) Special Hazard Loss realized after the Special
Hazard Coverage Termination Date or (iii) Deficient Valuation realized after the
Bankruptcy Coverage Termination Date.

     Excess Proceeds: With respect to any Liquidated Mortgage Loan, the amount,
if any, by which the sum of any Liquidation Proceeds of such Mortgage Loan
received in the calendar month in which such Mortgage Loan became a Liquidated
Mortgage Loan, net of any amounts previously reimbursed to the Master Servicer
as Nonrecoverable Advance(s) with respect to such Mortgage Loan pursuant to
Section 3.8(a)(iii), exceeds (i) the unpaid principal balance of such Liquidated
Mortgage Loan as of the Due Date in the month in which such Mortgage Loan became
a Liquidated Mortgage Loan plus (ii) accrued interest at the Mortgage Rate from
the Due Date as to which interest was last paid or advanced (and not reimbursed)
to Certificateholders up to the Due Date applicable to the Distribution Date
immediately following the calendar month during which such liquidation occurred.

     Expense Rate: As to each Mortgage Loan, the sum of the related Master
Servicing Fee Rate and the Trustee Fee Rate.

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

     FHLMC: The Federal Home Loan Mortgage Corporation, a corporate
instrumentality of the United States created and existing under Title III of the
Emergency Home Finance Act of 1970, as amended, or any successor thereto.

     FIRREA: The Financial Institutions Reform, Recovery, and Enforcement Act of
     1989.

     First Horizon: First Horizon Home Loan Corporation, a Kansas corporation
and an indirect wholly owned subsidiary of First Tennessee National Corporation,
a Tennessee corporation.

                                      -14-
<PAGE>

     Fitch: Fitch, Inc., or any successor thereto. If Fitch is designated as a
Rating Agency in the Preliminary Statement, for purposes of Section 10.05(b) the
address for notices to Fitch shall be Fitch, Inc., One State Street Plaza, New
York, New York 10004, Attention: Residential Mortgage Surveillance Group, or
such other address as Fitch may hereafter furnish to the Depositor and the
Master Servicer.

     FNMA: The Federal National Mortgage Association, a federally chartered and
privately owned corporation organized and existing under the Federal National
Mortgage Association Charter Act, or any successor thereto.

     Fraud Loan: A Liquidated Mortgage Loan as to which a Fraud Loss has
     occurred.

     Fraud Losses: Realized Losses on Mortgage Loans as to which a loss is
sustained by reason of a default arising from fraud, dishonesty or
misrepresentation in connection with the related Mortgage Loan, including a loss
by reason of the denial of coverage under any related Primary Insurance Policy
because of such fraud, dishonesty or misrepresentation.

     Fraud Loss Coverage Amount: As of the Closing Date, $1,738,329. As of any
Distribution Date prior to the third anniversary of the Cut-off Date, the Fraud
Loss Coverage Amount will equal approximately $1,738,329 minus the aggregate
amount of Fraud Losses that would have been allocated to the Subordinated
Certificates in the absence of the Loss Allocation Limitation since the Cut-off
Date. As of any Distribution Date from the third to the fifth anniversaries of
the Cut-off Date, the Fraud Loss Coverage Amount will equal (1) the lesser of
(a) the Fraud Loss Coverage Amount as of the most recent anniversary of the Cut-
off Date and (b) 0.5% of the aggregate outstanding principal balance of all of
the mortgage loans as of the most recent anniversary of the Cut-off Date minus
(2) the Fraud Losses that would have been allocated to the Subordinated
Certificates in the absence of the Loss Allocation Limitation since the most
recent anniversary of the Cut-off Date. As of any Distribution Date on or after
the earlier of the Cross-Over Date or the fifth anniversary of the Cut-off Date,
the Fraud Loss Coverage Amount shall be zero.

     Fraud Loss Coverage Termination Date: The point in time at which the Fraud
Loss Coverage Amount is reduced to zero.

     FSA: Financial Security Assurance Inc., a stock insurance company organized
and created under the laws of the State of New York, and any successors thereto.

     FSA Default: The existence and continuance of a failure by FSA to make a
payment required under the FSA Policy in accordance with its terms.

     FSA Insurance Payment: Any payment made by Financial Security with respect
to any Insured Retail Certificates under the FSA Policy.

     FSA Policy: The Certificate Guaranty Insurance Policy issued by Financial
Security for the benefit of the Holders of any Insured Retail Certificates,
including any endorsements thereto.

     FSA Policy Payments Account: The account established pursuant to Section
10.2 of this Agreement.

                                      -15-
<PAGE>

     FSA Premium: As to the Insured Retail Certificates and any Distribution
Date, an amount equal to one-twelfth of 0.06% per annum multiplied by the Class
Certificate Balance of the Insured Retail Certificates (prior to giving effect
to any distributions to be made in respect of the Insured Retail Certificates on
such Distribution Date).

     Group I Final Distribution Date: The Distribution Date on which the Class
Certificate Balance of each of the Group I Senior Certificates has been reduced
to zero.

     Group I Senior Certificates: The Class A-1, Class A-2, Class A-3, Class A-
4, Class A-5, Class A-RU and Class A-RL Certificates, collectively.

     Guaranteed Distributions: With respect to the Insured Retail Certificates,
the sum of (i) one full month's interest on the Class Certificate Balance of the
Insured Retail Certificates at the Pass-Through Rate, reduced by (a) any Net
Interest Shortfalls allocated to the Insured Retail Certificates that were
covered by the Reserve Fund, and (b) any interest shortfalls relating to Relief
Act Reductions, (ii) the principal portion of any Realized Loss allocated to the
Insured Retail Certificates and (iii) the Class Certificate Balance of the
Insured Retail Certificates to the extent unpaid on the final Distribution Date
or earlier termination of the Trust pursuant to the terms of this Agreement.

     Index: Not applicable.

     Indirect Participant: A broker, dealer, bank or other financial institution
or other Person that clears through or maintains a custodial relationship with a
Depository Participant.

     Initial Bankruptcy Coverage Amount: $130,719.

     Initial Component Balance: Not applicable.

     Insurance Policy: With respect to any Mortgage Loan included in the Trust
Fund, any insurance policy, including all riders and endorsements thereto in
effect, including any replacement policy or policies for any Insurance Policies.

     Insurance Proceeds: Proceeds paid by an insurer pursuant to any Insurance
Policy, in each case other than any amount included in such Insurance Proceeds
in respect of Insured Expenses.

     Insured Retail Certificates:  As specified in the Preliminary Statement.

     Insured Expenses: Expenses covered by an Insurance Policy or any other
insurance policy with respect to the Mortgage Loans.

     Interest Accrual Period: With respect to each Class of Delay Certificates
and any Distribution Date, the calendar month prior to the month of such
Distribution Date. With respect to any Non-Delay Certificates and any
Distribution Date, the one month period commencing on the 25th day of the month
preceding the month in which such Distribution Date occurs and ending on the
24th day of the month in which such Distribution Date occurs.

     Interest Determination Date: Not applicable.

                                      -16-
<PAGE>

     Latest Possible Maturity Date: The Distribution Date following the third
anniversary of the scheduled maturity date of the Mortgage Loan having the
latest scheduled maturity date as of the Cut-off Date.

     Lender PMI Mortgage Loan: Not applicable.

     LIBOR: Not applicable.

     LIBOR Certificates: Not applicable.

     Liquidated Mortgage Loan: With respect to any Distribution Date, a
defaulted Mortgage Loan (including any REO Property) which was liquidated in the
calendar month preceding the month of such Distribution Date and as to which the
Master Servicer has determined (in accordance with this Agreement) that it has
received all amounts it expects to receive in connection with the liquidation of
such Mortgage Loan, including the final disposition of an REO Property.

     Liquidation Proceeds: Amounts, including Insurance Proceeds, received in
connection with the partial or complete liquidation of defaulted Mortgage Loans,
whether through trustee's sale, foreclosure sale or otherwise or amounts
received in connection with any condemnation or partial release of a Mortgaged
Property and any other proceeds received in connection with an REO Property,
less the sum of related unreimbursed Master Servicing Fees, Servicing Advances
and Advances.

     Living Holder: Any Certificate Owner of a Insured Retail Certificate, other
than a Deceased Holder.

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

     Loss Allocation Limitation: As defined in Section 4.4(g).

     Lost Mortgage Note: Any Mortgage Note the original of which was permanently
lost or destroyed and has not been replaced.

     Lower REMIC: The segregated pool of assets consisting of the Trust Fund and
the Rounding Account but excluding the Retained Yield and the Lower REMIC
Interests. The Lower REMIC shall not include the Reserve Fund.

     Lower REMIC Interests: The regular REMIC interests issued by the Lower
REMIC as set forth in Section 2.7.

     Maintenance: With respect to any Cooperative Unit, the rent paid by the
Mortgagor to the Cooperative Corporation pursuant to the Proprietary Lease.

                                      -17-
<PAGE>

     Majority in Interest: As to any Class of Regular Certificates, the Holders
of Certificates of such Class evidencing, in the aggregate, at least 51% of the
Percentage Interests evidenced by all Certificates of such Class.

     Master Servicer: First Horizon Home Loan Corporation, a Kansas corporation,
and its successors and assigns, in its capacity as master servicer hereunder.

     Master Servicer Advance Date: As to any Distribution Date, 1:30 p.m.
Central time on the Business Day immediately preceding such Distribution Date.

     Master Servicing Fee: As to each Mortgage Loan and any Distribution Date,
an amount payable out of each full payment of interest received on such Mortgage
Loan and equal to one-twelfth of the Master Servicing Fee Rate multiplied by the
Stated Principal Balance of such Mortgage Loan as of the Due Date in the month
of such Distribution Date (prior to giving effect to any Scheduled Payments due
on such Mortgage Loan on such Due Date), subject to reduction as provided in
Section 3.14.

     Master Servicing Fee Rate: For each Mortgage Loan, a per annum rate equal
to 0.244%.

     Monthly Statement: The statement delivered to the Certificateholders
pursuant to Section 4.6.

     Moody's: Moody's Investors Service, Inc., or any successor thereto. If
Moody's is designated as a Rating Agency in the Preliminary Statement, for
purposes of Section 10.05(b) the address for notices to Moody's shall be Moody's
Investors Service, Inc., 99 Church Street, New York, New York 10007, Attention:
Residential Pass-Through Monitoring, or such other address as Moody's may
hereafter furnish to the Depositor or the Master Servicer.

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

     Mortgage File: The mortgage documents listed in Section 2.1 hereof
pertaining to a particular Mortgage Loan and any additional documents delivered
to the Trustee to be added to the Mortgage File pursuant to this Agreement.

     Mortgage Loans: Such of the mortgage loans transferred and assigned to the
Trustee pursuant to the provisions hereof as from time to time are held as a
part of the Trust Fund (including any REO Property), the mortgage loans so held
being identified in the Mortgage Loan Schedule, notwithstanding foreclosure or
other acquisition of title of the related Mortgaged Property.

     Mortgage Loan Schedule: The list of Mortgage Loans (as from time to time
amended by the Master Servicer to reflect the addition of Substitute Mortgage
Loans and the deletion of Deleted Mortgage Loans pursuant to the provisions of
this Agreement) transferred to the Trustee as part of the Trust Fund and from
time to time subject to this Agreement, attached hereto as Schedule I, setting
forth the following information with respect to each Mortgage Loan:

     (i)  the loan number;

                                      -18-
<PAGE>

     (ii)   the Mortgagor's name and the street address of the Mortgaged
Property, including the zip code;

     (iii)  the maturity date;

     (iv)   the original principal balance;

     (v)    the Cut-off Date Principal Balance;

     (vi)   the first payment date of the Mortgage Loan;

     (vii)  the Scheduled Payment in effect as of the Cut-off Date;

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

     (ix)   a code indicating whether the residential dwelling at the time of
origination was represented to be owner-occupied;

     (x)    a code indicating whether the residential dwelling is either (a) a
detached single family dwelling (b) a dwelling in a de minimis PUD, (c) a
condominium unit or PUD (other than a de minimis PUD), (d) a two- to four-unit
residential property or (e) a Cooperative Unit;

     (xi)   the Mortgage Rate;

     (xii)  the purpose for the Mortgage Loan;

     (xiii) the type of documentation program pursuant to which the Mortgage
Loan was originated; and

     (xiv)  the Master Servicing Fee for the Mortgage Loan.

     Such schedule shall also set forth the total of the amounts described under
(iv) and (v) above for all of the Mortgage Loans.

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

     Mortgage Rate: The annual rate of interest borne by a Mortgage Note from
time to time, net of any interest premium charged by the mortgagee to obtain or
maintain any Primary Insurance Policy.

     Mortgaged Property: The underlying property securing a Mortgage Loan,
which, with respect to a Cooperative Loan, is the related Coop Shares and
Proprietary Lease.

     Mortgagor: The obligor(s) on a Mortgage Note.

                                      -19-
<PAGE>

     National Cost of Funds Index: The National Monthly Median Cost of Funds
Ratio to SAIF-Insured Institutions published by the Office of Thrift
Supervision.

     Net Interest Shortfall: For any Distribution Date, the sum of (a) the
amount of interest which would otherwise have been received for any Mortgage
Loan that was the subject of (x) a Relief Act Reduction or (y) a Special Hazard
Loss, Fraud Loss, or Deficient Valuation, after the exhaustion of the respective
amounts of coverage provided by the Subordinate Certificates for those types of
losses; and (b) any Net Prepayment Interest Shortfalls. Net Interest Shortfalls
on any Distribution Date will be allocated pro rata among all Classes of
Certificates entitled to receive distributions of interest on that Distribution
Date, based on the amount of interest each of those Classes of Certificates
would otherwise be entitled to receive on that Distribution Date before taking
into account any reduction in that amounts resulting from that Net Interest
Shortfalls.

     Net Prepayment Interest Shortfalls: As to any Distribution Date, the amount
by which the aggregate of Prepayment Interest Shortfalls during the related
Prepayment Period exceeds an amount equal to the Compensating Interest, if any,
for such Distribution Date.

     Non-Delay Certificates: None.

     Non-Discount Mortgage Loan: Any Mortgage Loan with an Adjusted Net Mortgage
Rate that is greater than or equal to the Required Coupon.

     Non-Excess Loss: Any Realized Loss other than an Excess Loss.

     Non-PO Percentage: As to any Discount Mortgage Loan, a fraction (expressed
as a percentage) the numerator of which is the Adjusted Net Mortgage Rate of
such Discount Mortgage Loan and the denominator of which is the Required Coupon.
As to any Non-Discount Mortgage Loan, 100%.

     Nonrecoverable Advance: Any portion of an Advance previously made or
proposed to be made by the Master Servicer that, in the good faith judgment of
the Master Servicer, will not be ultimately recoverable by the Master Servicer
from the related Mortgagor, related Liquidation Proceeds or otherwise.

     Notice of Final Distribution: The notice to be provided pursuant to Section
9.2 to the effect that final distribution on any of the Certificates shall be
made only upon presentation and surrender thereof.

     Notional Amount: With respect to the Class A-7 Certificates and any
Distribution Date, an amount equal to the Class Certificate Balance of the Class
A-5 Certificates immediately prior to such Distribution Date, less an amount
equal to the product of (a) 1.31578947368 and (b) the sum of the Class
Certificate Balances of the Class A-3 and Class A-4 Certificates immediately
prior to such Distribution Date. The initial Notional Amount shall be
$4,050,000.

     Notional Amount Certificates: As specified in the Preliminary Statement.

     Offered Certificates: As specified in the Preliminary Statement.

                                      -20-
<PAGE>

     Officer's Certificate: A Certificate (i) signed by the Chairman of the
Board, the Vice Chairman of the Board, the President, a Managing Director, a
Vice President (however denominated), an Assistant Vice President, the
Treasurer, the Secretary, or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or the Master Servicer, or (ii), if provided for in
this Agreement, signed by a Servicing Officer, as the case may be, and delivered
to the Depositor and the Trustee, as the case may be, as required by this
Agreement.

     Opinion of Counsel: A written opinion of counsel, who may be counsel for
the Depositor or the Master Servicer, including, in-house counsel, reasonably
acceptable to the Trustee; provided, however, that with respect to the
interpretation or application of the REMIC Provisions, such counsel must (i) in
fact be independent of the Depositor and the Master Servicer, (ii) not have any
direct financial interest in the Depositor or the Master Servicer or in any
affiliate of either, and (iii) not be connected with the Depositor or the Master
Servicer as an officer, employee, promoter, underwriter, trustee, partner,
director or person performing similar functions.

     Optional Termination: The termination of the trust created hereunder in
connection with the purchase of the Mortgage Loans pursuant to Section 9.1(a)
hereof.

     Original Mortgage Loan: The Mortgage Loan refinanced in connection with the
origination of a Refinancing Mortgage Loan.

     Original Subordinated Principal Balance: The aggregate of the Class
Certificate Balances of the Subordinated Certificates as of the Closing Date.

     OTS: The Office of Thrift Supervision.

     Outside Reference Date: Not applicable.

     Outstanding: With respect to the Certificates as of any date of
determination, all Certificates theretofore executed and authenticated under
this Agreement except:

          (i)  Certificates theretofore canceled by the Trustee or delivered to
     the Trustee for cancellation; and

          (ii) Certificates in exchange for which or in lieu of which other
     Certificates have been executed and delivered by the Trustee pursuant to
     this Agreement.

     Outstanding Mortgage Loan: As of any Due Date, a Mortgage Loan with a
Stated Principal Balance greater than zero which was not the subject of a
Principal Prepayment in Full prior to such Due Date and which did not become a
Liquidated Mortgage Loan prior to such Due Date.

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

     Pass-Through Rate: For any interest bearing Class of Certificates or
Component, the per annum rate set forth or calculated in the manner described in
the Preliminary Statement.

                                      -21-
<PAGE>

     Percentage Interest: As to any Certificate, the percentage interest
evidenced thereby in distributions required to be made on the related Class,
such percentage interest being set forth on the face thereof or equal to the
percentage obtained by dividing the Denomination of such Certificate by the
aggregate of the Denominations of all Certificates of the same Class.

     Permitted Investments: At any time, any one or more of the following
obligations and securities:

          (i)    obligations of the United States or any agency thereof,
     provided such obligations are backed by the full faith and credit of the
     United States;

          (ii)   general obligations of or obligations guaranteed by any state
     of the United States or the District of Columbia receiving the highest
     long-term debt rating of each Rating Agency, or such lower rating as will
     not result in the downgrading or withdrawal of the ratings then assigned to
     the Certificates by each Rating Agency;

          (iii)  commercial or finance company paper which is then receiving the
     highest commercial or finance company paper rating of each Rating Agency,
     or such lower rating as will not result in the downgrading or withdrawal of
     the ratings then assigned to the Certificates by each Rating Agency;

          (iv)   certificates of deposit, demand or time deposits, or bankers'
     acceptances issued by any depository institution or trust company
     incorporated under the laws of the United States or of any state thereof
     and subject to supervision and examination by federal and/or state banking
     authorities, provided that the commercial paper and/or long term unsecured
     debt obligations of such depository institution or trust company (or in the
     case of the principal depository institution in a holding company system,
     the commercial paper or long-term unsecured debt obligations of such
     holding company, but only if Moody's is not a Rating Agency) are then rated
     one of the two highest long-term and the highest short-term ratings of each
     Rating Agency for such securities, or such lower ratings as will not result
     in the downgrading or withdrawal of the rating then assigned to the
     Certificates by either Rating Agency;

          (v)    demand or time deposits or certificates of deposit issued by
     any bank or trust company or savings institution to the extent that such
     deposits are fully insured by the FDIC;

          (vi)   guaranteed reinvestment agreements issued by any bank,
     insurance company or other corporation containing, at the time of the
     issuance of such agreements, such terms and conditions as will not result
     in the downgrading or withdrawal of the rating then assigned to the
     Certificates by either Rating Agency;

          (vii)  repurchase obligations with respect to any security described
     in clauses (i) and (ii) above, in either case entered into with a
     depository institution or trust company (acting as principal) described in
     clause (iv) above;

          (viii) securities (other than stripped bonds, stripped coupons or
     instruments sold at a purchase price in excess of 115% of the face amount
     thereof) bearing interest or sold at a

                                      -22-
<PAGE>

     discount issued by any corporation incorporated under the laws of the
     United States or any state thereof which, at the time of such investment,
     have one of the two highest ratings of each Rating Agency (except if the
     Rating Agency is Moody's, such rating shall be the highest commercial paper
     rating of Moody's for any such securities), or such lower rating as will
     not result in the downgrading or withdrawal of the rating then assigned to
     the Certificates by either Rating Agency as evidenced by a signed writing
     delivered by each Rating Agency;

          (ix) units of a taxable money-market portfolio having the highest
     rating assigned by each Rating Agency (except if Fitch is a Rating Agency
     and has not rated the portfolio, the highest rating assigned by Moody's)
     and restricted to obligations issued or guaranteed by the United States of
     America or entities whose obligations are backed by the full faith and
     credit of the United States of America and repurchase agreements
     collateralized by such obligations; and

          (x)  such other investments bearing interest or sold at a discount
     acceptable to each Rating Agency as will not result in the downgrading or
     withdrawal of the rating then assigned to the Certificates by either Rating
     Agency, as evidenced by a signed writing delivered by each Rating Agency;

     provided that no such instrument shall be a Permitted Investment if such
     instrument evidences the right to receive interest only payments with
     respect to the obligations underlying such instrument.

     Permitted Transferee: Any person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in section 521 of the Code)
which is exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in section 860E(c)(l) of the Code) with respect to
any Residual Certificate, (iv) rural electric and telephone cooperatives
described in section 1381(a)(2)(C) of the Code, (v) an "electing large
partnership" as defined in section 775 of the Code, (vi) a Person that is not
(a) a citizen or resident of the United States, (b) a corporation, partnership,
or other entity created or organized in or under the laws of the United States,
any state thereof or the District of Columbia, (c) an estate whose income from
sources without the United States is includible in gross income for United
States federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States or (d) a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States persons have the
authority to control all substantial decisions of the trust, unless such Person
has furnished the transferor and the Trustee with a duly completed Internal
Revenue Service Form 4224 or any applicable successor form, and (vi) any other
Person so designated by the Depositor based upon an Opinion of Counsel that the
Transfer of an Ownership Interest in a Residual Certificate to such Person may
cause any REMIC created hereunder to fail to qualify as a REMIC at any time that
the Certificates are outstanding; provided, however, that if a person is
                                  --------
classified as a partnership under the Code, such person shall only be a
Permitted Transferee if all of its beneficial owners are described in subclauses
(a), (b), (c) or (d) of clause (vi) and the governing documents of such person
prohibits a transfer of any interest in such person to any person described in
clause (vi). The terms

                                      -23-
<PAGE>

"United States," "State" and "International Organization" shall have the
meanings set forth in section 7701 of the Code or successor provisions. A
corporation will not be treated as an instrumentality of the United States or of
any State or political subdivision thereof for these purposes if all of its
activities are subject to tax and, with the exception of the Federal Home Loan
Mortgage Corporation, a majority of its board of directors is not selected by
such government unit.

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

     Physical Certificate: As specified in the Preliminary Statement.

     Planned Balance: Not applicable.

     Planned Principal Classes: Not applicable.

     PO Percentage: As to any Discount Mortgage Loan, a fraction (expressed as a
percentage) the numerator of which is the excess of the Required Coupon over the
Adjusted Net Mortgage Rate of such Discount Mortgage Loan and the denominator of
which is the Required Coupon. As to any Non-Discount Mortgage Loan, 0%.

     Pool Principal Balance: As to any Distribution Date, the aggregate of the
Stated Principal Balances of the Mortgage Loans which were Outstanding Mortgage
Loans on the Due Date in the month preceding the month of such Distribution
Date.

     Prepayment Interest Excess: As to any Principal Prepayment received by the
Master Servicer from the first day through the fifteenth day of any calendar
month (other than the calendar month in which the Cut-off Date occurs), all
amounts paid by the related Mortgagor in respect of interest on such Principal
Prepayment. All Prepayment Interest Excess shall be paid to the Master Servicer
as additional master servicing compensation.

     Prepayment Interest Shortfall: As to any Distribution Date, Mortgage Loan
and Principal Prepayment received (a) during the period from the sixteenth day
of the month preceding the month of such Distribution Date through the last day
of such month, in the case of a Principal Prepayment in full, or (b) during the
month preceding the month of such Distribution Date, in the case of a partial
Principal Prepayment, the amount, if any, by which one month's interest at the
related Adjusted Mortgage Rate on such Principal Prepayment exceeds the amount
of interest actually paid by the Mortgagor in connection with such Principal
Prepayment.

     Prepayment Period: (a) With respect to any Principal Prepayments in Full
and any Distribution Date, the period from the sixteenth day of the month
preceding the month of such Distribution Date (or, in the case of the first
Distribution Date, from the Cut-off Date) through the fifteenth day of the month
of such Distribution Date, and (b) with respect to any other Principal
Prepayments and any Distribution Date, the month preceding the month of such
Distribution Date.

     Primary Insurance Policy: Each policy of primary mortgage guaranty
insurance or any replacement policy therefor with respect to any Mortgage Loan.

                                      -24-
<PAGE>

     Primary Planned Principal Classes: Not applicable.

     Principal Distribution Request: Any request for a distribution in reduction
of the Certificate Principal Balance of any Insured Retail Certificate,
submitted in writing to a Depository Participant or Indirect Participant (or, if
such Insured Retail Certificate is no longer represented by a Book-Entry
Certificate, to the Trustee) by the Holder of such Insured Retail Certificate
pursuant to Section 4.8(c) or 4.8(g), as applicable.

     Principal Prepayment: Any payment of principal by a Mortgagor on a Mortgage
Loan that is received in advance of its scheduled Due Date and is not
accompanied by an amount representing scheduled interest due on any date or
dates in any month or months subsequent to the month of prepayment. Partial
Principal Prepayments shall be applied by the Master Servicer in accordance with
the terms of the related Mortgage Note.

     Principal Prepayment in Full: Any Principal Prepayment made by a Mortgagor
of the entire principal balance of a Mortgage Loan.

     Private Certificate: As specified in the Preliminary Statement.

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

     PUD: Planned Unit Development.

     Purchase Price: With respect to any Mortgage Loan required to be purchased
by the Seller pursuant to Section 2.2 or 2.3 hereof or purchased at the option
of the Master Servicer pursuant to Section 3.11, an amount equal to the sum of
(i) 100% of the unpaid principal balance of the Mortgage Loan on the date of
such purchase, and (ii) accrued interest thereon at the applicable Mortgage Rate
(or at the applicable Adjusted Mortgage Rate if (x) the purchaser is the Master
Servicer or (y) if the purchaser is the Seller and the Seller is the Master
Servicer) from the date through which interest was last paid by the Mortgagor to
the Due Date in the month in which the Purchase Price is to be distributed to
Certificateholders.

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

     Random Lot: With respect to any Distribution Date, the method by which
Depository will determine which Insured Retail Certificates will be paid, using
its established random lot procedures or, if the Insured Retail Certificates are
no longer represented by a Book-Entry Certificate, using the Trustee's
procedures.

                                      -25-
<PAGE>

     Rating Agency: Each of the Rating Agencies specified in the Preliminary
Statement. If any such organization or a successor is no longer in existence,
"Rating Agency" shall be such nationally recognized statistical rating
organization, or other comparable Person, as is designated by the Depositor,
notice of which designation shall be given to the Trustee. References herein to
a given rating category of a Rating Agency shall mean such rating category
without giving effect to any modifiers.

     Realized Loss: With respect to each Liquidated Mortgage Loan, an amount
(not less than zero or more than the Stated Principal Balance of the Mortgage
Loan) as of the date of such liquidation, equal to (i) the Stated Principal
Balance of the Liquidated Mortgage Loan as of the date of such liquidation, plus
(ii) interest at the Adjusted Net Mortgage Rate from the Due Date as to which
interest was last paid or advanced (and not reimbursed) to Certificateholders up
to the Due Date in the month in which Liquidation Proceeds are required to be
distributed on the Stated Principal Balance of such Liquidated Mortgage Loan
from time to time, minus (iii) the Liquidation Proceeds, if any, received during
the month in which such liquidation occurred, to the extent applied as
recoveries of interest at the Adjusted Net Mortgage Rate and to principal of the
Liquidated Mortgage Loan. With respect to each Mortgage Loan which has become
the subject of a Deficient Valuation, if the principal amount due under the
related Mortgage Note has been reduced, the difference between the principal
balance of the Mortgage Loan outstanding immediately prior to such Deficient
Valuation and the principal balance of the Mortgage Loan as reduced by the
Deficient Valuation.

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

     Record Date: With respect to any Distribution Date, the close of business
on the last Business Day of the month preceding the month in which such
Distribution Date occurs.

     Reference Bank: Not applicable.

     Refinancing Mortgage Loan: Any Mortgage Loan originated in connection with
the refinancing of an existing mortgage loan.

     Regular Certificates: As specified in the Preliminary Statement.

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

     Relief Act Reductions: With respect to any Distribution Date and any
Mortgage Loan as to which there has been a reduction in the amount of interest
collectible thereon for the most recently ended calendar month as a result of
the application of the Relief Act, the amount, if any, by which interest
collectible on such Mortgage Loan for the most recently ended calendar month is
less than interest accrued thereon for such month pursuant to the Mortgage Note.

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

                                      -26-
<PAGE>

     REMIC Change of Law: Any proposed, temporary or final regulation, revenue
ruling, revenue procedure or other official announcement or interpretation
relating to REMICs and the REMIC Provisions issued after the Closing Date.

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

     REO Property: A Mortgaged Property acquired by the Trust Fund through
foreclosure or deed-in-lieu of foreclosure in connection with a defaulted
Mortgage Loan.

     Request for Release: The Request for Release submitted by the Master
Servicer to the Trustee, substantially in the form of Exhibits L and M, as
appropriate.

     Required Coupon: 7.75% per annum.

     Required Insurance Policy: With respect to any Mortgage Loan, any insurance
policy that is required to be maintained from time to time under this Agreement.

     Required Recordation States: The states of Florida, Maryland, Mississippi,
South Carolina and Tennessee.

     Reserve Fund: A fund established by the Underwriter at the time of the
issuance of the Certificates solely for the benefit of the Insured Retail
Certificates and FSA.

     Reserve Fund Deposit: $10,000.

     Reserve Fund Withdrawal: As defined in Section 4.7.

     Residual Certificates: As specified in the Preliminary Statement.

     Responsible Officer: When used with respect to the Trustee, any Vice
President, any Assistant Vice President, the Secretary, any Assistant Secretary,
any Trust Officer or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above designated officers and
having direct responsibility for the administration of this Agreement and also
to whom, with respect to a particular matter, such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.

     Retained Yield: As to each Non-Discount Mortgage Loan and any Distribution
Date, an amount payable to First Horizon Home Loan Corporation out of each full
payment of interest received on such Mortgage Loan and equal to one-twelfth of
the Retained Yield Rate multiplied by the Stated Principal Balance of such
Mortgage Loan as of the Due Date in the month of such Distribution Date (prior
to giving effect to any Scheduled Payments due on such Mortgage Loan on such Due
Date).

                                      -27-
<PAGE>

     Retained Yield Rate: For any Non-Discount Mortgage Loan, a per annum rate
equal to the excess of (a) the applicable Adjusted Net Mortgage Rate over (b)
the Required Coupon.

     Rounding  Account: With respect to the Insured Retail Certificates, the
account created and maintained pursuant to Section 4.8(e).

     Scheduled Balances: Not applicable.

     Scheduled Classes: Not applicable.

     Scheduled Payment: The scheduled monthly payment on a Mortgage Loan due on
any Due Date allocable to principal and/or interest on such Mortgage Loan which,
unless otherwise specified herein, shall give effect to any related Debt Service
Reduction and any Deficient Valuation that affects the amount of the monthly
payment due on such Mortgage Loan.

     Secondary Planned Principal Clauses: Not applicable.

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

     Seller: First Horizon Home Loan Corporation, a Kansas corporation, and its
successors and assigns, in its capacity as seller of the Mortgage Loans to the
Depositor.

     Senior Certificates: As specified in the Preliminary Statement.

     Senior Final Distribution Date: For any Class of Senior Certificates, the
Distribution Date on which the Class Certificate Balance of such Class of Senior
Certificates (other than the Class PO Certificates) has been reduced to zero.

     Senior Optimal Principal Amount: With respect to each Distribution Date,
an amount equal to the sum of:

          (1)  the Senior Percentage of the applicable Non-PO Percentage of all
     Scheduled Payments of principal due on each Mortgage Loan on the first day
     of the month in which the Distribution Date occurs, as specified in the
     amortization schedule at the time applicable thereto after adjustment for
     previous principal prepayments and the principal portion of Debt Service
     Reductions after the Bankruptcy Loss Coverage Amount has been reduced to
     zero, but before any adjustment to such amortization schedule by reason of
     any other bankruptcy or similar proceeding or any moratorium or similar
     waiver or grace period;

          (2)  the Senior Prepayment Percentage of the applicable Non-PO
     Percentage of the Stated Principal Balance of each Mortgage Loan which was
     the subject of a prepayment in full received by the Master Servicer during
     the applicable Prepayment Period;

          (3)  the Senior Prepayment Percentage of the applicable Non-PO
     Percentage of all partial prepayments of principal received during the
     applicable Prepayment Period;

          (4)  the lesser of:

                                      -28-
<PAGE>

               (a) the Senior Prepayment Percentage of the applicable Non-PO
          Percentage of the sum of (x) the net Liquidation Proceeds allocable to
          principal on each Mortgage Loan which became a Liquidated Mortgage
          Loan during the related Prepayment Period, other than Mortgage Loans
          described in clause (y), and (y) the principal balance of each
          Mortgage Loan that was purchased by a private mortgage insurer during
          the related Prepayment Period as an alternative to paying a claim
          under the related Insurance Policy; and

               (b)(i) the Senior Percentage of the applicable Non-PO Percentage
          of the sum of (x) the Stated Principal Balance of each Mortgage Loan
          which became a Liquidated Mortgage Loan during the related Prepayment
          Period, other than Mortgage Loans described in clause (y), and (y) the
          Stated Principal Balance of each Mortgage Loan that was purchased by a
          private mortgage insurer during the related Prepayment Period as an
          alternative to paying a claim under the related Insurance Policy minus
          (ii) the Senior Percentage of the applicable Non-PO Percentage of the
          principal portion of Excess Losses (other than Debt Service
          Reductions) during the related Prepayment Period; and

          (5)  the Senior Prepayment Percentage of the applicable Non-PO
     Percentage of the sum of (a) the Stated Principal Balance of each Mortgage
     Loan which was repurchased by the seller in connection with such
     Distribution Date and (b) the difference, if any, between the Stated
     Principal Balance of a Mortgage Loan that has been replaced by the seller
     with a Substitute Mortgage Loan pursuant to the agreement in connection
     with such Distribution Date and the Stated Principal Balance of such
     Substitute Mortgage Loan.

     Senior Percentage: On any Distribution Date, the lesser of 100% and the
percentage (carried to six places rounded up) obtained by dividing the aggregate
Class Certificate Balances of all Classes of Senior Certificates (other than the
Class PO Certificates) immediately preceding such Distribution Date by the
aggregate Class Certificate Balances of all Classes of the Certificates (other
than the Class PO Certificates) immediately preceding such Distribution Date.

     Senior Prepayment Percentage: On any Distribution Date occurring during the
periods set forth below, the Senior Prepayment Percentages described below:

<TABLE>
<CAPTION>
 -----------------------------------------------------------------------------------------------
  Period (Dates Inclusive)                              Senior Prepayment Percentage
 -----------------------------------------------------------------------------------------------
  <S>                                  <C>
  August 2000 - July 2005              100%
 -----------------------------------------------------------------------------------------------
  August 2005 - July 2006              Senior Percentage plus 70% of the Subordinated Percentage
 -----------------------------------------------------------------------------------------------
  August 2006 - July 2007              Senior Percentage plus 60% of the Subordinated Percentage
 -----------------------------------------------------------------------------------------------
  August 2007 - July 2008              Senior Percentage plus 40% of the Subordinated Percentage
 -----------------------------------------------------------------------------------------------
  August 2008 - July 2009              Senior Percentage plus 20% of the Subordinated Percentage
 -----------------------------------------------------------------------------------------------
  August 2009 and thereafter           Senior Percentage
 -----------------------------------------------------------------------------------------------
</TABLE>

                                      -29-
<PAGE>

     Notwithstanding the foregoing, if the Senior Percentage on any Distribution
Date exceeds the initial Senior Percentage, the Senior Prepayment Percentage for
such Distribution Date will equal 100%.

     In addition, no reduction of the Senior Prepayment Percentage below the
level in effect for the most recent prior period specified in the table above
shall be effective on any Distribution Date unless, as of the last day of the
month preceding such Distribution Date, either:

          (A)(1) the aggregate Stated Principal Balance of Mortgage Loans
     delinquent 60 days or more (including for this purpose any Mortgage Loans
     in foreclosure and Mortgage Loans with respect to which the related
     Mortgaged Property has been acquired by the Trust Fund) does not exceed 50%
     of the aggregate Class Certificate Balance of the Subordinated Certificates
     as of such date; and

          (2) cumulative Realized Losses do not exceed:

               (a) 30% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2005 and July
          2006;

               (b) 35% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2006 and July
          2007;

               (c) 40% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2007 and July
          2008;

               (d) 45% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2008 and July
          2009; and

               (e) 50% of the Original Subordinated Principal Balance if such
          Distribution Date occurs during or after August 2009; or

          (B)(1) the aggregate Stated Principal Balance of Mortgage Loans
          delinquent 60 days or more (including for this purpose any Mortgage
          Loans in foreclosure and Mortgage Loans with respect to which the
          related Mortgaged Property has been acquired by the Trust Fund),
          averaged over the last three months, as a percentage of the aggregate
          Stated Principal Balance of all Mortgage Loans averaged over the last
          three months, does not exceed 4%; and

          (2) cumulative Realized Losses do not exceed:

               (a) 10% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2005 and July
          2006;

               (b) 15% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2006 and July
          2007;

                                      -30-
<PAGE>

               (c) 20% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2007 and July
          2008;

               (d) 25% of the Original Subordinated Principal Balance if such
          Distribution Date occurs between and including August 2008 and July
          2009; and

               (e) 30% of the Original Subordinated Principal Balance if such
          Distribution Date occurs during or after August 2009.

     Servicing Advances: All customary, reasonable and necessary "out of pocket"
costs and expenses incurred in the performance by the Master Servicer of its
servicing obligations, including, but not limited to, the cost of (i) the
preservation, restoration and protection of a Mortgaged Property, (ii) any
expenses reimbursable to the Master Servicer pursuant to Section 3.11 and any
enforcement or judicial proceedings, including foreclosures, (iii) the
management and liquidation of any REO Property and (iv) compliance with the
obligations under Section 3.9.

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

     Special Hazard Coverage Termination Date: The point in time at which the
Special Hazard Loss Coverage Amount is reduced to zero.

     Special Hazard Loss: Any Realized Loss suffered by a Mortgaged Property on
account of direct physical loss but not including (i) any loss of a type covered
by a hazard insurance policy or a flood insurance policy required to be
maintained with respect to such Mortgaged Property pursuant to Section 3.9 to
the extent of the amount of such loss covered thereby, or (ii) any loss caused
by or resulting from:

          (a)  normal wear and tear;

          (b)  fraud, conversion or other dishonest act on the part of the
     Trustee, the Master Servicer or any of their agents or employees (without
     regard to any portion of the loss not covered by any errors and omissions
     policy);

          (c)  errors in design, faulty workmanship or faulty materials, unless
     the collapse of the property or a part thereof ensues and then only for the
     ensuing loss;

          (d)  nuclear or chemical reaction or nuclear radiation or radioactive
     or chemical contamination, all whether controlled or uncontrolled, and
     whether such loss be direct or indirect, proximate or remote or be in whole
     or in part caused by, contributed to or aggravated by a peril covered by
     the definition of the term "Special Hazard Loss";

          (e)  hostile or warlike action in time of peace and war, including
     action in hindering, combating or defending against an actual, impending or
     expected attack:

                                      -31-
<PAGE>

               1.  by any government or sovereign power, de jure or de facto, or
          by any authority maintaining or using military, naval or air forces;
          or

               2.  by military, naval or air forces; or

               3.  by an agent of any such government, power, authority or
          forces;

          (f)  any weapon of war employing nuclear fission, fusion or other
     radioactive force, whether in time of peace or war; or

          (g)  insurrection, rebellion, revolution, civil war, usurped power or
     action taken by governmental authority in hindering, combating or defending
     against such an occurrence, seizure or destruction under quarantine or
     customs regulations, confiscation by order of any government or public
     authority or risks of contraband or illegal transportation or trade.

     Special Hazard Loss Coverage Amount: Upon the initial issuance of the
Certificates, $1,851,536. As of any Distribution Date, the Special Hazard Loss
Coverage Amount will equal the greater of

     .    1% (or if greater than 1%, the highest percentage of Mortgage Loans by
          principal balance secured by Mortgaged Properties in any single
          California zip code) of the outstanding principal balance of all the
          Mortgage Loans as of the related Determination Date; and

     .    twice the outstanding principal balance of the Mortgage Loan which has
          the largest outstanding principal balance as of the related
          Determination Date,

less, in each case, the aggregate amount of Special Hazard Losses that would
have been previously allocated to the subordinated certificates in the absence
of the Loss Allocation Limitation. As of any Distribution Date on or after the
Cross-Over Date, the Special Hazard Loss Coverage Amount will be zero.

     Special Hazard Mortgage Loan: A Liquidated Mortgage Loan as to which a
Special Hazard Loss has occurred.

     S&P: Standard & Poor's Corporation, a division of The McGraw-Hill
Companies, Inc. If S&P is designated as a Rating Agency in the Preliminary
Statement, for purposes of Section 10.05(b) the address for notices to S&P shall
be Standard & Poor's, 26 Broadway, 15th Floor, New York, New York 10004,
Attention: Mortgage Surveillance Monitoring, or such other address as S&P may
hereafter furnish to the Depositor and the Master Servicer.

     Startup Day: The Closing Date.

     Stated Principal Balance: As to any Mortgage Loan and Due Date, the unpaid
principal balance of such Mortgage Loan as of such Due Date as specified in the
amortization schedule at the time relating thereto (before any adjustment to
such amortization schedule by reason of any moratorium or similar waiver or
grace period) after giving effect to any previous partial Principal

                                      -32-
<PAGE>

Prepayments and Liquidation Proceeds allocable to principal (other than with
respect to any Liquidated Mortgage Loan) and to the payment of principal due on
such Due Date and irrespective of any delinquency in payment by the related
Mortgagor.

     Streamlined Documentation Mortgage Loan: Any Mortgage Loan originated
pursuant to the Seller's Streamlined Loan Documentation Program then in effect.

     Subordinated Certificates: As specified in the Preliminary Statement.

     Subordinated Certificate Writedown Amount: As of any Distribution Date, the
amount by which (a) the sum of the Class Certificate Balances of all of the
Certificates, after giving effect to the distribution of principal and the
allocation of Realized Losses in reduction of the Class Certificate Balances of
all of the Certificates on such Distribution Date, exceeds (b) the Pool
Principal Balance on the first day of the month of such Distribution Date less
any Deficient Valuations occurring before the Bankruptcy Loss Coverage Amount
has been reduced to zero.

     Subordinated Optimal Principal Amount: With respect to each Distribution
Date, an amount equal to the sum of the following (but in no event greater than
the aggregate Class Certificate Balances of the Subordinated Certificates
immediately prior to such Distribution Date):

          (1) the Subordinated Percentage of the applicable Non-PO Percentage of
     all Scheduled Payments of principal due on each outstanding Mortgage Loan
     on the first day of the month in which the Distribution Date occurs, as
     specified in the amortization schedule at the time applicable thereto,
     after adjustment for previous principal prepayments and the principal
     portion of Debt Service Reductions after the Bankruptcy Loss Coverage
     Amount has been reduced to zero, but before any adjustment to such
     amortization schedule by reason of any other bankruptcy or similar
     proceeding or any moratorium or similar waiver or grace period;

          (2) the Subordinated Prepayment Percentage of the applicable Non-PO
     Percentage of the Stated Principal Balance of each Mortgage Loan which was
     the subject of a prepayment in full received by the Master Servicer during
     the related Prepayment Period;

          (3) the Subordinated Prepayment Percentage of the applicable Non-PO
     Percentage of all partial prepayments of principal received during the
     related Prepayment Period, plus, on the Senior Final Distribution Date,
     100% of any Senior Optimal Principal Amount remaining undistributed on such
     date;

          (4) the amount, if any, by which the sum of (a) the applicable Non-PO
     Percentage of the net Liquidation Proceeds allocable to principal received
     during the related Prepayment Period in respect of each Liquidated Mortgage
     Loan, other than Mortgage Loans described in clause (b) and (b) the
     applicable Non-PO Percentage of the principal balance of each Mortgage Loan
     that was purchased by a private mortgage insurer during the related
     Prepayment Period as an alternative to paying a claim under the related
     Insurance Policy exceeds (c) the sum of the amounts distributable to the
     Senior Certificateholders (other than the Holders of the Class PO
     Certificates) under clause (4) of the definition of Senior Optimal
     Principal Amount on such Distribution Date; and

                                      -33-
<PAGE>

          (5) the Subordinated Prepayment Percentage of the applicable Non-PO
     Percentage of the sum of (a) the Stated Principal Balance of each Mortgage
     Loan which was repurchased by the seller in connection with such
     Distribution Date and (b) the difference, if any, between the Stated
     Principal Balance of a Mortgage Loan that has been replaced by the seller
     with a Substitute Mortgage Loan pursuant to the Agreement in connection
     with such Distribution Date and the Stated Principal Balance of such
     Substitute Mortgage Loan.

     Subordinated Percentage: For any Distribution Date, 100% minus the Senior
     Percentage.

     Subordinated Prepayment Percentage: For any Distribution Date, 100% minus
the Senior Prepayment Percentage, except that on any Senior Final Distribution
Date, the Subordinated Prepayment Percentage will equal 100%.

     Subservicer: Any person to whom the Master Servicer has contracted for the
servicing of all or a portion of the Mortgage Loans pursuant to Section 3.2
hereof.

     Substitute Mortgage Loan: A Mortgage Loan substituted by the Seller for a
Deleted Mortgage Loan which must, on the date of such substitution, as confirmed
in a Request for Release, substantially in the form of Exhibit L, (i) have a
Stated Principal Balance, after deduction of the principal portion of the
Scheduled Payment due in the month of substitution, not in excess of, and not
more than 10% less than the Stated Principal Balance of the Deleted Mortgage
Loan; (ii) be accruing interest at a rate no lower than and not more than 1% per
annum higher than, that of the Deleted Mortgage Loan; (iii) have a Loan-to-Value
Ratio no higher than that of the Deleted Mortgage Loan; (iv) have a remaining
term to maturity no greater than (and not more than one year less than that of)
the Deleted Mortgage Loan; (v) not be a Cooperative Loan unless the Deleted
Mortgage Loan was a Cooperative Loan and (vi) comply with each representation
and warranty set forth in Section 2.3 hereof.

     Substitution Adjustment Amount: The meaning ascribed to such term pursuant
to Section 2.3.

     Support Classes: Not applicable.

     Targeted Balances: Not applicable.

     Targeted Principal Classes: Not applicable.

     Tax Matters Person: The person designated as "tax matters person" in the
manner provided under Treasury regulation (S) 1.860F-4(d) and Treasury
regulation (S) 301.6231(a)(7)-1. Initially, the Tax Matters Person shall be the
Trustee.

     Tax Matters Person Certificate: The Class A-RU Certificate and the Class A-
RL Certificate, each with a Denomination of $0.01.

     Transfer: Any direct or indirect transfer or sale of any Ownership Interest
in a Residual Certificate.

                                      -34-
<PAGE>

     Trustee: The Bank of New York and its successors and, if a successor
trustee is appointed hereunder, such successor.

     Trustee Fee: As to any Distribution Date, an amount equal to one-twelfth of
the Trustee Fee Rate multiplied by the Pool Principal Balance with respect to
such Distribution Date.

     Trustee Fee Rate: With respect to each Mortgage Loan, the per annum rate
agreed upon in writing on or prior to the Closing Date by the Trustee and the
Depositor.

     Trust Fund: The corpus of the trust created hereunder consisting of (i) the
Mortgage Loans and all interest and principal received on or with respect
thereto after the Cut-off Date to the extent not applied in computing the Cut-
off Date Principal Balance thereof; (ii) the Certificate Account and the
Distribution Account and all amounts deposited therein pursuant to the
applicable provisions of this Agreement; (iii) property that secured a Mortgage
Loan and has been acquired by foreclosure, deed-in-lieu of foreclosure or
otherwise; and (iv) all proceeds of the conversion, voluntary or involuntary, of
any of the foregoing; provided that solely for designating the assets included
in any REMIC created hereunder for federal income tax purposes, the Trust Fund
shall exclude the Retained Yield.

     Unanticipated Recovery: As defined in Section 4.2(f).

     Underwriter: Goldman, Sachs & Co.

     Upper REMIC: The segregated pool of assets consisting of the Lower REMIC
Interests.

     Voting Rights: The portion of the voting rights of all of the Certificates
which is allocated to any Certificate.  As of any date of determination, (a) 98%
of all Voting Rights will be allocated among all Holders of the Certificates,
other than the Class A-7, Class A-RU and Class A-RL Certificates, in proportion
to their then outstanding Class Certificate Balances; (b) 1% of all Voting
Rights shall be allocated among the Holders of the Class A-7 Certificates in
proportion to their then outstanding Notional Amounts, and (c) 0.50% of all
Voting Rights will be allocated among the Holders of each of the Class A-RU and
Class A-RL Certificates, in each case in proportion to their respective
outstanding Class Certificate Balances.

                                  ARTICLE II
                        CONVEYANCE OF MORTGAGE LOANS;
                        REPRESENTATIONS AND WARRANTIES

     SECTION 2.1  Conveyance of Mortgage Loans.

     (a)  The Seller, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the
Depositor, without recourse, all the right, title and interest of the Seller in
and to the Mortgage Loans, including all interest and principal received or
receivable by the Seller on or with respect to the Mortgage Loans after the Cut-
off Date and all interest and principal payments on the Mortgage Loans received
on or prior to the Cut-off

                                      -35-
<PAGE>

Date in respect of installments of interest and principal due thereafter, but
not including payments of principal and interest due and payable on the Mortgage
Loans on or before the Cut-off Date. On or prior to the Closing Date, the Seller
shall deliver to the Depositor or, at the Depositor's direction, to the Trustee
or other designee of the Depositor, the Mortgage File for each Mortgage Loan
listed in the Mortgage Loan Schedule (except that, in the case of the Delay
Delivery Mortgage Loans, such delivery may take place within thirty (30) days
following the Closing Date). Such delivery of the Mortgage Files shall be made
against payment by the Depositor of the purchase price, previously agreed to by
the Seller and Depositor, for the Mortgage Loans. With respect to any Mortgage
Loan that does not have a first payment date on or before the Due Date in the
month of the first Distribution Date, the Seller shall deposit into the
Distribution Account on or before the Distribution Account Deposit Date relating
to the first Distribution Date, an amount equal to one month's interest at the
related Adjusted Mortgage Rate on the Cut-off Date Principal Balance of such
Mortgage Loan.

     (b)  The Depositor, concurrently with the execution and delivery hereof,
hereby sells, transfers, assigns, sets over and otherwise conveys to the Trustee
for the benefit of the Certificateholders, without recourse, all the right,
title and interest of the Depositor in and to the Trust Fund together with the
Depositor's right to require the Seller to cure any breach of a representation
or warranty made herein by the Seller or to repurchase or substitute for any
affected Mortgage Loan in accordance herewith.

     (c)  In connection with the transfer and assignment set forth in clause (b)
above, the Depositor has delivered or caused to be delivered to the Trustee or
the Custodian on its behalf (or, in the case of the Delay Delivery Mortgage
Loans, will deliver or cause to be delivered to the Trustee or the Custodian on
its behalf within thirty (30) days following the Closing Date) for the benefit
of the Certificateholders the following documents or instruments with respect to
each Mortgage Loan so assigned:

          (i)   (A) the original Mortgage Note endorsed by manual or facsimile
     signature in blank in the following form: "Pay to the order of
     ________________, without recourse," with all intervening endorsements
     showing a complete chain of endorsement from the originator to the Person
     endorsing the Mortgage Note (each such endorsement being sufficient to
     transfer all right, title and interest of the party so endorsing, as
     noteholder or assignee thereof, in and to that Mortgage Note); or

                (B) with respect to any Lost Mortgage Note, a lost note
     affidavit from the Seller stating that the original Mortgage Note was lost
     or destroyed, together with a copy of such Mortgage Note;

          (ii)  except as provided below, the original recorded Mortgage or a
     copy of such Mortgage certified by the Seller as being a true and complete
     copy of the Mortgage;

          (iii) a duly executed assignment of the Mortgage in blank (which may
     be included in a blanket assignment or assignments), together with, except
     as provided below, all interim recorded assignments of such mortgage (each
     such assignment, when duly and validly completed, to be in recordable form
     and sufficient to effect the assignment of and transfer to the assignee
     thereof, under the Mortgage to which the assignment relates); provided
     that, if the related Mortgage has not been returned from the applicable
     public recording office,

                                      -36-
<PAGE>

     such assignment of the Mortgage may exclude the information to be provided
     by the recording office;

          (iv) the original or copies of each assumption, modification, written
     assurance or substitution agreement, if any;

          (v)  either the original or duplicate original title policy (including
     all riders thereto) with respect to the related mortgaged property, if
     available, or if the title policy is not available, a written commitment or
     interim binder or preliminary report of title issued by the title insurance
     or escrow company with respect to the mortgaged property, provided that the
     original or duplicate original title policy (including all riders thereto)
     will be delivered as soon as it becomes available, and

          (vi) in the case of a Cooperative Loan, the originals of the following
     documents or instruments:

          (a)  The Coop Shares, together with a stock power in blank;
          (b)  The executed Security Agreement;
          (c)  The executed Proprietary Lease;
          (d)  The executed Recognition Agreement;
          (e)  The executed assignment of Recognition Agreement;
          (f)  The executed UCC-1 financing statement with evidence of recording
               thereon which have been filed in all places required to perfect
               the Seller's interest in the Coop Shares and the Proprietary
               Lease; and
          (g)  Executed UCC-3 financing statements or other appropriate UCC
               financing statements required by state law, evidencing a complete
               and unbroken line from the mortgagee to the Trustee with evidence
               of recording thereon (or in a form suitable for recordation).

     In the event that in connection with any Mortgage Loan the Depositor cannot
deliver (a) the original recorded Mortgage or (b) all interim recorded
assignments satisfying the requirements of clause (ii) or (iii) above,
respectively, concurrently with the execution and delivery hereof because such
document or documents have not been returned from the applicable public
recording office, the Depositor shall promptly deliver to the Trustee or the
Custodian on its behalf such original Mortgage or such interim assignment, as
the case may be, with evidence of recording indicated thereon upon receipt
thereof from the public recording office, or a copy thereof, certified, if
appropriate, by the relevant recording office, but in no event shall any such
delivery of the original Mortgage and each such interim assignment or a copy
thereof, certified, if appropriate, by the relevant recording office, be made
later than one year following the Closing Date; provided, however, in the event
the Depositor is unable to deliver by such date each Mortgage and each such
interim assignment by reason of the fact that any such documents have not been
returned by the appropriate recording office, or, in the case of each such
interim assignment, because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee or the Custodian on its behalf as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date. The
Depositor shall forward or cause to be forwarded to the Trustee or the Custodian
on its behalf (a) from time to time additional original documents evidencing an
assumption or modification of a Mortgage Loan and (b) any other

                                      -37-
<PAGE>

documents required to be delivered by the Depositor or the Master Servicer to
the Trustee. In the event that the original Mortgage is not delivered and in
connection with the payment in full of the related Mortgage Loan and the public
recording office requires the presentation of a "lost instruments affidavit and
indemnity" or any equivalent document, because only a copy of the Mortgage can
be delivered with the instrument of satisfaction or reconveyance, the Master
Servicer shall execute and deliver or cause to be executed and delivered such a
document to the public recording office. In the case where a public recording
office retains the original recorded Mortgage or in the case where a Mortgage is
lost after recordation in a public recording office, the Seller shall deliver to
the Trustee a copy of such Mortgage certified by such public recording office to
be a true and complete copy of the original recorded Mortgage.

     In addition, in the event that in connection with any Mortgage Loan the
Depositor cannot deliver the original or duplicate original lender's title
policy (together with all riders thereto), satisfying the requirements of clause
(v) above, concurrently with the execution and delivery hereof because the
related Mortgage has not been returned from the applicable public recording
office, the Depositor shall promptly deliver to the Trustee or the Custodian on
its behalf such original or duplicate original lender's title policy (together
with all riders thereto) upon receipt thereof from the applicable title insurer,
but in no event shall any such delivery of the original or duplicate original
lender's title policy be made later than one year following the Closing Date;
provided, however, in the event the Depositor is unable to deliver by such date
the original or duplicate original lender's title policy (together with all
riders thereto) because the related Mortgage has not been returned by the
appropriate recording office, the Depositor shall deliver such documents to the
Trustee or the Custodian on its behalf as promptly as possible upon receipt
thereof and, in any event, within 720 days following the Closing Date.

     Subject to the immediately following sentence, as promptly as practicable
subsequent to such transfer and assignment, and in any event, within thirty (30)
days thereafter, the Master Servicer shall (i) affix the Trustee's name to each
assignment of Mortgage, as the assignee thereof, (ii) cause such assignment to
be in proper form for recording in the appropriate public office for real
property records and (iii) cause to be delivered for recording in the
appropriate public office for real property records the assignments of the
Mortgages to the Trustee, except that, with respect to any assignments of
Mortgage as to which the Master Servicer has not received the information
required to prepare such assignment in recordable form, the Master Servicer's
obligation to do so and to deliver the same for such recording shall be as soon
as practicable after receipt of such information and in any event within thirty
(30) days after receipt thereof. Notwithstanding the foregoing, the Master
Servicer need not cause to be recorded any assignment which relates to a
Mortgage Loan in any state other than the Required Recordation States.

     In the case of Mortgage Loans that have been prepaid in full as of the
Closing Date, the Depositor, in lieu of delivering the above documents to the
Trustee or the Custodian on its behalf, will deposit in the Certificate Account
the portion of such payment that is required to be deposited in the Certificate
Account pursuant to Section 3.8 hereof.

     Notwithstanding anything to the contrary in this Agreement, within thirty
days after the Closing Date, the Seller shall either (i) deliver to the Trustee
or the Custodian on its behalf the Mortgage File as required pursuant to this
Section 2.1 for each Delay Delivery Mortgage Loan or (ii) (A) substitute a
Substitute Mortgage Loan for the Delay Delivery Mortgage Loan or (B) repurchase

                                      -38-
<PAGE>

the Delay Delivery Mortgage Loan, which substitution or repurchase shall be
accomplished in the manner and subject to the conditions set forth in Section
2.3 (treating each Delay Delivery Mortgage Loan as a Deleted Mortgage Loan for
purposes of such Section 2.3), provided, however, that if the Seller fails to
deliver a Mortgage File for any Delay Delivery Mortgage Loan within the thirty-
day period provided in the prior sentence, the Seller shall use its best
reasonable efforts to effect a substitution, rather than a repurchase of, such
Deleted Mortgage Loan and provided further that the cure period provided for in
Section 2.2 or in Section 2.3 shall not apply to the initial delivery of the
Mortgage File for such Delay Delivery Mortgage Loan, but rather the Seller shall
have five (5) Business Days to cure such failure to deliver. At the end of such
thirty-day period, the Trustee or the Custodian, on behalf of the Trustee shall
send a Delay Delivery Certification for the Delay Delivery Mortgage Loans
delivered during such thirty-day period in accordance with the provisions of
Section 2.2. Notwithstanding anything to the contrary contained in this
Agreement, none of the Mortgage Loans in the Trust Fund is or will be Delay
Delivery Mortgage Loans.

     SECTION 2.2  Acceptance by Trustee of the Mortgage Loans.

     The Trustee or the Custodian, on behalf of the Trustee acknowledges receipt
of the documents identified in the Initial Certification in the form annexed
hereto as Exhibit E and declares that it or the Custodian holds and will hold
such documents and the other documents delivered to it constituting the Mortgage
Files, and that it or the Custodian holds or will hold such other assets as are
included in the Trust Fund, in trust for the exclusive use and benefit of all
present and future Certificateholders. The Trustee acknowledges that the
Custodian will maintain possession of the Mortgage Notes in the State of
Illinois, unless otherwise permitted by the Rating Agencies.

     The Trustee agrees to execute and deliver or to cause the Custodian to
execute and deliver on the Closing Date to the Depositor, the Master Servicer
and the Seller an Initial Certification in the form annexed hereto as Exhibit D.
Based on its or the Custodian's review and examination, and only as to the
documents identified in such Initial Certification, the Custodian, on behalf of
the Trustee acknowledges that such documents appear regular on their face and
relate to such Mortgage Loan. Neither the Trustee nor the Custodian shall be
under any duty or obligation to inspect, review or examine said documents,
instruments, certificates or other papers to determine that the same are
genuine, enforceable or appropriate for the represented purpose or that they
have actually been recorded in the real estate records or that they are other
than what they purport to be on their face.

     On or about the thirtieth (30th) day after the Closing Date, the Trustee
shall deliver or shall cause the Custodian to deliver to the Depositor, the
Master Servicer and the Seller a Delay Delivery Certification in the form
annexed hereto as Exhibit F, with any applicable exceptions noted thereon.
Notwithstanding anything to the contrary contained in this Agreement, none of
the Mortgage Loans in the Trust Fund is or will be Delay Delivery Mortgage
Loans.

     Not later than 90 days after the Closing Date, the Trustee shall deliver or
shall cause the Custodian to deliver to the Depositor, the Master Servicer and
the Seller a Final Certification in the form annexed hereto as Exhibit G, with
any applicable exceptions noted thereon.

     If, in the course of such review, the Trustee or the Custodian, on behalf
of the Trustee finds any document constituting a part of a Mortgage File which
does not meet the requirements of Section

                                      -39-
<PAGE>

2.1, the Trustee shall list or shall cause the Custodian to list such as an
exception in the Final Certification; provided, however that neither the Trustee
nor the Custodian shall make any determination as to whether (i) any endorsement
is sufficient to transfer all right, title and interest of the party so
endorsing, as noteholder or assignee thereof, in and to that Mortgage Note or
(ii) any assignment is in recordable form or is sufficient to effect the
assignment of and transfer to the assignee thereof under the mortgage to which
the assignment relates. The Seller shall promptly correct or cure such defect
within 90 days from the date it was so notified of such defect and, if the
Seller does not correct or cure such defect within such period, the Seller shall
either (a) substitute for the related Mortgage Loan a Substitute Mortgage Loan,
which substitution shall be accomplished in the manner and subject to the
conditions set forth in Section 2.3, or (b) purchase such Mortgage Loan from the
Trustee within 90 days from the date the Seller was notified of such defect in
writing at the Purchase Price of such Mortgage Loan; provided, however, that in
no event shall such substitution or purchase occur more than 540 days from the
Closing Date, except that if the substitution or purchase of a Mortgage Loan
pursuant to this provision is required by reason of a delay in delivery of any
documents by the appropriate recording office, and there is a dispute between
either the Master Servicer or the Seller and the Trustee over the location or
status of the recorded document, then such substitution or purchase shall occur
within 720 days from the Closing Date. The Trustee shall deliver written notice
to each Rating Agency within 270 days from the Closing Date indicating each
Mortgage Loan (a) which has not been returned by the appropriate recording
office or (b) as to which there is a dispute as to location or status of such
Mortgage Loan. Such notice shall be delivered every 90 days thereafter until the
related Mortgage Loan is returned to the Trustee or the Custodian on its behalf.
Any such substitution pursuant to (a) above or purchase pursuant to (b) above
shall not be effected prior to the delivery to the Trustee of the Opinion of
Counsel required by Section 2.5 hereof, if any, and any substitution pursuant to
(a) above shall not be effected prior to the additional delivery to the Trustee
of a Request for Release substantially in the form of Exhibit M. No substitution
is permitted to be made in any calendar month after the Determination Date for
such month. The Purchase Price for any such Mortgage Loan shall be deposited by
the Seller in the Certificate Account on or prior to the Distribution Account
Deposit Date for the Distribution Date in the month following the month of
repurchase and, upon receipt of such deposit and certification with respect
thereto in the form of Exhibit M hereto, the Trustee shall cause the Custodian
to release the related Mortgage File to the Seller and shall execute and deliver
at the Seller's request such instruments of transfer or assignment prepared by
the Seller, in each case without recourse, as shall be necessary to vest in the
Seller, or a designee, the Trustee's interest in any Mortgage Loan released
pursuant hereto.

     The Trustee shall retain or shall cause the Custodian to retain possession
and custody of each Mortgage File in accordance with and subject to the terms
and conditions set forth herein. The Master Servicer shall promptly deliver to
the Trustee or the Custodian on its behalf, upon the execution or receipt
thereof, the originals of such other documents or instruments constituting the
Mortgage File as come into the possession of the Master Servicer from time to
time.

     It is understood and agreed that the obligation of the Seller to substitute
for or to purchase any Mortgage Loan which does not meet the requirements of
Section 2.1 above shall constitute the sole remedy respecting such defect
available to the Trustee, the Depositor and any Certificateholder against the
Seller.

                                      -40-
<PAGE>

     SECTION 2.3  Representations, Warranties and Covenants of the Seller and
     Master Servicer.

     (a)  First Horizon Home Loan Corporation, in its capacities as Seller and
Master Servicer, hereby makes the representations and warranties set forth in
Schedule II hereto, and by this reference incorporated herein, to the Depositor
and the Trustee, as of the Closing Date, or if so specified therein, as of the
Cut-off Date.

     (b)  The Seller, in its capacity as Seller, hereby makes the
representations and warranties set forth in Schedule III hereto, and by this
reference incorporated herein, to the Depositor and the Trustee, as of the
Closing Date, or if so specified therein, as of the Cut-off Date.

     (c)  Upon discovery by any of the parties hereto of a breach of a
representation or warranty made pursuant to Section 2.3(b) that materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
the party discovering such breach shall give prompt notice thereof to the other
parties. The Seller hereby covenants that within 90 days of the earlier of its
discovery or its receipt of written notice from any party of a breach of any
representation or warranty made pursuant to Section 2.3(b) which materially and
adversely affects the interests of the Certificateholders in any Mortgage Loan,
it shall cure such breach in all material respects, and if such breach is not so
cured, shall, (i) if such 90-day period expires prior to the second anniversary
of the Closing Date, remove such Mortgage Loan (a "Deleted Mortgage Loan") from
the Trust Fund and substitute in its place a Substitute Mortgage Loan, in the
manner and subject to the conditions set forth in this Section; or (ii)
repurchase the affected Mortgage Loan or Mortgage Loans from the Trustee at the
Purchase Price in the manner set forth below; provided, however, that any such
substitution pursuant to (i) above shall not be effected prior to the delivery
to the Trustee of the Opinion of Counsel required by Section 2.5 hereof, if any,
and any such substitution pursuant to (i) above shall not be effected prior to
the additional delivery to the Trustee or the Custodian on its behalf of a
Request for Release substantially in the form of Exhibit M and the Mortgage File
for any such Substitute Mortgage Loan. The Seller shall promptly reimburse the
Master Servicer and the Trustee for any expenses reasonably incurred by the
Master Servicer or the Trustee in respect of enforcing the remedies for such
breach.  With respect to the representations and warranties described in this
Section which are made to the best of the Seller's knowledge, if it is
discovered by either the Depositor, the Seller or the Trustee that the substance
of such representation and warranty is inaccurate and such inaccuracy materially
and adversely affects the value of the related Mortgage Loan or the interests of
the Certificateholders therein, notwithstanding the Seller's lack of knowledge
with respect to the substance of such representation or warranty, such
inaccuracy shall be deemed a breach of the applicable representation or
warranty.

     With respect to any Substitute Mortgage Loan or Loans, the Seller shall
deliver to the Trustee or the Custodian on its behalf for the benefit of the
Certificateholders the Mortgage Note, the Mortgage, the related assignment of
the Mortgage, and such other documents and agreements as are required by Section
2.1, with the Mortgage Note endorsed and the Mortgage assigned as required by
Section 2.1. No substitution is permitted to be made in any calendar month after
the Determination Date for such month. Scheduled Payments due with respect to
Substitute Mortgage Loans in the month of substitution shall not be part of the
Trust Fund and will be retained by the Seller on the next succeeding
Distribution Date. For the month of substitution, distributions to
Certificateholders will include the monthly payment due on any Deleted Mortgage
Loan for such

                                      -41-
<PAGE>

month and thereafter the Seller shall be entitled to retain all amounts received
in respect of such Deleted Mortgage Loan. The Master Servicer shall amend the
Mortgage Loan Schedule for the benefit of the Certificateholders to reflect the
removal of such Deleted Mortgage Loan and the substitution of the Substitute
Mortgage Loan or Loans and the Master Servicer shall deliver the amended
Mortgage Loan Schedule to the Trustee. Upon such substitution, the Substitute
Mortgage Loan or Loans shall be subject to the terms of this Agreement in all
respects, and the Seller shall be deemed to have made with respect to such
Substitute Mortgage Loan or Loans, as of the date of substitution, the
representations and warranties made pursuant to Section 2.3(b) with respect to
such Mortgage Loan. Upon any such substitution and the deposit to the
Certificate Account of the amount required to be deposited therein in connection
with such substitution as described in the following paragraph, the Trustee
shall release or shall cause the Custodian to release the Mortgage File held for
the benefit of the Certificateholders relating to such Deleted Mortgage Loan to
the Seller and shall execute and deliver at the Seller's direction such
instruments of transfer or assignment prepared by the Seller, in each case
without recourse, as shall be necessary to vest title in the Seller, or its
designee, the Trustee's interest in any Deleted Mortgage Loan substituted for
pursuant to this Section 2.3.

     For any month in which the Seller substitutes one or more Substitute
Mortgage Loans for one or more Deleted Mortgage Loans, the Master Servicer will
determine the amount (if any) by which the aggregate principal balance of all
such Substitute Mortgage Loans as of the date of substitution is less than the
aggregate Stated Principal Balance of all such Deleted Mortgage Loans (after
application of the scheduled principal portion of the monthly payments due in
the month of substitution). The amount of such shortage (the "Substitution
Adjustment Amount") plus an amount equal to the aggregate of any unreimbursed
Advances with respect to such Deleted Mortgage Loans shall be deposited in the
Certificate Account by the Seller on or before the Distribution Account Deposit
Date for the Distribution Date in the month succeeding the calendar month during
which the related Mortgage Loan became required to be purchased or replaced
hereunder.

     In the event that the Seller shall have repurchased a Mortgage Loan, the
Purchase Price therefor shall be deposited in the Certificate Account pursuant
to Section 3.5 on or before the Distribution Account Deposit Date for the
Distribution Date in the month following the month during which the Seller
became obligated hereunder to repurchase or replace such Mortgage Loan and upon
such deposit of the Purchase Price, the delivery of the Opinion of Counsel
required by Section 2.5 and receipt of a Request for Release in the form of
Exhibit M hereto, the Trustee shall release or shall cause the Custodian to
release the related Mortgage File held for the benefit of the Certificateholders
to such Person, and the Trustee shall execute and deliver or shall cause the
Custodian to execute and deliver at such Person's direction such instruments of
transfer or assignment prepared by such Person, in each case without recourse,
as shall be necessary to transfer title from the Trustee. It is understood and
agreed that the obligation under this Agreement of any Person to cure,
repurchase or replace any Mortgage Loan as to which a breach has occurred and is
continuing shall constitute the sole remedy against such Persons respecting such
breach available to Certificateholders, the Depositor or the Trustee on their
behalf.

     The representations and warranties made pursuant to this Section 2.3 shall
survive delivery of the respective Mortgage Files to the Trustee or the
Custodian for the benefit of the Certificateholders.

                                      -42-
<PAGE>

     SECTION 2.4  Representations and Warranties of the Depositor as to the
     Mortgage Loans.

     The Depositor hereby represents and warrants to the Trustee with respect to
each Mortgage Loan as of the date hereof or such other date set forth herein
that as of the Closing Date, and following the transfer of the Mortgage Loans to
it by the Seller, the Depositor had good title to the Mortgage Loans and the
Mortgage Notes were subject to no offsets, defenses or counterclaims.

     The Depositor hereby assigns, transfers and conveys to the Trustee all of
its rights with respect to the Mortgage Loans including, without limitation, the
representations and warranties of the Seller made pursuant to Section 2.3(b)
hereof, together with all rights of the Depositor to require the Seller to cure
any breach thereof or to repurchase or substitute for any affected Mortgage Loan
in accordance with this Agreement.

     It is understood and agreed that the representations and warranties set
forth in this Section 2.4 shall survive delivery of the Mortgage Files to the
Trustee. Upon discovery by the Depositor or the Trustee of a breach of any of
the foregoing representations and warranties set forth in this Section 2.4
(referred to herein as a "breach"), which breach materially and adversely
affects the interest of the Certificateholders, the party discovering such
breach shall give prompt written notice to the others and to each Rating Agency.

     SECTION 2.5  Delivery of Opinion of Counsel in Connection with
     Substitutions.

     (a) Notwithstanding any contrary provision of this Agreement, no
substitution pursuant to Section 2.2 or Section 2.3 shall be made more than 90
days after the Closing Date unless the Seller delivers to the Trustee an Opinion
of Counsel, which Opinion of Counsel shall not be at the expense of either the
Trustee or the Trust Fund, addressed to the Trustee, to the effect that such
substitution will not (i) result in the imposition of the tax on "prohibited
transactions" on the Trust Fund or contributions after the Startup Date, as
defined in Sections 860F(a)(2) and 860G(d) of the Code, respectively, or (ii)
cause any REMIC created hereunder to fail to qualify as a REMIC at any time that
any Certificates are outstanding.

     (b) Upon discovery by the Depositor, the Seller, the Master Servicer or the
Trustee that any Mortgage Loan does not constitute a "qualified mortgage" within
the meaning of Section 860G(a)(3) of the Code, the party discovering such fact
shall promptly (and in any event within five (5) Business Days of discovery)
give written notice thereof to the other parties. In connection therewith, the
Trustee shall require the Seller, at the Seller's option, to either (i)
substitute, if the conditions in Section 2.3(c) with respect to substitutions
are satisfied, a Substitute Mortgage Loan for the affected Mortgage Loan, or
(ii) repurchase the affected Mortgage Loan within 90 days of such discovery in
the same manner as it would a Mortgage Loan for a breach of representation or
warranty made pursuant to Section 2.3. The Trustee shall reconvey or shall cause
the Custodian to reconvey to the Seller the Mortgage Loan to be released
pursuant hereto in the same manner, and on the same terms and conditions, as it
would a Mortgage Loan repurchased for breach of a representation or warranty
contained in Section 2.3.

                                      -43-
<PAGE>

     SECTION 2.6  Execution and Delivery of Certificates.

     The Trustee acknowledges the transfer and assignment to it of the Trust
Fund and, concurrently with such transfer and assignment, has executed and
delivered to or upon the order of the Depositor, the Certificates in authorized
denominations evidencing directly or indirectly the entire ownership of the
Trust Fund. The Trustee agrees to hold the Trust Fund and exercise the rights
referred to above for the benefit of all present and future Holders of the
Certificates and to perform the duties set forth in this Agreement to the best
of its ability, to the end that the interests of the Holders of the Certificates
may be adequately and effectively protected.

     SECTION 2.7  REMIC Matters.

     The Preliminary Statement sets forth the designations and "latest possible
maturity date" for federal income tax purposes of all interests created hereby
in the Upper REMIC.  Each interest identified in the table below by a
designation beginning with "L" shall be a "regular interest" in the Lower REMIC
and the Class A-RL Certificates shall be the sole class of residual interest in
the Lower REMIC.  The Lower REMIC Interests shall be uncertificated and shall be
held by the Trustee as assets of the Upper REMIC. The assets of the Lower REMIC
shall be as set forth in the definition thereof.  The "Startup Day" for purposes
of the REMIC Provisions shall be the Closing Date. The Tax Matters Person with
respect to each REMIC hereunder shall be the Trustee and the Trustee shall hold
the Tax Matters Person Certificate. Each REMIC's taxable year shall be the
calendar year and its accounts shall be maintained using the accrual method.

<TABLE>
<CAPTION>
   Lower                                   Lower
   REMIC               Lower REMIC         REMIC      Corresponding Class of Certificates        Latest Possible
Interest or              Interest        Interest                                                 Maturity Date
Certificate              Balance           Rate          Interest           Principal           (Payment Date in)
-----------------------------------------------------------------------------------------------------------------
<S>                   <C>                <C>         <C>                    <C>                 <C>
LTA-1                $  113,365,000        7.75%            A-1                A-1                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-2                $   14,772,000        7.75%            A-2                A-2                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-3                $    5,422,000        7.75%            A-3                A-3                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-4                $    1,000,000        7.75%            A-4                A-4                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-5 I/O            $    4,050,000        7.75%            (1)                A-5                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-5 (34)           $    8,450,000        7.75%            (2)                A-5                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-6                $   17,383,000        7.75%            A-6                A-6                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LT-PO                $    2,002,055           0%            N/A                PO                 August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTA-RU               $           50        7.75%           A-RU               A-RU                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTB-1                $    3,042,000        7.75%            B-1                B-1                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTB-2                $    1,826,000        7.75%            B-2                B-2                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
</TABLE>

                                      -44-
<PAGE>

<TABLE>
<S>                  <C>                   <C>              <C>                <C>                <C>
LTB-3                $   782,000           7.75%            B-3                B-3                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTB-4                $   782,000           7.75%            B-4                B-4                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTB-5                $   435,000           7.75%            B-5                B-5                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
LTB-6                $   521,796           7.75%            B-6                B-6                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
A-RL                 $        50           7.75%            N/A                N/A                August 25, 2030
-----------------------------------------------------------------------------------------------------------------
</TABLE>

------------------------
(1)  Interest accruing monthly at a per annum rate of 0.06% on the Lower REMIC
     Interest principal balance of the A-5 I/O Interest shall be used to pay the
     FSA Premium. Interest accruing monthly at a per annum rate of 0.19% on the
     Lower REMIC Interest principal balance of the A-5 I/O Interest shall be
     used to pay the Class A-7 Certificate.

(2)  Interest accruing monthly at an annual rate of 0.06% on the Lower REMIC
     Interest principal balance of the Class A-5 (34) Interest shall be used to
     pay the FSA Premium. Interest accruing monthly at a per annum rate of 0.19%
     on the Lower REMIC Interest principal balance of the A-5 (34) Interest
     shall be added to the interest accrued on the LTA-3 Interest and LTA-4
     Interest to pay interest on the Class A-3 and Class A-4 Certificates.

     On each Distribution Date Available Funds shall be distributed with respect
to the Lower REMIC Interests and the Class A-RL Certificate in a manner such
that:

     (i)    interest accrued on each Lower REMIC Interest is distributed with
            respect to each such Lower REMIC Interest in the same manner that
            Accrued Certificate Interest is distributed with respect to the
            Corresponding Class of Certificates pursuant to Section 4.2(a)(i)
            and (ii);

     (ii)   interest accrued on the Class A-RL Certificate is distributed in the
            manner provided in Section 4.2(a)(i) and (ii);

     (iii)  principal is distributed on each Lower REMIC Interest, other than
            the Class A-5 I/O and Class A-5 (34) Lower REMIC Interests, such
            that the principal balance of each such Lower REMIC Interest always
            equals the principal balance of its Corresponding Class of
            Certificates;

     (iv)   principal is distributed on the Class A-5 I/O and Class A-5 (34)
            Lower REMIC Interests such that the principal balance of the
            Class A-5 I/O Lower REMIC Interest always equals the Class A-7
            Notional Balance and the principal balance of the Class A-5 (34)
            Lower REMIC Interest always equals the excess of the Class A-5
            Certificate Principal Balance over the Class A-7 Notional Balance;
            and

     (v)    principal is distributed on the Class A-RL Certificate as provided
            in Sections 4.2(a)(ii) and 4.2(b)(ii)(1).

     Losses allocated to the Certificates pursuant to Section 4.4 shall be
allocated to the corresponding class of Lower REMIC Interest as set forth in the
above table, with losses allocated to the Class A-5 Certificate being allocated
such that the principal balance of the LTA-5IO Interest shall equal the Notional
Amount and the principal balance of the LTA-5(34) Interest shall be equal

                                      -45-
<PAGE>

to the excess of the Class Certificate Balance of the Class A-5 Certificates
over the principal balance of the LTA-5IO Interest.

     SECTION 2.8  Covenants of the Master Servicer.

     The Master Servicer hereby covenants to the Depositor and the Trustee as
     follows:

     (a)  the Master Servicer shall comply in the performance of its obligations
under this Agreement with all reasonable rules and requirements of the insurer
under each Required Insurance Policy; and

     (b)  no written information, certificate of an officer, statement furnished
in writing or written report delivered to the Depositor, any affiliate of the
Depositor or the Trustee and prepared by the Master Servicer pursuant to this
Agreement will contain any untrue statement of a material fact or omit to state
a material fact necessary to make such information, certificate, statement or
report not misleading.

                                  ARTICLE III
                         ADMINISTRATION AND SERVICING
                               OF MORTGAGE LOANS

     SECTION 3.1  Master Servicer to Service Mortgage Loans.

     For and on behalf of the Certificateholders, the Master Servicer shall
service and administer the Mortgage Loans in accordance with the terms of this
Agreement and customary and usual standards of practice of prudent mortgage loan
servicers. In connection with such servicing and administration, the Master
Servicer shall have full power and authority, acting alone and/or through
Subservicers as provided in Section 3.2 hereof, to do or cause to be done any
and all things that it may deem necessary or desirable in connection with such
servicing and administration, including but not limited to, the power and
authority, subject to the terms hereof (i) to execute and deliver, on behalf of
the Certificateholders and the Trustee, customary consents or waivers and other
instruments and documents, (ii) to consent to transfers of any Mortgaged
Property and assumptions of the Mortgage Notes and related Mortgages (but only
in the manner provided in this Agreement), (iii) to collect any Insurance
Proceeds and other Liquidation Proceeds, and (iv) to effectuate foreclosure or
other conversion of the ownership of the Mortgaged Property securing any
Mortgage Loan; provided that the Master Servicer shall not take any action that
is inconsistent with or prejudices the interests of the Trust Fund or the
Certificateholders in any Mortgage Loan or the rights and interests of the
Depositor, the Trustee and the Certificateholders under this Agreement. The
Master Servicer shall represent and protect the interests of the Trust Fund in
the same manner as it protects its own interests in mortgage loans in its own
portfolio in any claim, proceeding or litigation regarding a Mortgage Loan, and
shall not make or permit any modification, waiver or amendment of any Mortgage
Loan which would cause any REMIC created hereunder to fail to qualify as a REMIC
or result in the imposition of any tax under Section 860F(a) or Section 860G(d)
of the Code. Without limiting the generality of the foregoing, the Master
Servicer, in its own name or in the name of the Depositor and the Trustee, is
hereby authorized and empowered by the Depositor and the Trustee, when the
Master Servicer believes it appropriate in its reasonable judgment, to execute
and deliver,

                                      -46-
<PAGE>

on behalf of the Trustee, the Depositor, the Certificateholders or any of them,
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge and all other comparable instruments, with respect to the
Mortgage Loans, and with respect to the Mortgaged Properties held for the
benefit of the Certificateholders. The Master Servicer shall prepare and deliver
to the Depositor and/or the Trustee such documents requiring execution and
delivery by either or both of them as are necessary or appropriate to enable the
Master Servicer to service and administer the Mortgage Loans to the extent that
the Master Servicer is not permitted to execute and deliver such documents
pursuant to the preceding sentence. Upon receipt of such documents, the
Depositor and/or the Trustee shall execute such documents and deliver them to
the Master Servicer.

     In accordance with the standards of the preceding paragraph, the Master
Servicer shall advance or cause to be advanced funds as necessary for the
purpose of effecting the payment of taxes and assessments on the Mortgaged
Properties, which advances shall be reimbursable in the first instance from
related collections from the Mortgagors pursuant to Section 3.6, and further as
provided in Section 3.8. The costs incurred by the Master Servicer, if any, in
effecting the timely payments of taxes and assessments on the Mortgaged
Properties and related insurance premiums shall not, for the purpose of
calculating monthly distributions to the Certificateholders, be added to the
Stated Principal Balances of the related Mortgage Loans, notwithstanding that
the terms of such Mortgage Loans so permit.

     SECTION 3.2  Subservicing; Enforcement of the Obligations of Servicers.

     (a) The Master Servicer may arrange for the subservicing of any Mortgage
Loan by a Subservicer pursuant to a subservicing agreement; provided, however,
that such subservicing arrangement and the terms of the related subservicing
agreement must provide for the servicing of such Mortgage Loans in a manner
consistent with the servicing arrangements contemplated hereunder. Unless the
context otherwise requires, references in this Agreement to actions taken or to
be taken by the Master Servicer in servicing the Mortgage Loans include actions
taken or to be taken by a Subservicer on behalf of the Master Servicer.
Notwithstanding the provisions of any subservicing agreement, any of the
provisions of this Agreement relating to agreements or arrangements between the
Master Servicer and a Subservicer or reference to actions taken through a
Subservicer or otherwise, the Master Servicer shall remain obligated and liable
to the Depositor, the Trustee and the Certificateholders for the servicing and
administration of the Mortgage Loans in accordance with the provisions of this
Agreement without diminution of such obligation or liability by virtue of such
subservicing agreements or arrangements or by virtue of indemnification from the
Subservicer and to the same extent and under the same terms and conditions as if
the Master Servicer alone were servicing and administering the Mortgage Loans.
All actions of each Subservicer performed pursuant to the related subservicing
agreement shall be performed as an agent of the Master Servicer with the same
force and effect as if performed directly by the Master Servicer.

     (b) For purposes of this Agreement, the Master Servicer shall be deemed to
have received any collections, recoveries or payments with respect to the
Mortgage Loans that are received by a Subservicer regardless of whether such
payments are remitted by the Subservicer to the Master Servicer.

                                      -47-
<PAGE>

     SECTION 3.3  Rights of the Depositor and the Trustee in Respect of the
Master Servicer.

     The Depositor may, but is not obligated to, enforce the obligations of the
Master Servicer hereunder and may, but is not obligated to, perform, or cause a
designee to perform, any defaulted obligation of the Master Servicer hereunder
and in connection with any such defaulted obligation to exercise the related
rights of the Master Servicer hereunder; provided that the Master Servicer shall
not be relieved of any of its obligations hereunder by virtue of such
performance by the Depositor or its designee. Neither the Trustee nor the
Depositor shall have any responsibility or liability for any action or failure
to act by the Master Servicer nor shall the Trustee or the Depositor be
obligated to supervise the performance of the Master Servicer hereunder or
otherwise.

     SECTION 3.4  Trustee to Act as Master Servicer.

     In the event that the Master Servicer shall for any reason no longer be the
Master Servicer hereunder (including by reason of an Event of Default), the
Trustee or its successor shall thereupon assume all of the rights and
obligations of the Master Servicer hereunder arising thereafter (except that the
Trustee shall not be (i) liable for losses of the Master Servicer pursuant to
Section 3.9 hereof or any acts or omissions of the predecessor Master Servicer
hereunder), (ii) obligated to make Advances if it is prohibited from doing so by
applicable law, (iii) obligated to effectuate repurchases or substitutions of
Mortgage Loans hereunder including, but not limited to, repurchases or
substitutions of Mortgage Loans pursuant to Section 2.2 or 2.3 hereof, (iv)
responsible for expenses of the Master Servicer pursuant to Section 2.3 or (v)
deemed to have made any representations and warranties of the Master Servicer
hereunder). Any such assumption shall be subject to Section 7.2 hereof. If the
Master Servicer shall for any reason no longer be the Master Servicer (including
by reason of any Event of Default), the Trustee or its successor shall succeed
to any rights and obligations of the Master Servicer under each subservicing
agreement.

     The Master Servicer shall, upon request of the Trustee, but at the expense
of the Master Servicer, deliver to the assuming party all documents and records
relating to each subservicing agreement or substitute subservicing agreement and
the Mortgage Loans then being serviced thereunder and an accounting of amounts
collected or held by it and otherwise use its best efforts to effect the orderly
and efficient transfer of the substitute subservicing agreement to the assuming
party.

     SECTION 3.5  Collection of Mortgage Loan Payments; Certificate Account;
Distribution Account.

     (a) The Master Servicer shall make reasonable efforts in accordance with
the customary and usual standards of practice of prudent mortgage servicers to
collect all payments called for under the terms and provisions of the Mortgage
Loans to the extent such procedures shall be consistent with this Agreement and
the terms and provisions of any related Required Insurance Policy. Consistent
with the foregoing, the Master Servicer may in its discretion (i) waive any late
payment charge or any prepayment charge or penalty interest in connection with
the prepayment of a Mortgage Loan and (ii) extend the due dates for payments due
on a Mortgage Note for a period not greater than 180 days; provided, however,
that the Master Servicer cannot extend the maturity of any such Mortgage Loan
past the date on which the final payment is due on the latest maturing Mortgage

                                      -48-
<PAGE>

Loan as of the Cut-off Date. In the event of any such arrangement, the Master
Servicer shall make Advances on the related Mortgage Loan in accordance with the
provisions of Section 4.1 during the scheduled period in accordance with the
amortization schedule of such Mortgage Loan without modification thereof by
reason of such arrangements. The Master Servicer shall not be required to
institute or join in litigation with respect to collection of any payment
(whether under a Mortgage, Mortgage Note or otherwise or against any public or
governmental authority with respect to a taking or condemnation) if it
reasonably believes that enforcing the provision of the Mortgage or other
instrument pursuant to which such payment is required is prohibited by
applicable law.

     (b)  The Master Servicer shall establish and maintain a Certificate Account
into which the Master Servicer shall deposit or cause to be deposited no later
than two Business Days after receipt, except as otherwise specifically provided
herein, the following payments and collections remitted by Subservicers or
received by it in respect of Mortgage Loans subsequent to the Cut-off Date
(other than in respect of principal and interest due on the Mortgage Loans on or
before the Cut-off Date) and the following amounts required to be deposited
hereunder:

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

          (ii)   all payments on account of interest on the Mortgage Loans, net
     of the related Master Servicing Fee, any Prepayment Interest Excess and,
     for so long as First Horizon is the Master Servicer, any Retained Yield;

          (iii)  all Insurance Proceeds and Liquidation Proceeds, other than
     proceeds to be applied to the restoration or repair of the Mortgaged
     Property or released to the Mortgagor in accordance with the Master
     Servicer's normal servicing procedures;

          (iv)   any amount required to be deposited by the Master Servicer
     pursuant to Section 3.5(c) in connection with any losses on Permitted
     Investments;

          (v)    any amounts required to be deposited by the Master Servicer
     pursuant to Section 3.9(b), 3.9(d), and in respect of net monthly rental
     income from REO Property pursuant to Section 3.11 hereof;

          (vi)    all Substitution Adjustment Amounts;

          (vii)   all Advances made by the Master Servicer pursuant to Section
     4.1; and

          (viii)  any other amounts required to be deposited hereunder.

     In addition, with respect to any Mortgage Loan that is subject to a buydown
agreement, on each Due Date for such Mortgage Loan, in addition to the monthly
payment remitted by the Mortgagor, the Master Servicer shall cause funds to be
deposited into the Certificate Account in an amount required to cause an amount
of interest to be paid with respect to such Mortgage Loan equal to the amount of
interest that has accrued on such Mortgage Loan from the preceding Due Date at
the related Adjusted Mortgage Rate on such date.

                                      -49-
<PAGE>

     The foregoing requirements for remittance by the Master Servicer shall be
exclusive, it being understood and agreed that, without limiting the generality
of the foregoing, payments in the nature of prepayment penalties, late payment
charges, assumption fees or amounts attributable to reimbursements of Advances,
if collected, need not be remitted by the Master Servicer. In the event that the
Master Servicer shall remit any amount not required to be remitted, it may at
any time withdraw or direct the institution maintaining the Certificate Account
to withdraw such amount from the Certificate Account, any provision herein to
the contrary notwithstanding. Such withdrawal or direction may be accomplished
by delivering written notice thereof to the Trustee or such other institution
maintaining the Certificate Account which describes the amounts deposited in
error in the Certificate Account. The Master Servicer shall maintain adequate
records with respect to all withdrawals made pursuant to this Section. All funds
deposited in the Certificate Account shall be held in trust for the
Certificateholders until withdrawn in accordance with Section 3.8.

     (c)  The Trustee shall establish and maintain, on behalf of the
Certificateholders, the Distribution Account. The Trustee shall, promptly upon
receipt, deposit in the Distribution Account and retain therein the following:

          (i)    the aggregate amount remitted by the Master Servicer to the
     Trustee pursuant to Section 3.8(a)(ix);

          (ii)   any amount deposited by the Master Servicer pursuant to this
     Section 3.5(c) in connection with any losses on Permitted Investments; and

          (iii)  any other amounts deposited hereunder which are required to be
     deposited in the Distribution Account.

     In the event that the Master Servicer shall remit any amount not required
to be remitted, it may at any time direct the Trustee to withdraw such amount
from the Distribution Account, any provision herein to the contrary
notwithstanding. Such direction may be accomplished by delivering an Officer's
Certificate to the Trustee which describes the amounts deposited in error in the
Distribution Account. All funds deposited in the Distribution Account shall be
held by the Trustee in trust for the Certificateholders until disbursed in
accordance with this Agreement or withdrawn in accordance with Section 3.8. In
no event shall the Trustee incur liability for withdrawals from the Distribution
Account at the direction of the Master Servicer.

          (iv)   The institution at which the Certificate Account is maintained
     shall invest the funds therein as directed in writing by the Master
     Servicer in Permitted Investments, and the institution at which the
     Distribution Account is maintained shall invest funds as directed by the
     Trustee in Permitted Investments which in both cases shall mature not later
     than (i) in the case of the Certificate Account, the second Business Day
     next preceding the related Distribution Account Deposit Date (except that
     if such Permitted Investment is an obligation of the institution that
     maintains such account, then such Permitted Investment shall mature not
     later than the Business Day next preceding such Distribution Account
     Deposit Date) and (ii) in the case of the Distribution Account, the
     Business Day next preceding the Distribution Date (except that if such
     Permitted Investment is an obligation of the institution that maintains
     such fund or account, then such Permitted Investment shall mature not later
     than such Distribution Date) and, in each case, shall not be sold or
     disposed of prior to its

                                      -50-
<PAGE>

     maturity. All such Permitted Investments shall be made in the name of the
     Trustee, for the benefit of the Certificateholders. All income and gain net
     of any losses realized from any such investment of funds on deposit in the
     Certificate Account shall be for the benefit of the Master Servicer as
     servicing compensation and all income and gain net of any losses realized
     from any such investment of funds on deposit in the Distribution Account
     shall be for the benefit of the Trustee. The amount of any Realized Losses
     in the Certificate Account in respect of any such investments shall
     promptly be deposited by the Master Servicer in the Certificate Account and
     the amount of any Realized Losses in the Distribution Account in respect of
     any such investments shall promptly be deposited by the Trustee into the
     Distribution Account. All reinvestment income earned on amounts on deposit
     in the Distribution Account shall be for the benefit of the Trustee. The
     Trustee in its fiduciary capacity shall not be liable for the amount of any
     loss incurred in respect of any investment or lack of investment of funds
     held in the Certificate Account and made in accordance with this Section
     3.5.

         (v) The Master Servicer shall give notice to the Trustee, the Seller,
     each Rating Agency and the Depositor of any proposed change of the location
     of the Certificate Account prior to any change thereof. The Trustee shall
     give notice to the Master Servicer, the Seller, each Rating Agency and the
     Depositor of any proposed change of the location of the Distribution
     Account prior to any change thereof.

     SECTION 3.6  Collection of Taxes, Assessments and Similar Items; Escrow
     Accounts.

     (a) To the extent required by the related Mortgage Note and not violative
of current law, the Master Servicer shall establish and maintain one or more
accounts (each, an "Escrow Account") and deposit and retain therein all
collections from the Mortgagors (or advances by the Master Servicer) for the
payment of taxes, assessments, hazard insurance premiums or comparable items for
the account of the Mortgagors. Nothing herein shall require the Master Servicer
to compel a Mortgagor to establish an Escrow Account in violation of applicable
law.

     (b) Withdrawals of amounts so collected from the Escrow Accounts may be
made only to effect timely payment of taxes, assessments, hazard insurance
premiums, condominium or PUD association dues, or comparable items, to reimburse
the Master Servicer out of related collections for any payments made pursuant to
Sections 3.1 hereof (with respect to taxes and assessments and insurance
premiums) and 3.9 hereof (with respect to hazard insurance), to refund to any
Mortgagors any sums determined to be overages, to pay interest, if required by
law or the terms of the related Mortgage or Mortgage Note, to Mortgagors on
balances in the Escrow Account or to clear and terminate the Escrow Account at
the termination of this Agreement in accordance with Section 9.1 hereof. The
Escrow Accounts shall not be a part of the Trust Fund.

     (c) The Master Servicer shall advance any payments referred to in Section
3.6(a) that are not timely paid by the Mortgagors on the date when the tax,
premium or other cost for which such payment is intended is due, but the Master
Servicer shall be required so to advance only to the extent that such advances,
in the good faith judgment of the Master Servicer, will be recoverable by the
Master Servicer out of Insurance Proceeds, Liquidation Proceeds or otherwise.

                                      -51-
<PAGE>

     SECTION 3.7  Access to Certain Documentation and Information Regarding the
Mortgage Loans.

     The Master Servicer shall afford the Depositor and the Trustee reasonable
access to all records and documentation regarding the Mortgage Loans and all
accounts, insurance information and other matters relating to this Agreement,
such access being afforded without charge, but only upon reasonable request and
during normal business hours at the office designated by the Master Servicer.

     Upon reasonable advance notice in writing, the Master Servicer will provide
to each Certificateholder which is a savings and loan association, bank or
insurance company certain reports and reasonable access to information and
documentation regarding the Mortgage Loans sufficient to permit such
Certificateholder to comply with applicable regulations of the OTS or other
regulatory authorities with respect to investment in the Certificates; provided
that the Master Servicer shall be entitled to be reimbursed by each such
Certificateholder for actual expenses incurred by the Master Servicer in
providing such reports and access.

     SECTION 3.8  Permitted Withdrawals from the Certificate Account and
Distribution Account.

     (a)  The Master Servicer may from time to time make withdrawals from the
Certificate Account for the following purposes:

          (i)   to the extent not previously retained by the Master Servicer, to
     pay to First Horizon the Retained Yield and to pay to the Master Servicer
     the master servicing compensation to which it is entitled pursuant to
     Section 3.14, and earnings on or investment income with respect to funds in
     or credited to the Certificate Account as additional servicing
     compensation;

          (ii)  to the extent not previously retained by the Master Servicer, to
     reimburse the Master Servicer for unreimbursed Advances made by it, such
     right of reimbursement pursuant to this subclause (ii) being limited to
     amounts received on the Mortgage Loan(s) in respect of which any such
     Advance was made;

          (iii) to reimburse the Master Servicer for any Nonrecoverable Advance
     previously made;

          (iv)  to reimburse the Master Servicer for Insured Expenses from the
     related Insurance Proceeds;

          (v)   to reimburse the Master Servicer for (a) unreimbursed Servicing
     Advances, the Master Servicer's right to reimbursement pursuant to this
     clause (a) with respect to any Mortgage Loan being limited to amounts
     received on such Mortgage Loan(s) which represent late recoveries of the
     payments for which such advances were made pursuant to Section 3.1 or
     Section 3.6 and (b) for unpaid Master Servicing Fees as provided in Section
     3.11 hereof;

                                      -52-
<PAGE>

          (vi)   to pay to the purchaser, with respect to each Mortgage Loan or
     property acquired in respect thereof that has been purchased pursuant to
     Section 2.2, 2.3 or 3.11, all amounts received thereon after the date of
     such purchase;

          (vii)  to reimburse the Seller, the Master Servicer or the Depositor
     for expenses incurred by any of them and reimbursable pursuant to Section
     6.3 hereof;

          (viii) to withdraw any amount deposited in the Certificate Account and
     not required to be deposited therein;

          (ix)   on or prior to the Distribution Account Deposit Date, to
     withdraw an amount equal to the related Available Funds and the Trustee Fee
     for such Distribution Date and remit such amount to the Trustee for deposit
     in the Distribution Account; and

          (x)    to clear and terminate the Certificate Account upon termination
     of this Agreement pursuant to Section 9.1 hereof.

     The Master Servicer shall keep and maintain separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Certificate Account pursuant to such subclauses (i), (ii),
(iv), (v) and (vi). Prior to making any withdrawal from the Certificate Account
pursuant to subclause (iii), the Master Servicer shall deliver to the Trustee an
Officer's Certificate of a Servicing Officer indicating the amount of any
previous Advance determined by the Master Servicer to be a Nonrecoverable
Advance and identifying the related Mortgage Loans(s), and their respective
portions of such Nonrecoverable Advance.

     The Master Servicer shall distribute the Retained Yield, if any, to First
Horizon on each Distribution Account Deposit Date during the term of this
Agreement.

     (b)  The Trustee shall withdraw funds from the Distribution Account for
distributions to Certificateholders in the manner specified in this Agreement
(and to withhold from the amounts so withdrawn, the amount of any taxes that it
is authorized to withhold pursuant to the last paragraph of Section 8.11). In
addition, the Trustee may prior to making the distribution pursuant to Section
4.2 from time to time make withdrawals from the Distribution Account for the
following purposes:

          (i)   to pay to itself the Trustee Fee for the related Distribution
     Date;

          (ii)  to pay to itself earnings on or investment income with respect
     to funds in the Distribution Account;

          (iii) to withdraw and return to the Master Servicer any amount
     deposited in the Distribution Account and not required to be deposited
     therein; and

          (iv)  to clear and terminate the Distribution Account upon termination
     of the Agreement pursuant to Section 9.1 hereof.

                                      -53-
<PAGE>

     SECTION 3.9  Maintenance of Hazard Insurance; Maintenance of Primary
Insurance Policies.

     (a)  The Master Servicer shall cause to be maintained, for each Mortgage
Loan, hazard insurance with extended coverage in an amount that is at least
equal to the lesser of (i) the maximum insurable value of the improvements
securing such Mortgage Loan or (ii) the greater of (y) the outstanding principal
balance of the Mortgage Loan and (z) an amount such that the proceeds of such
policy shall be sufficient to prevent the Mortgagor and/or the mortgagee from
becoming a co-insurer. Each such policy of standard hazard insurance shall
contain, or have an accompanying endorsement that contains, a standard mortgagee
clause. Any amounts collected by the Master Servicer under any such policies
(other than the amounts to be applied to the restoration or repair of the
related Mortgaged Property or amounts released to the Mortgagor in accordance
with the Master Servicer's normal servicing procedures) shall be deposited in
the Certificate Account. Any cost incurred by the Master Servicer in maintaining
any such insurance shall not, for the purpose of calculating monthly
distributions to the Certificateholders or remittances to the Trustee for their
benefit, be added to the principal balance of the Mortgage Loan, notwithstanding
that the terms of the Mortgage Loan so permit. Such costs shall be recoverable
by the Master Servicer out of late payments by the related Mortgagor or out of
Liquidation Proceeds to the extent permitted by Section 3.8 hereof. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor or maintained on property acquired in respect of a
Mortgage other than pursuant to such applicable laws and regulations as shall at
any time be in force and as shall require such additional insurance. If the
Mortgaged Property is located at the time of origination of the Mortgage Loan in
a federally designated special flood hazard area and such area is participating
in the national flood insurance program, the Master Servicer shall cause flood
insurance to be maintained with respect to such Mortgage Loan. Such flood
insurance shall be in an amount equal to the least of (i) the original principal
balance of the related Mortgage Loan, (ii) the replacement value of the
improvements which are part of such Mortgaged Property, and (iii) the maximum
amount of such insurance available for the related Mortgaged Property under the
national flood insurance program.

     (b)  In the event that the Master Servicer shall obtain and maintain a
blanket policy insuring against hazard losses on all of the Mortgage Loans, it
shall conclusively be deemed to have satisfied its obligations as set forth in
the first sentence of this Section, it being understood and agreed that such
policy may contain a deductible clause on terms substantially equivalent to
those commercially available and maintained by comparable servicers. If such
policy contains a deductible clause, the Master Servicer shall, in the event
that there shall not have been maintained on the related Mortgaged Property a
policy complying with the first sentence of this Section, and there shall have
been a loss that would have been covered by such policy, deposit in the
Certificate Account the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as Master
Servicer of the Mortgage Loans, the Master Servicer agrees to present, on behalf
of itself, the Depositor, and the Trustee for the benefit of the
Certificateholders, claims under any such blanket policy.

     (c)  The Master Servicer shall not take any action which would result in
non-coverage under any applicable Primary Insurance Policy of any loss which,
but for the actions of the Master Servicer, would have been covered thereunder.
The Master Servicer shall not cancel or refuse to renew any such Primary
Insurance Policy that is in effect at the date of the initial issuance of the

                                      -54-
<PAGE>

Certificates and is required to be kept in force hereunder unless the
replacement Primary Insurance Policy for such canceled or non-renewed policy is
maintained with a Qualified Insurer.

     The Master Servicer shall not be required to maintain any Primary Insurance
Policy (i) with respect to any Mortgage Loan with a Loan-to-Value Ratio less
than or equal to 80% as of any date of determination or, based on a new
appraisal, the principal balance of such Mortgage Loan represents 80% or less of
the new appraised value or (ii) if maintaining such Primary Insurance Policy is
prohibited by applicable law.

     The Master Servicer agrees to effect the timely payment of the premiums on
each Primary Insurance Policy, and such costs not otherwise recoverable shall be
recoverable by the Master Servicer from the related liquidation proceeds.

     (d)  In connection with its activities as Master Servicer of the Mortgage
Loans, the Master Servicer agrees to present on behalf of itself, the Trustee
and Certificateholders, claims to the insurer under any Primary Insurance
Policies and, in this regard, to take such reasonable action as shall be
necessary to permit recovery under any Primary Insurance Policies respecting
defaulted Mortgage Loans. Any amounts collected by the Master Servicer under any
Primary Insurance Policies shall be deposited in the Certificate Account.

     SECTION 3.10  Enforcement of Due-on-Sale Clauses; Assumption Agreements.

     (a)  Except as otherwise provided in this Section, when any property
subject to a Mortgage has been conveyed by the Mortgagor, the Master Servicer
shall to the extent that it has knowledge of such conveyance, enforce any
due-on-sale clause contained in any Mortgage Note or Mortgage, to the extent
permitted under applicable law and governmental regulations, but only to the
extent that such enforcement will not adversely affect or jeopardize coverage
under any Required Insurance Policy. Notwithstanding the foregoing, the Master
Servicer is not required to exercise such rights with respect to a Mortgage Loan
if the Person to whom the related Mortgaged Property has been conveyed or is
proposed to be conveyed satisfies the terms and conditions contained in the
Mortgage Note and Mortgage related thereto and the consent of the mortgagee
under such Mortgage Note or Mortgage is not otherwise so required under such
Mortgage Note or Mortgage as a condition to such transfer. In the event that the
Master Servicer is prohibited by law from enforcing any such due-on-sale clause,
or if coverage under any Required Insurance Policy would be adversely affected,
or if nonenforcement is otherwise permitted hereunder, the Master Servicer is
authorized, subject to Section 3.10(b), to take or enter into an assumption and
modification agreement from or with the person to whom such property has been or
is about to be conveyed, pursuant to which such person becomes liable under the
Mortgage Note and, unless prohibited by applicable state law, the Mortgagor
remains liable thereon, provided that the Mortgage Loan shall continue to be
covered (if so covered before the Master Servicer enters such agreement) by the
applicable Required Insurance Policies. The Master Servicer, subject to Section
3.10(b), is also authorized with the prior approval of the insurers under any
Required Insurance Policies to enter into a substitution of liability agreement
with such Person, pursuant to which the original Mortgagor is released from
liability and such Person is substituted as Mortgagor and becomes liable under
the Mortgage Note. Notwithstanding the foregoing, the Master Servicer shall not
be deemed to be in default under this Section by reason of any transfer or
assumption which the Master Servicer reasonably believes it is restricted by law
from preventing, for any reason whatsoever.

                                      -55-
<PAGE>

     (b)  Subject to the Master Servicer's duty to enforce any due-on-sale
clause to the extent set forth in Section 3.10(a) hereof, in any case in which a
Mortgaged Property has been conveyed to a Person by a Mortgagor, and such Person
is to enter into an assumption agreement or modification agreement or supplement
to the Mortgage Note or Mortgage that requires the signature of the Trustee, or
if an instrument of release signed by the Trustee is required releasing the
Mortgagor from liability on the Mortgage Loan, the Master Servicer shall prepare
and deliver or cause to be prepared and delivered to the Trustee for signature
and shall direct, in writing, the Trustee to execute the assumption agreement
with the Person to whom the Mortgaged Property is to be conveyed and such
modification agreement or supplement to the Mortgage Note or Mortgage or other
instruments as are reasonable or necessary to carry out the terms of the
Mortgage Note or Mortgage or otherwise to comply with any applicable laws
regarding assumptions or the transfer of the Mortgaged Property to such Person.
In connection with any such assumption, no material term of the Mortgage Note
may be changed. In addition, the substitute Mortgagor and the Mortgaged Property
must be acceptable to the Master Servicer in accordance with its underwriting
standards as then in effect. Together with each such substitution, assumption or
other agreement or instrument delivered to the Trustee for execution by it, the
Master Servicer shall deliver an Officer's Certificate signed by a Servicing
Officer stating that the requirements of this subsection have been met in
connection therewith. The Master Servicer shall notify the Trustee that any such
substitution or assumption agreement has been completed by forwarding to the
Trustee the original of such substitution or assumption agreement, which in the
case of the original shall be added to the related Mortgage File and shall, for
all purposes, be considered a part of such Mortgage File to the same extent as
all other documents and instruments constituting a part thereof. Any fee
collected by the Master Servicer for entering into an assumption or substitution
of liability agreement will be retained by the Master Servicer as additional
servicing compensation.

     SECTION 3.11  Realization Upon Defaulted Mortgage Loans; Repurchase of
Certain Mortgage Loans.

     The Master Servicer shall use reasonable efforts to foreclose upon or
otherwise comparably convert the ownership of properties securing such of the
Mortgage Loans as come into and continue in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments. In
connection with such foreclosure or other conversion, the Master Servicer shall
follow such practices and procedures as it shall deem necessary or advisable and
as shall be normal and usual in its general mortgage servicing activities and
meet the requirements of the insurer under any Required Insurance Policy;
provided, however, that the Master Servicer shall not be required to expend its
own funds in connection with any foreclosure or towards the restoration of any
property unless it shall determine (i) that such restoration and/or foreclosure
will increase the proceeds of liquidation of the Mortgage Loan after
reimbursement to itself of such expenses and (ii) that such expenses will be
recoverable to it through Liquidation Proceeds (respecting which it shall have
priority for purposes of withdrawals from the Certificate Account). The Master
Servicer shall be responsible for all other costs and expenses incurred by it in
any such proceedings; provided, however, that it shall be entitled to
reimbursement thereof from the liquidation proceeds with respect to the related
Mortgaged Property, as provided in the definition of Liquidation Proceeds. If
the Master Servicer has knowledge that a Mortgaged Property which the Master
Servicer is contemplating acquiring in foreclosure or by deed in lieu of
foreclosure is located within a 1 mile radius of any site listed in the
Expenditure Plan for the Hazardous Substance Clean Up Bond Act

                                      -56-
<PAGE>

of 1984 or other site with environmental or hazardous waste risks known to the
Master Servicer, the Master Servicer will, prior to acquiring the Mortgaged
Property, consider such risks and only take action in accordance with its
established environmental review procedures.

     With respect to any REO Property, the deed or certificate of sale shall be
taken in the name of the Trustee for the benefit of the Certificateholders, or
its nominee, on behalf of the Certificateholders. The Trustee's name shall be
placed on the title to such REO Property solely as the Trustee hereunder and not
in its individual capacity. The Master Servicer shall ensure that the title to
such REO Property references the Pooling and Servicing Agreement and the
Trustee's capacity thereunder. Pursuant to its efforts to sell such REO
Property, the Master Servicer shall either itself or through an agent selected
by the Master Servicer protect and conserve such REO Property in the same manner
and to such extent as is customary in the locality where such REO Property is
located and may, incident to its conservation and protection of the interests of
the Certificateholders, rent the same, or any part thereof, as the Master
Servicer deems to be in the best interest of the Certificateholders for the
period prior to the sale of such REO Property. The Master Servicer shall prepare
for and deliver to the Trustee a statement with respect to each REO Property
that has been rented showing the aggregate rental income received and all
expenses incurred in connection with the management and maintenance of such REO
Property at such times as is necessary to enable the Trustee to comply with the
reporting requirements of the REMIC Provisions. The net monthly rental income,
if any, from such REO Property shall be deposited in the Certificate Account no
later than the close of business on each Determination Date. The Master Servicer
shall perform the tax reporting and withholding required by Sections 1445 and
6050J of the Code with respect to foreclosures and abandonments, the tax
reporting required by Section 6050H of the Code with respect to the receipt of
mortgage interest from individuals and any tax reporting required by Section
6050P of the Code with respect to the cancellation of indebtedness by certain
financial entities, by preparing such tax and information returns as may be
required, in the form required, and delivering the same to the Trustee for
filing.

     In the event that the Trust Fund acquires any Mortgaged Property as
aforesaid or otherwise in connection with a default or imminent default on a
Mortgage Loan, the Master Servicer shall dispose of such Mortgaged Property
prior to three years after its acquisition by the Trust Fund unless the Trustee
shall have been supplied with an Opinion of Counsel to the effect that the
holding by the Trust Fund of such Mortgaged Property subsequent to such three-
year period will not result in the imposition of taxes on "prohibited
transactions" of any REMIC hereunder as defined in section 860F of the Code or
cause any REMIC created hereunder to fail to qualify as a REMIC at any time that
any Certificates are outstanding, in which case the Trust Fund may continue to
hold such Mortgaged Property (subject to any conditions contained in such
Opinion of Counsel). Notwithstanding any other provision of this Agreement, no
Mortgaged Property acquired by the Trust Fund shall be rented (or allowed to
continue to be rented) or otherwise used for the production of income by or on
behalf of the Trust Fund in such a manner or pursuant to any terms that would
(i) cause such Mortgaged Property to fail to qualify as "foreclosure property"
within the meaning of section 860G(a)(8) of the Code or (ii) subject any REMIC
hereunder to the imposition of any federal, state or local income taxes on the
income earned from such Mortgaged Property under Section 860G(c) of the Code or
otherwise, unless the Master Servicer has agreed to indemnify and hold harmless
the Trust Fund with respect to the imposition of any such taxes.

                                      -57-
<PAGE>

     In the event of a default on a Mortgage Loan one or more of whose obligor
is not a United States Person, as that term is defined in Section 7701(a)(30) of
the Code, in connection with any foreclosure or acquisition of a deed in lieu of
foreclosure (together, "foreclosure") in respect of such Mortgage Loan, the
Master Servicer will cause compliance with the provisions of Treasury Regulation
Section 1.1445-2(d)(3) (or any successor thereto) necessary to assure that no
withholding tax obligation arises with respect to the proceeds of such
foreclosure except to the extent, if any, that proceeds of such foreclosure are
required to be remitted to the obligors on such Mortgage Loan.

     The decision of the Master Servicer to foreclose on a defaulted Mortgage
Loan shall be subject to a determination by the Master Servicer that the
proceeds of such foreclosure would exceed the costs and expenses of bringing
such a proceeding. The income earned from the management of any REO Properties,
net of reimbursement to the Master Servicer for expenses incurred (including any
property or other taxes) in connection with such management and net of
unreimbursed Master Servicing Fees, Advances and Servicing Advances, shall be
applied to the payment of principal of and interest on the related defaulted
Mortgage Loans (with interest accruing as though such Mortgage Loans were still
current) and all such income shall be deemed, for all purposes in this
Agreement, to be payments on account of principal and interest on the related
Mortgage Notes and shall be deposited into the Certificate Account. To the
extent the net income received during any calendar month is in excess of the
amount attributable to amortizing principal and accrued interest at the related
Mortgage Rate on the related Mortgage Loan for such calendar month, such excess
shall be considered to be a partial prepayment of principal of the related
Mortgage Loan.

     The proceeds from any liquidation of a Mortgage Loan, as well as any income
from an REO Property, will be applied in the following order of priority: first,
to reimburse the Master Servicer for any related unreimbursed Servicing Advances
and Master Servicing Fees; second, to reimburse the Master Servicer for any
unreimbursed Advances; third, to reimburse the Certificate Account for any
Nonrecoverable Advances (or portions thereof) that were previously withdrawn by
the Master Servicer pursuant to Section 3.8(a)(iii) that related to such
Mortgage Loan; fourth, to accrued and unpaid interest (to the extent no Advance
has been made for such amount or any such Advance has been reimbursed) on the
Mortgage Loan or related REO Property, at the Adjusted Net Mortgage Rate to the
Due Date occurring in the month in which such amounts are required to be
distributed; and fifth, as a recovery of principal of the Mortgage Loan. Excess
Proceeds, if any, from the liquidation of a Liquidated Mortgage Loan will be
retained by the Master Servicer as additional servicing compensation pursuant to
Section 3.14.

     The Master Servicer, in its sole discretion, shall have the right to
purchase for its own account from the Trust Fund any Mortgage Loan which is 91
days or more delinquent at a price equal to the Purchase Price. The Purchase
Price for any Mortgage Loan purchased hereunder shall be deposited in the
Certificate Account and the Trustee, upon receipt of a certificate from the
Master Servicer in the form of Exhibit M hereto, shall release or cause to be
released to the purchaser of such Mortgage Loan the related Mortgage File and
shall execute and deliver such instruments of transfer or assignment prepared by
the purchaser of such Mortgage Loan, in each case without recourse, as shall be
necessary to vest in the purchaser of such Mortgage Loan any Mortgage Loan
released pursuant hereto and the purchaser of such Mortgage Loan shall succeed
to all the Trustee's right, title and interest in and to such Mortgage Loan and
all security and documents related thereto. Such assignment shall be an
assignment outright and not for security. The purchaser of such

                                      -58-
<PAGE>

Mortgage Loan shall thereupon own such Mortgage Loan, and all security and
documents, free of any further obligation to the Trustee or the
Certificateholders with respect thereto.

     SECTION 3.12  Trustee to Cooperate; Release of Mortgage Files.

     Upon the payment in full of any Mortgage Loan, or the receipt by the Master
Servicer of a notification that payment in full will be escrowed in a manner
customary for such purposes, the Master Servicer will immediately notify the
Trustee by delivering, or causing to be delivered a "Request for Release"
substantially in the form of Exhibit M. Upon receipt of such request, the
Trustee shall or shall cause the Custodian to promptly release the related
Mortgage File to the Master Servicer, and the Trustee shall at the Master
Servicer's direction execute and deliver to the Master Servicer the request for
reconveyance, deed of reconveyance or release or satisfaction of mortgage or
such instrument releasing the lien of the Mortgage in each case provided by the
Master Servicer, together with the Mortgage Note with written evidence of
cancellation thereon. Expenses incurred in connection with any instrument of
satisfaction or deed of reconveyance shall be chargeable to the related
Mortgagor. From time to time and as shall be appropriate for the servicing or
foreclosure of any Mortgage Loan, including for such purpose, collection under
any policy of flood insurance, any fidelity bond or errors or omissions policy,
or for the purposes of effecting a partial release of any Mortgaged Property
from the lien of the Mortgage or the making of any corrections to the Mortgage
Note or the Mortgage or any of the other documents included in the Mortgage
File, the Trustee shall, upon delivery to the Trustee of a Request for Release
in the form of Exhibit L signed by a Servicing Officer, release the Mortgage
File to the Master Servicer. Subject to the further limitations set forth below,
the Master Servicer shall cause the Mortgage File or documents so released to be
returned to the Trustee or its Custodian when the need therefor by the Master
Servicer no longer exists, unless the Mortgage Loan is liquidated and the
proceeds thereof are deposited in the Certificate Account, in which case the
Master Servicer shall deliver to the Trustee a Request for Release in the form
of Exhibit M, signed by a Servicing Officer.

     If the Master Servicer at any time seeks to initiate a foreclosure
proceeding in respect of any Mortgaged Property as authorized by this Agreement,
the Master Servicer shall deliver or cause to be delivered to the Trustee, for
signature, as appropriate, any court pleadings, requests for trustee's sale or
other documents necessary to effectuate such foreclosure or any legal action
brought to obtain judgment against the Mortgagor on the Mortgage Note or the
Mortgage or to obtain a deficiency judgment or to enforce any other remedies or
rights provided by the Mortgage Note or the Mortgage or otherwise available at
law or in equity.

     SECTION 3.13  Documents Records and Funds in Possession of Master Servicer
to be Held for the Trustee.

     Notwithstanding any other provisions of this Agreement, the Master Servicer
shall transmit to the Trustee as required by this Agreement all documents and
instruments in respect of a Mortgage Loan coming into the possession of the
Master Servicer from time to time and shall account fully to the Trustee for any
funds received by the Master Servicer or which otherwise are collected by the
Master Servicer as Liquidation Proceeds or Insurance Proceeds in respect of any
Mortgage Loan. All Mortgage Files and funds collected or held by, or under the
control of, the Master Servicer in respect of any Mortgage Loans, whether from
the collection of principal and interest payments or from Liquidation Proceeds,
including but not limited to, any funds on deposit in the Certificate Account,

                                      -59-
<PAGE>

shall be held by the Master Servicer for and on behalf of the Trustee and shall
be and remain the sole and exclusive property of the Trustee, subject to the
applicable provisions of this Agreement. The Master Servicer also agrees that it
shall not create, incur or subject any Mortgage File or any funds that are
deposited in the Certificate Account, Distribution Account or any Escrow
Account, or any funds that otherwise are or may become due or payable to the
Trustee for the benefit of the Certificateholders, to any claim, lien, security
interest, judgment, levy, writ of attachment or other encumbrance, or assert by
legal action or otherwise any claim or right of setoff against any Mortgage File
or any funds collected on, or in connection with, a Mortgage Loan, except,
however, that the Master Servicer shall be entitled to set off against and
deduct from any such funds any amounts that are properly due and payable to the
Master Servicer under this Agreement.

     SECTION 3.14  Master Servicing Compensation.

     As compensation for its activities hereunder, the Master Servicer shall be
entitled to retain or withdraw from the Certificate Account an amount equal to
the Master Servicing Fee for each Mortgage Loan, provided that the aggregate
Master Servicing Fee with respect to any Distribution Date shall be reduced (i)
by the amount of any Compensating Interest paid by the Master Servicer  with
respect to such Distribution Date, and (ii) with respect to the first
Distribution Date, an amount equal to any amount to be deposited into the
Distribution Account by the Depositor pursuant to Section 2.1(a) and not so
deposited.

     Additional servicing compensation in the form of Retained Yield, Excess
Proceeds, Prepayment Interest Excess, prepayment penalties, assumption fees,
late payment charges and all income and gain net of any losses realized from
Permitted Investments shall be retained by the Master Servicer to the extent not
required to be deposited in the Certificate Account pursuant to Section 3.5
hereof; provided that in the event the Master Servicer is terminated pursuant to
Section 7.1, the Retained Yield shall be payable to First Horizon Home Loan
Corporation in its individual capacity and shall not be payable to the Trustee
or any successor to the Master Servicer. The Master Servicer shall be required
to pay all expenses incurred by it in connection with its master servicing
activities hereunder (including payment of any premiums for hazard insurance and
any Primary Insurance Policy and maintenance of the other forms of insurance
coverage required by this Agreement) and shall not be entitled to reimbursement
therefor except as specifically provided in this Agreement.

     SECTION 3.15  Access to Certain Documentation.

     The Master Servicer shall provide to the OTS and the FDIC and to comparable
regulatory authorities supervising Holders of Subordinated Certificates and the
examiners and supervisory agents of the OTS, the FDIC and such other
authorities, access to the documentation regarding the Mortgage Loans required
by applicable regulations of the OTS and the FDIC. Such access shall be afforded
without charge, but only upon reasonable and prior written request and during
normal business hours at the offices designated by the Master Servicer. Nothing
in this Section shall limit the obligation of the Master Servicer to observe any
applicable law prohibiting disclosure of information regarding the Mortgagors
and the failure of the Master Servicer to provide access as provided in this
Section as a result of such obligation shall not constitute a breach of this
Section.

                                      -60-
<PAGE>

     SECTION 3.16  Annual Statement as to Compliance.

     The Master Servicer shall deliver to the Depositor and the Trustee on or
before 120 days after the end of the Master Servicer's fiscal year, commencing
with its 2000 fiscal year, an Officer's Certificate stating, as to the signer
thereof, that (i) a review of the activities of the Master Servicer during the
preceding calendar year and of the performance of the Master Servicer under this
Agreement has been made under such officer's supervision and (ii) to the best of
such officer's knowledge, based on such review, the Master Servicer has
fulfilled all its obligations under this Agreement throughout such year, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default known to such officer and the nature and status thereof. The
Trustee shall forward a copy of each such statement to each Rating Agency.

     SECTION 3.17  Annual Independent Public Accountants' Servicing Statement;
Financial Statements.

     On or before 120 days after the end of the Master Servicer's fiscal year,
commencing with its 2000 fiscal year, the Master Servicer at its expense shall
cause a nationally or regionally recognized firm of independent public
accountants (who may also render other services to the Master Servicer, the
Seller or any affiliate thereof) which is a member of the American Institute of
Certified Public Accountants to furnish a statement to the Trustee and the
Depositor to the effect that-such firm has examined certain documents and
records relating to the servicing of the Mortgage Loans under this Agreement or
of mortgage loans under pooling and servicing agreements substantially similar
to this Agreement (such statement to have attached thereto a schedule setting
forth the pooling and servicing agreements covered thereby) and that, on the
basis of such examination, conducted substantially in compliance with the
Uniform Single Attestation Program for Mortgage Bankers or the Audit Program for
Mortgages serviced for FNMA and FHLMC, such servicing has been conducted in
compliance with such pooling and servicing agreements except for such
significant exceptions or errors in records that, in the opinion of such firm,
the Uniform Single Attestation Program for Mortgage Bankers or the Audit Program
for Mortgages serviced for FNMA and FHLMC requires it to report. In rendering
such statement, such firm may rely, as to matters relating to direct servicing
of mortgage loans by Subservicers, upon comparable statements for examinations
conducted substantially in compliance with the Uniform Single Attestation
Program for Mortgage Bankers or the Audit Program for Mortgages serviced for
FNMA and FHLMC (rendered within one year of such statement) of independent
public accountants with respect to the related Subservicer. Copies of such
statement shall be provided by the Trustee to any Certificateholder upon request
at the Master Servicer's expense, provided such statement is delivered by the
Master Servicer to the Trustee.

     SECTION 3.18  Errors and Omissions Insurance; Fidelity Bonds.

     The Master Servicer shall for so long as it acts as master servicer under
this Agreement, obtain and maintain in force (a) a policy or policies of
insurance covering errors and omissions in the performance of its obligations as
Master Servicer hereunder and (b) a fidelity bond in respect of its officers,
employees and agents. Each such policy or policies and bond shall, together,
comply with the requirements from time to time of FNMA or FHLMC for persons
performing servicing for mortgage loans purchased by FNMA or FHLMC. In the event
that any such policy or bond ceases

                                      -61-
<PAGE>

to be in effect, the Master Servicer shall obtain a comparable replacement
policy or bond from an insurer or issuer, meeting the requirements set forth
above as of the date of such replacement.

                                  ARTICLE IV
                               DISTRIBUTIONS AND
                        ADVANCES BY THE MASTER SERVICER

     SECTION 4.1  Advances.

     The Master Servicer shall determine on or before each Master Servicer
Advance Date whether it is required to make an Advance pursuant to the
definition thereof. If the Master Servicer determines it is required to make an
Advance, it shall, on or before the Master Servicer Advance Date, either (i)
deposit into the Certificate Account an amount equal to the Advance or (ii) make
an appropriate entry in its records relating to the Certificate Account that any
Amount Held for Future Distribution has been used by the Master Servicer in
discharge of its obligation to make any such Advance. Any funds so applied shall
be replaced by the Master Servicer by deposit in the Certificate Account no
later than the close of business on the next Master Servicer Advance Date. The
Master Servicer shall be entitled to be reimbursed from the Certificate Account
for all Advances of its own funds made pursuant to this Section as provided in
Section 3.08. The obligation to make Advances with respect to any Mortgage Loan
shall continue if such Mortgage Loan has been foreclosed or otherwise terminated
and the related Mortgaged Property has not been liquidated.

     The Master Servicer shall deliver to the Trustee on the related Master
Servicer Advance Date an Officer's Certificate of a Servicing Officer indicating
the amount of any proposed Advance determined by the Master Servicer to be a
Nonrecoverable Advance.

     SECTION 4.2  Priorities of Distribution.

     (a)  On each Distribution Date, the Trustee shall withdraw the Available
Funds from the Distribution Account and apply such funds to distributions on the
Certificates in the following order and priority and, in each case, to the
extent of Available Funds remaining:

          (i)   to each Class of Senior Certificates entitled to distributions
     of interest, the Accrued Certificate Interest thereon for such Distribution
     Date and to FSA, concurrently with the interest distribution to the Class
     A-5 Certificates, the FSA Premium due on such Distribution Date; provided
     that any shortfall in available amounts shall be allocated among such
     Classes in proportion to the amount of Accrued Certificate Interest that
     would otherwise be distributable thereto;

          (ii)  to each Class of Senior Certificates, entitled to distributions
     of interest, any Accrued Certificate Interest thereon remaining
     undistributed from previous Distribution Dates, to the extent of remaining
     Available Funds; provided that any shortfall in available amounts shall be
     allocated among such Classes in proportion to the amount of such Accrued
     Certificate Interest remaining undistributed for each such Class on such
     Distribution Date;

                                      -62-
<PAGE>

          (iii)  to the Classes of Senior Certificates entitled to principal
     distributions, in reduction of the Class Certificate Balances thereof, to
     the extent of remaining Available Funds, concurrently, as follows:

                 (1) to the Classes of Senior Certificates, other than the Class
          PO Certificates, the Senior Optimal Principal Amount for such
          Distribution Date, in the order of priority set forth below; and

                 (2) to the Class PO Certificates, the Class PO Principal
          Distribution Amount for such Distribution Date;

          (iv)   to the Class PO Certificates, to the extent of remaining
     Available Funds, the Class PO Deferred Amount for such Distribution Date,
     until the Class Certificate Balance thereof has been reduced to zero;
     provided that, (1) on any Distribution Date, distributions pursuant to the
     priority described in this Section 4.2(a)(iv) shall not exceed the
     Subordinated Optimal Principal Amount for such Distribution Date, (2) such
     distributions shall not reduce the Class Certificate Balance of the Class
     PO Certificates and (3) no distribution will be made in respect of the
     Class PO Deferred Amount after the Cross Over Date;

          (v)    to the Class B-1 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date, (2) any Accrued Certificate
     Interest thereon remaining undistributed from previous Distribution Dates
     and (3) such Class's Allocable Share for such Distribution Date;

          (vi)   to the Class B-2 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date, (2) any Accrued Certificate
     Interest thereon remaining undistributed from previous Distribution Dates
     and (3) such Class's Allocable Share for such Distribution Date;

          (vii)  to the Class B-3 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date, (2) any

     Accrued Certificate Interest thereon remaining undistributed from previous
     Distribution Dates and (3) such Class's Allocable Share for such
     Distribution Date;

          (viii) to the Class B-4 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date; (2) any Accrued Certificate
     Interest thereon remaining undistributed from previous Distribution Dates
     and (3) such Class's Allocable Share for such Distribution Date;

          (ix)   to the Class B-5 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date; (2) any Accrued Certificate
     Interest thereon remaining undistributed from previous Distribution Dates
     and (3) such Class's Allocable Share for such Distribution Date; and

          (x)    to the Class B-6 Certificates, to the extent of remaining
     Available Funds, in the following order: (1) the Accrued Certificate
     Interest thereon for such Distribution Date;

                                      -63-
<PAGE>

     (2) any Accrued Certificate Interest thereon remaining undistributed from
     previous Distribution Dates and (3) such Class's Allocable Share for such
     Distribution Date.

     To the extent that the Available Funds for such Distribution Date are
insufficient to make the Guaranteed Distribution to the Class A-5 Certificates
in accordance with the foregoing, the Trustee shall make a Reserve Account
Withdrawal in accordance with Section 4.7 and/or a claim under the FSA Policy in
accordance with Section 10.2. The Class A-5 Certificateholders shall be entitled
to receive the amounts, if any, distributed to the Class A-5 Certificates
pursuant to Sections 4.7 and 10.2 on such Distribution Date.

     (b) Amounts allocated to the Senior Certificates (other than the Class PO
Certificates) pursuant to the priority described above in Section 4.2(a)(iii)
will be distributed sequentially as follows:

         (i)  to the Class A-6 Certificates, in an amount equal to the Class A-6
     Principal Distribution Amount for such Distribution Date, until the Class
     Certificate Balance thereof has been reduced to zero; and

         (ii) to the Classes of Senior Certificates, other than the Class A-6
     and Class A-7 Certificates, the Senior Optimal Principal Amount less the
     Class A-6 Principal Distribution Amount, in the following order of
     priority:

              (1) concurrently, to the Class A-RU and Class A-RL Certificates,
          until the respective Class Certificate Balances thereof have been
          reduced to zero;

              (2) commencing on the Distribution Date in August 2003, an amount
          equal to $12,500.00 to the Class A-5 Certificates, until the Class
          Certificate Balance thereof has been reduced to zero;

              (3) sequentially, to the Class A-1 and Class A-2 Certificates, in
          that order, until the respective Class Certificate Balances thereof
          have been reduced to zero;

              (4) concurrently, until the Class Certificates Balances of the
          Class A-3 and Class A-4 Certificates have been reduced to zero, (A)
          56.818181818% to the Class A-5 Certificates, until the Class
          Certificate Balance thereof has been reduced to zero, and (B)
          43.181818181% sequentially to the Class A-3 and Class A-4
          Certificates, in that order, until the respective Class Certificate
          Balances thereof have been reduced to zero; and

              (5) the remaining amount, to the Class A-5 Certificates, until the
          Class Certificate Balance thereof has been reduced to zero.

     (c) On each Distribution Date, the Trustee shall distribute to the Holders
of each of the Class A-RU or Class A-RL Certificates any Available Funds
remaining in the related REMIC for such Distribution Date after application of
all amounts described in clauses (a) and (b) of this Section 4.2, and, as to the
Class A-RL Certificates only, on the date the Class Certificate Balance of the
Class A-5 Certificates has been reduced to zero, the balance, if any, remaining
in the Rounding Account.

                                      -64-
<PAGE>

Any distributions pursuant to this subsection (c) shall not reduce the Class
Certificate Balance of the Class A-RU and Class A-RL Certificates.

     (d) If on any Distribution Date the Class Certificate Balances of the
Junior Certificates have each been reduced to zero, the amount distributable to
the Senior Certificates other than the Class PO Certificates pursuant to Section
4.2(a)(iii) for such Distribution Date and each succeeding Distribution Date
shall be allocated among such Classes of Senior Certificates, pro rata, on the
basis of their respective Class Certificate Balances immediately prior to such
Distribution Date, regardless of the priorities and amounts set forth in Section
4.2(a)(iii).

     (e) If on any Distribution Date (i) the Class Certificate Balance of any
Class of Class B Certificates (other than the Class B-1 Certificates, to which
the Class Prepayment Distribution Trigger shall not apply) for which the related
Class Prepayment Distribution Trigger was satisfied on such Distribution Date is
reduced to zero and (ii) amounts distributable to such Class of Class B
Certificates pursuant to clauses (ii), (iii) and (v) of the Subordinated Optimal
Principal Amount remain undistributed on such Distribution Date after all
amounts otherwise distributable on such date pursuant to clauses (iv) through
(x) of Section 4.2(a) have been distributed, such amounts shall be distributed
on such Distribution Date to the remaining Classes of Subordinated Certificates
in order of priority, such that no such distribution shall be made to any Class
of Certificates while a prior such Class is outstanding.

     (f) In the event that in any calendar month the Company recovers an amount
(an "Unanticipated Recovery") in respect of principal of a Mortgage Loan which
had previously been allocated as a Realized Loss to any Class of Certificates
pursuant to Section 4.4, on the Distribution Date in the next succeeding
calendar month the Trustee shall withdraw from the Certificate Account and
distribute to the Holders of each outstanding Class to which such Realized Loss
had previously been allocated its share (determined as described in the
succeeding paragraph) of such Unanticipated Recovery in an amount not to exceed
the amount of such Realized Loss previously allocated to such Class. When the
Class Certificate Balance of a Class of Certificates has been reduced to zero,
the Holders of such Class shall not be entitled to any share of an Unanticipated
Recovery, and such Unanticipated Recovery shall be allocated among all
outstanding Classes of Certificates entitled thereto in accordance with the
preceding sentence, subject to the remainder of this subsection (f). In the
event that (i) any Unanticipated Recovery remains undistributed in accordance
with the preceding sentence or (ii) the amount of an Unanticipated Recovery
exceeds the amount of the Realized Loss previously allocated to any outstanding
Classes with respect to the related Mortgage Loan, on the applicable
Distribution Date the Trustee shall distribute to the Holders of all outstanding
Classes of the related Certificates to which Realized Losses had previously been
allocated and not reimbursed their pro rata share (determined as described
below) of such excess in an amount not to exceed the aggregate amount of any
Realized Loss previously allocated to such Class with respect to any other
Mortgage Loan that has not been recovered in accordance with this subsection
(f). Any distributions made pursuant to this subsection (f) shall not reduce the
Class Certificate Balance of the related Certificate.

     For purposes of the preceding paragraph, the share of an Unanticipated
Recovery allocable to any Class of Certificates with respect to a Mortgage Loan
shall be (i) with respect to the Class PO Certificates, based on the applicable
PO Percentage of the principal portion of the Realized Loss previously allocated
thereto with respect to such Mortgage Loan (or all Mortgage Loans for purposes

                                      -65-
<PAGE>

of the next to last sentence of the preceding paragraph), and (ii) with respect
to any other Class of Certificates, based on its pro rata share (in proportion
to the Class Certificate Balances thereof with respect to such Distribution
Date) of the applicable Non-PO Percentage of the principal portion of any such
Realized Loss previously allocated with respect to such Mortgage Loan (or
Loans); provided, however, that (i) the share of an Unanticipated Recovery
allocable to a Class PO Certificate with respect to any Mortgage Loan (or Loans)
shall be reduced by the aggregate amount previously distributed to such Class on
account of the applicable Class PO Deferred Amount in respect of such Mortgage
Loan (or Loans) and (ii) the amount by which the distributions to the Class PO
Certificates have been so reduced shall be distributed to the Classes of
Certificates described in clause (ii) of the preceding paragraph in the same
proportion as described in such clause (ii). For purposes of the preceding
sentence, any Class PO Deferred Amount distributed to a Class PO Certificate on
previous Distribution Dates shall be deemed to have been allocated in respect of
the Mortgage Loans as to which the applicable PO Percentage of the principal
portion of Realized Losses has previously been allocated to such Class on a pro
rata basis (based on the amount of Realized Losses so allocated).

     SECTION 4.3  Method of Distribution.

     (a) Except as otherwise provided in Section 4.8, all distributions with
respect to each Class of Certificates on each Distribution Date shall be made
pro rata among the outstanding Certificates of such Class, based on the
Percentage Interest in such Class represented by each Certificate. Payments to
the Certificateholders on each Distribution Date will be made by the Trustee to
the Certificateholders of record on the related Record Date by check or money
order mailed to a Certificateholder at the address appearing in the Certificate
Register, or upon written request by such Certificateholder to the Trustee made
not later than the applicable Record Date, by wire transfer to a U.S. depository
institution acceptable to the Trustee, or by such other means of payment as such
Certificateholder and the Trustee shall agree.

     (b) Each distribution with respect to a Book-Entry Certificate shall be
paid to the Depository, which shall credit the amount of such distribution to
the accounts of its Depository Participants in accordance with its normal
procedures. Each Depository Participant shall be responsible for disbursing such
distribution to the Certificate Owners that it represents and to each financial
intermediary for which it acts as agent. Each such financial intermediary shall
be responsible for disbursing funds to the Certificate Owners that it
represents. All such credits and disbursements with respect to a Book-Entry
Certificate are to be made by the Depository and the Depository Participants in
accordance with the provisions of the applicable Certificates. Neither the
Trustee nor the Company shall have any responsibility therefor except as
otherwise provided by applicable law.

     (c) The Trustee shall withhold or cause to be withheld such amounts as it
reasonably determines are required by the Code (giving full effect to any
exemptions from withholding and related certifications required to be furnished
by Certificateholders or Certificate Owners and any reductions to withholding by
virtue of any bilateral tax treaties and any applicable certification required
to be furnished by Certificateholders or Certificate Owners with respect
thereto) from distributions to be made to Non-U.S. Persons. If the Trustee
reasonably determines that a more accurate determination of the amount required
to be withheld for a distribution can be made within a reasonable period after
the scheduled date for such distribution, it may hold such distribution in

                                      -66-
<PAGE>

trust for a Holder of a Residual Certificate until such determination can be
made. For the purposes of this paragraph, a "Non-U.S. Person" is (i) an
individual other than a citizen or resident of the United States, (ii) a
partnership, corporation or entity treated as a partnership or corporation for
U.S. federal income tax purposes not formed under the laws of the United States,
any state thereof or the District of Columbia (unless, in the case of a
partnership, Treasury regulations provide otherwise), (iii) any estate, the
income of which is not subject to U.S. federal income taxation, regardless of
source, and (iv) any trust, other than a trust that a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more U.S. Persons have the authority to control all substantial
decisions of the trust.

     SECTION 4.4  Allocation of Losses.

     (a)   On or prior to each Determination Date, the Company shall determine
the amount of any Realized Loss in respect of each Mortgage Loan that occurred
during the immediately preceding calendar month.

     (b)   With respect to any Distribution Date, the principal portion of each
Realized Loss (other than any Excess Loss) shall be allocated as follows:

           (i)  the applicable PO Percentage of the principal portion of any
     such Realized Loss shall be allocated to the Class PO Certificates until
     the Class Certificate Balance thereof has been reduced to zero; and

           (ii) the applicable Non-PO Percentage of the principal portion of any
     such Realized Loss shall be allocated in the following order of priority:

                first, to the Class B-6 Certificates until the Class Certificate
           Balance thereof has been reduced to zero;

                second, to the Class B-5 Certificates until the Class
           Certificate Balance thereof has been reduced to zero;

                third, to the Class B-4 Certificates until the Class Certificate
           Balance thereof has been reduced to zero;

                fourth, to the Class B-3 Certificates until the Class
           Certificate Balance thereof has been reduced to zero;

                fifth, to the Class B-2 Certificates until the Class Certificate
           Balance thereof has been reduced to zero;

                sixth, to the Class B-1 Certificates until the Class Certificate
           Balance thereof has been reduced to zero;

                seventh, to the Classes of Senior Certificates other than the
           Class PO Certificates, pro rata, in accordance with their Class
           Certificate Balances.

                                      -67-
<PAGE>

     (c)  With respect to any Distribution Date, the principal portion of any
Excess Loss (other than Excess Bankruptcy Losses attributable to Debt Service
Reductions) shall be allocated as follows: (1) the PO Percentage of any such
loss shall be allocated to the Class PO Certificates, and (2) the Non-PO
Percentage of any such loss shall be allocated to each Class of Certificates
other than the Class PO Certificates, pro rata, based on the respective Class
Certificate Balances thereof.

     (d)  Any Realized Losses allocated to a Class of Certificates pursuant to
Section 4.4(b) or (c) shall be allocated among the Certificates of such Class in
proportion to their respective Certificate Principal Balances. Any allocation of
Realized Losses pursuant to this paragraph (d) shall be accomplished by reducing
the Certificate Principal Balances of the related Certificates on the related
Distribution Date in accordance with Section 4.4(e).

     (e)  Realized Losses allocated in accordance with this Section 4.4 shall be
allocated on the Distribution Date in the month following the month in which
such loss was incurred and (i) in the case of the principal portion thereof,
after giving effect to distributions made on such Distribution Date. The
aggregate amount of Realized Losses to be allocated to the Class PO Certificates
on such Distribution Date will be taken into account in determining
distributions in respect of any Class PO Deferred Amount for such date.

     (f)  On each Distribution Date, the Company shall determine the
Subordinated Certificate Writedown Amount, if any. Any such Subordinated
Certificate Writedown Amount shall effect, without duplication of any other
provision in this Section 4.4 that provides for a reduction in the Class
Certificate Balance of the Subordinated Certificates, a corresponding reduction
in the Class Certificate Balance of the Subordinated Certificates, which
reduction shall occur on such Distribution Date after giving effect to
distributions made on such Distribution Date.

     (g)  Notwithstanding the foregoing, no such allocation of any Realized Loss
shall be made on a Distribution Date to a Class of Certificates to the extent
that such allocation would result in the reduction of the aggregate Certificate
Principal Balances of all the Certificates as of such Distribution Date, after
giving effect to all distributions and prior allocations of Realized Losses on
such date, to an amount less than the aggregate Scheduled Principal Balance of
the Mortgage Loans as of the first day of the month of such Distribution Date,
less any Deficient Valuations occurring on or prior to the Bankruptcy Coverage
Termination Date (such limitation, the "Loss Allocation Limitation").

     SECTION 4.5  Reserved.

     SECTION 4.6  Monthly Statements to Certificateholders.

     (a)  Not later than each Distribution Date, the Trustee shall prepare and
cause to be forwarded by first class mail to each Certificateholder, the Master
Servicer, the Depositor and each Rating Agency a statement setting forth with
respect to the related distribution and may post such statement on its website
located at www.mbsreporting.com:

          (i)     the amount thereof allocable to principal, separately
     identifying the aggregate amount of any Principal Prepayments and
     Liquidation Proceeds included therein;

                                      -68-
<PAGE>

          (ii)    the amount thereof allocable to interest, the amount of any
 Compensating Interest included in such distribution and any remaining Net
 Interest Shortfalls after giving effect to such distribution;

          (iii)   if the distribution to the Holders of such Class of
 Certificates is less than the full amount that would be distributable to such
 Holders if there were sufficient funds available therefor, the amount of the
 shortfall and the allocation thereof as between principal and interest;

          (iv)    the Class Certificate Balance of each Class of Certificates
 after giving effect to the distribution of principal on such Distribution Date;

          (v)     the Pool Principal Balance for the following Distribution
 Date;

          (vi)    the Senior Percentage and Subordinated Percentage for the
 following Distribution Date;

          (vii)   the amount of the Master Servicing Fees paid to or retained by
 the Master Servicer with respect to such Distribution Date;

          (viii)  the Pass-Through Rate for each such Class of Certificates with
 respect to such Distribution Date;

          (ix)    the amount of Advances included in the distribution on such
 Distribution Date and the aggregate amount of Advances outstanding as of
 the close of business on such Distribution Date;

          (x)     the number and aggregate principal amounts of Mortgage Loans
 (A) delinquent (exclusive of Mortgage Loans in foreclosure) (1) 1 to 30 days
 (2) 31 to 60 days (3) 61 to 90 days and (4) 91 or more days and (B) in
 foreclosure and delinquent (1) 1 to 30 days (2) 31 to 60 days (3) 61 to 90 days
 and (4) 91 or more days, as of the close of business on the last day of the
 calendar month preceding such Distribution Date;

          (xi)    with respect to any Mortgage Loan that became an REO Property
 during the preceding calendar month, the loan number and Stated Principal
 Balance of such Mortgage Loan as of the close of business on the Determination
 Date preceding such Distribution Date and the date of acquisition thereof;

          (xii)   the total number and principal balance of any REO Properties
 (and market value, if available) as of the close of business on the
 Determination Date preceding such Distribution Date;

          (xiii)  the Senior Prepayment Percentage for the following
 Distribution Date;

          (xiv)   the aggregate amount of Realized Losses incurred during the
 preceding calendar month;

                                      -69-
<PAGE>

             (xv)     the cumulative amount of Realized Losses applied in
      reduction of the principal balance of each class of Certificates since the
      Closing Date;

             (xvi)    the Special Hazard Loss Coverage Amount, the Fraud Loss
      Coverage Amount and the Bankruptcy Loss Coverage Amount, in each case as
      of the related Determination Date;

             (xvii)   with respect to the second Distribution Date, the number
      and aggregate balance of any Delay Delivery Mortgage Loans not delivered
      within thirty days after the Closing Date;

      (b)    The Trustee's responsibility for disbursing the above information
to the Certificateholders is limited to the availability, timeliness and
accuracy of the information provided by the Master Servicer.

      (c)    On or before the fifth Business Day following the end of each
Prepayment Period (but in no event later than the third Business Day prior to
the related Distribution Date), the Master Servicer shall deliver to the Trustee
(which delivery may be by electronic data transmission) a report in
substantially the form set forth as Schedule IV hereto.

      (d)    Within a reasonable period of time after the end of each calendar
year, the Trustee shall cause to be furnished to each Person who at any time
during the calendar year was a Certificateholder, a statement containing the
information set forth in clauses (a)(i), (a)(ii) and (a)(vii) of this Section
4.6 aggregated for such calendar year or applicable portion thereof during which
such Person was a Certificateholder. Such obligation of the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Trustee pursuant to any requirements of the
Code as from time to time in effect.

     SECTION 4.7 Reserve Fund.

     No later than the Closing Date, the Trustee will establish and maintain
with itself a segregated trust account that is an Eligible Account, which shall
be titled "Reserve Fund, The Bank of New York, as Trustee for the registered
Holders of First Horizon Mortgage Pass-Through Certificates, Series 2000-3,
Class A-5." On the Closing Date, the Underwriter shall deposit with the Trustee,
and the Trustee shall deposit the Reserve Fund Deposit into the Reserve Fund.
The Reserve Fund will be beneficially owned by the Underwriter and will not be
an asset of the Trust. The Trustee will make withdrawals of amounts on deposit
in the Reserve Fund (each, a "Reserve Fund Withdrawal"), to the extent funds are
available in the Reserve Fund, on each Distribution Date to cover any Net
Interest Shortfalls allocated to the Insured Retail Certificates. Any amount
remaining on deposit in the Reserve Fund on the Distribution Date on which the
Certificate Principal Balance of the Insured Retail Certificates has been
reduced to zero will be distributed to the Underwriter.

     For federal income tax purposes, the Underwriter shall be the owner of the
Reserve Fund and shall report all items of income, deduction, gain or loss
arising therefrom. Notwithstanding anything herein to the contrary, the Reserve
Fund shall not be an asset of any REMIC created hereunder. The Reserve Fund
shall be invested in Permitted Investments at the direction of the Master
Servicer. The Trustee shall have no liability for investment losses in Permitted
Investments in accordance with the

                                      -70-
<PAGE>

instructions of the Master Servicer. In the absence of written direction from
the Master Servicer, all funds on deposit from time to time in the Reserve Fund
shall be invested in The Bank of New York cash reserves. All income and gain
realized from investment of funds deposited in the Reserve Fund shall be
deposited in the Reserve Fund for the sole use and exclusive benefit of the
Reserve Fund. The balance, if any, remaining in the Reserve Fund on the
Distribution Date on which the Class Certificate Balance of the Insured Retail
Certificates is reduced to zero will be distributed by the Trustee to the
Underwriter. To the extent that the Reserve Fund constitutes a reserve fund for
federal income tax purposes, (1) it shall be an outside reserve fund and not an
asset of any REMIC created hereunder, and (2) it shall be owned by the
Underwriter, all within the meaning of Section 1.860G-2(h) of the Treasury
Regulations.

     SECTION 4.8 Principal Distributions on the Insured Retail Certificates.

     (a)  Except as provided in subsections (d) and (f) below, on each
Distribution Date on which distributions in reduction of the Class Certificate
Balance of the Insured Retail Certificates are made, such distributions will be
made in the following order of priority:

     (i)    first, in respect of any Principal Distribution Request by the
            personal representative of a Deceased Holder of such Certificates, a
            surviving tenant by the entirety, a surviving joint tenant, a
            surviving tenant in common or such other Person empowered to act on
            behalf of such Deceased Holder upon his or her death, in an amount
            up to but not exceeding $100,000 per request; and

     (ii)   second, in respect of any Principal Distribution Request by a Living
            Holder of such Certificates, in an amount up to but not exceeding
            $10,000 per request.

     Thereafter, distributions in respect of such Certificates submitted on
behalf of each Deceased Holder will be made as provided in clause (i) above up
to a second $100,000 per request and distributions in respect of such
Certificates submitted on behalf of each Living Holder will be made as provided
in clause (ii) above up to a second $10,000 per request. This sequence of
priorities will be repeated until all such requests have been honored to the
extent of amounts available for distribution in reduction of the Class
Certificate Balance of the Insured Retail Certificates.

     Principal Distribution Requests presented on behalf of Deceased Holders in
accordance with the provisions of clause (i) above will be accepted in the order
of their receipt by the Depository. Principal Distribution Requests presented in
accordance with the provisions of clause (ii) above will be accepted in the
order of their receipt by the Depository after all requests presented in
accordance with clause (i) have been honored. All Principal Distribution
Requests with respect to any Distribution Date shall be made in accordance with
Section 4.8(c) below and must be received by the Depository no later than the
close of business on the related Record Date. Principal Distribution Requests
that are received by the Depository after the related Record Date and requests,
in either case, for distributions timely received but not accepted with respect
to any Distribution Date, will be treated as Principal Distribution Requests on
the next succeeding Distribution Date, and each succeeding Distribution Date
thereafter, until each such request is accepted or is withdrawn as provided in
Section 4.8(c). Requests on behalf of Deceased Holders that are not so withdrawn
shall retain their order of priority, all in accordance with the procedures of
the Depository and the Trustee. Upon the transfer of beneficial ownership of any
Insured Retail Certificate, any Principal

                                      -71-
<PAGE>

Distribution Request previously submitted with respect to such Certificate will
be deemed to have been withdrawn only upon the receipt by the Trustee of
notification of such withdrawal using a form required by the Depository.

     Principal Distribution Requests for the Insured Retail Certificates will be
applied, in the aggregate, in an amount equal to the portion of the Available
Funds distributable to such Certificates pursuant to Section 4.2, plus any
amounts available for distribution from the Rounding Account pursuant to
paragraph (e), provided that the aggregate distribution in reduction of the
               --------
Certificate Principal Balance of the Insured Retail Certificates on any
Distribution Date shall be made in an integral multiple of $1,000, subject to
Section 4.8(f).

     (b) A "Deceased Holder" is a beneficial owner of an Insured Retail
Certificate who was living at the time such interest was acquired and whose
authorized personal representative, surviving tenant by the entirety, surviving
joint tenant or surviving tenant in common or other Person empowered to act on
behalf of such beneficial owner upon his or her death, causes to be furnished to
the Trustee a certified copy of the death certificate of such Deceased Holder,
evidence of such person's status as an authorized representative of the Deceased
Holder, such as surviving tenant (whether by the entirety, joint tenancy or
tenancy in common), which evidence shall be satisfactory to the Trustee, and any
additional evidence of death required by and satisfactory to the Trustee and any
tax waivers requested by the Trustee. Insured Retail Certificates beneficially
owned by tenants by the entirety, joint tenants or tenants in common will be
considered to be beneficially owned by a single owner. The death of a tenant by
the entirety, joint tenant or tenant in common will be deemed to be the death of
the beneficial owner, and any Insured Retail Certificates so beneficially owned
will be eligible for priority with respect to distributions in reduction of the
Certificate Principal Balance of such Certificates, subject to the limitations
contained in this Section 4.8. Insured Retail Certificates beneficially owned by
a trust will be considered to be beneficially owned by each beneficiary of the
trust to the extent of such beneficiary's beneficial interest therein, but in no
event will a trust's beneficiaries collectively be deemed to be beneficial
owners of a number of individual Insured Retail Certificates greater than the
number of individual Insured Retail Certificates of which such trust is the
beneficial owner. The death of a beneficiary of a trust will be deemed to be the
death of a beneficial owner of the Insured Retail Certificates beneficially
owned by the trust to the extent of such beneficiary's beneficial interest in
such trust. The death of an individual who was a tenant by the entirety, joint
tenant or tenant in common in a tenancy that is the beneficiary of a trust will
be deemed to be the death of the beneficiary of the trust. The death of a person
who, immediately prior to his or her death, was entitled to substantially all of
the beneficial ownership interest in an Insured Retail Certificate will be
deemed to be the death of the beneficial owner of such Certificate regardless of
the registration of ownership of such Certificate, if such beneficial ownership
interest can be established to the satisfaction of the Trustee. The Trustee's
decision regarding whether a Deceased Holder's beneficial interest is
substantial for purposes of the preceding sentence shall be conclusive and
binding. Such beneficial interest will be deemed to exist in typical cases of
street name or nominee ownership, ownership by a trustee, ownership under the
applicable Uniform Gifts to Minors Act or Uniform Transfers to Minors Act, as
the case may be, and community property or other joint ownership arrangements
between a husband and wife. Beneficial interests shall include the power to
sell, transfer or otherwise dispose of an Insured Retail Certificate, and the
right to receive the proceeds therefrom, as well as interest and distributions
in reduction of the Certificate Principal Balance of such Certificates payable
with respect thereto. The Trustee shall not be under any duty to determine
independently the occurrence of the death of any beneficial

                                      -72-
<PAGE>

owner. The Trustee may rely entirely upon documentation delivered to it in
establishing the eligibility of any beneficial owner to receive the priority
accorded Deceased Holders in Section 4.8(a). Expenses incurred by the Trustee in
an effort to determine the beneficial ownership interest with respect to any
Principal Distribution Request presented on behalf of a Deceased Holder,
including, without limitation, attorneys fees, shall be paid by the Person
presenting such Principal Distribution Request.

       (c)    Requests for distributions in reduction of the Certificate
Principal Balance of the Insured Retail Certificates must be made by delivering
a Principal Distribution Request therefor to the Depository Participant or
Indirect Participant that maintains the account evidencing the beneficial
owner's interest in such Certificate. Such Depository Participant or Indirect
Participant should in turn make the request of the Depository (or, in the case
of an Indirect Participant, such Indirect Participant should notify the related
Depository Participant of such request, which Depository Participant should make
the request of the Depository) on a form required by the Depository and provided
to the Depository Participant. In the case of a request on behalf of a Deceased
Holder, a certified copy of the death certificate and any additional appropriate
evidence of death and any tax waivers must be forwarded to the Trustee under
separate cover. Any such requests of Deceased Holders that are incomplete may
not be honored by the Trustee and, if not honored, will lose their priority and
must be resubmitted in proper form. Upon receipt of such Principal Distribution
Request, the Depository will date and time stamp such request and forward such
request to the Trustee. Such requests will be honored on any Distribution Date
only to the extent that they are received by the Depository on or before the
Record Date for such Distribution Date. The Depository may establish such
procedures as it deems fair and equitable to establish the order of receipt of
requests for such distributions received by it on the same day. Principal
Distribution Requests delivered to the Depository after the Record Date for a
particular Distribution Date and requests received in a timely manner but not
accepted with respect to a particular Distribution Date will be treated as
Principal Distribution Requests for the next succeeding Distribution Date and
each succeeding Distribution Date thereafter until each request is accepted or
is withdrawn as provided below. In the case of Principal Distribution Requests
on behalf of Living Holders, the Depository will establish a new order of
priority for each Distribution Date. This order will apply both to previously
unsatisfied Principal Distribution Requests and to newly submitted requests. A
Principal Distribution Request submitted on behalf of a Living Holder who later
dies will become entitled to the priority of a newly submitted request on behalf
of a Deceased Holder upon satisfaction of the requirements set forth above for
requests of a Deceased Holder. Such priority will be effective for each
subsequent Distribution Date if the Trustee has received a certified copy of the
death certificate for such Deceased Holder and any additional appropriate
evidence of death and any requested tax waivers by the last business day of the
preceding calendar month. Each Principal Distribution Request submitted by a
beneficial owner of a Insured Retail Certificate will be held by the Depository
until such request has been accepted or has been withdrawn in writing as
provided herein. None of the Trustee, the Master Servicer, the Seller or the
Depositor shall be liable for any delay in delivery of Principal Distribution
Requests or Withdrawals (as defined below) of such requests by the Depository, a
Depository Participant or any Indirect Participant.

       In the event that any Principal Distribution Requests are rejected by the
Trustee for failure to comply with the requirements of this Section 4.8, the
Trustee shall return such requests to the appropriate Depository Participant
with a copy to the Depository with an explanation as to the reason for such
rejection.

                                      -73-
<PAGE>

     The Trustee shall maintain a list of those Depository Participants
representing the Certificate Owners of Insured Retail Certificates that have
submitted Principal Distribution Requests, together with the order of receipt
and the amounts of such requests. The Trustee shall notify the Depository and
the appropriate Depository Participants as to which requests should be honored
on each Distribution Date. Requests shall be honored by the Depository in
accordance with the procedures, and subject to the priorities and limitations,
described in this Section 4.8. The exact procedures to be followed by the
Trustee and the Depository for purposes of determining such priorities and
limitations shall be those established from time to time by the Trustee or the
Depository, as the case may be. The decisions of the Trustee and the Depository
concerning such matters shall be final and binding on all affected Persons.

     Any beneficial owner of an Insured Retail Certificate that has made a
Principal Distribution Request may withdraw its request by so notifying in
writing the Depository Participant or Indirect Participant that maintains such
beneficial owner's account (each such withdrawal, a "Withdrawal"). The
Depository Participant should forward the Withdrawal to the Depository on a form
required by the Depository. In the event that such account is maintained by an
Indirect Participant, such Indirect Participant should notify the related
Depository Participant which in turn should forward the Withdrawal of such
request, on a form required by the Depository, to the Depository. If such
Withdrawal has not been received by the Depository and forwarded to the Trustee
on or before the Record Date for the next Distribution Date, the previously made
Principal Distribution Request will be irrevocable with respect to the making of
distributions in reduction of the Certificate Principal Balance of such
Certificate on such Distribution Date.

     (d)    To the extent, if any, that amounts available for distribution in
reduction of the Certificate Principal Balance of the Insured Retail
Certificates on a Distribution Date pursuant to Section 4.2 exceed the dollar
amount of Principal Distribution Requests that have been received in respect of
such Certificates by the related Record Date, as provided in Section 4.8(c)
above, distributions in reduction of the Certificate Principal Balance of such
Certificates will be made by mandatory distributions on a Random Lot basis, in
integral multiples equal to $1,000, in reduction thereof without regard to
whether such Certificate Owners have submitted Principal Distribution Requests.
The Trustee shall notify the Depository of the aggregate amount of the mandatory
distribution by Random Lot in reduction of the Certificate Principal Balance of
such Certificates to be made on the next Distribution Date. The Depository shall
then allocate such aggregate amount among its Depository Participants on a
Random Lot basis. Each Depository Participant and, in turn, each Indirect
Participant, will then select, in accordance with its own procedures, Insured
Retail Certificates from among those held in its accounts to receive mandatory
distributions in reduction of the Certificate Principal Balance of such
Certificates, such that the total amount so selected is equal to the aggregate
amount of such mandatory distributions allocated to such Depository Participant
by the Depository and to such Indirect Participant by its related Depository
Participant, as the case may be. Depository Participants and Indirect
Participants that hold Insured Retail Certificates selected for mandatory
distributions in reduction of the Certificate Principal Balance thereof should
provide notice of such mandatory distributions to the affected Certificate
Owners.

     (e)  No later than the Closing Date, the Trustee will establish and
maintain with itself a segregated trust account that is an Eligible Account,
which shall be titled "Rounding Account, The Bank of New York, as Trustee for
the registered Holders of First Horizon Mortgage Pass-Through Certificates,
Series 2000-3, Class A-5." On the Closing Date, the Underwriter shall deposit
with the

                                      -74-
<PAGE>

Trustee, and the Trustee shall deposit into the Rounding Account, cash in an
amount equal to $999.99. Amounts held in the Rounding Account shall not be
invested in any investment which produces income. The Rounding Account will be
included in the Lower REMIC.

     On each Distribution Date on which a distribution is to be made in
reduction of the Certificate Principal Balance of the Insured Retail
Certificates pursuant to Section 4.2, funds on deposit in the Rounding Account
shall be, to the extent needed, withdrawn by the Trustee and applied to round
upward to an integral multiple of $1,000 the aggregate distribution in reduction
of the Certificate Principal Balance to be made thereon. Rounding of such
distribution on the Insured Retail Certificates shall be accomplished, on the
first such Distribution Date, by withdrawing from the Rounding Account the
amount of funds, if any, needed to round the amount otherwise available for such
distribution in reduction of the Certificate Principal Balance of such
Certificates upward to the next integral multiple of $1,000. On each succeeding
Distribution Date on which distributions in reduction of the Certificate
Principal Balance of the Insured Retail Certificates are to be made pursuant to
Section 4.2, the aggregate amount of such distributions allocable to such
Certificates shall be applied first to repay any funds withdrawn from the
Rounding Account and not previously repaid, and then the remainder of such
allocable amount, if any, shall be similarly rounded upward to the next integral
multiple of $1,000 and applied as distributions in reduction of the Certificate
Principal Balance of the Insured Retail Certificates; this process shall
continue on succeeding principal Distribution Dates prior to the earlier to
occur of the Cross-Over Date and the next Distribution Date after the
Distribution Date on which the principal portion of any Realized Loss is
allocated to the Insured Retail Certificates until the Class Certificate Balance
thereof has been reduced to zero. On the earliest of (1) the Cross-Over Date,
(2) the next Distribution Date after the Distribution Date on which the
principal portion of any Realized Loss is allocated to the Insured Retail
Certificates and (3) the first Distribution Date after the Certificate Principal
Balance of the Insured Retail Certificates has been reduced to zero, any
remaining amounts in the related Rounding Account shall be distributed to the
Holders of the Class A-RL Certificates.

     (f) Notwithstanding any provisions herein to the contrary, on each
Distribution Date coinciding with or after the earlier to occur of the Cross-
Over Date and the next Distribution Date after the Distribution Date on which
the principal portion of any Realized Loss is allocated to the Insured Retail
Certificates, all distributions in reduction of the Certificate Principal
Balance of the Insured Retail Certificates will be made among the Holders and
Certificate Owners of such Certificates, pro rata, based on their Certificate
Principal Balances, and will not be made in integral multiples of $1,000 or
pursuant to requested distributions or mandatory distributions by Random Lot.

     (g) In the event that Definitive Certificates representing the Insured
Retail Certificates are issued pursuant to Section 5.2(e) (other than Section
5.2(e)(z)), all requests for distributions or withdrawals of such requests
relating to such Certificates must be submitted to the Trustee, and the Trustee
shall perform the functions described in Section 4.8(a) through (d) using its
own procedures, which procedures shall, to the extent practicable, be consistent
with the procedures described in Section 4.8(a) through (d).  In the event that
Definitive Certificates representing the Insured Retail Certificates are issued
pursuant to Section 5.2(e)(z), all distributions of principal shall be made pro
rata in accordance with Section 4.8(f).

                                      -75-
<PAGE>

                                  ARTICLE V
                               THE CERTIFICATES

     SECTION 5.1  The Certificates.

     The Certificates shall be substantially in the forms attached hereto as
exhibits. The Certificates shall be issuable in registered form, in the minimum
denominations, integral multiples in excess thereof (except that one Certificate
in each Class may be issued in a different amount which must be in excess of the
applicable minimum denomination) and aggregate denominations per Class set forth
in the Preliminary Statement.

     Subject to Section 9.2 hereof respecting the final distribution on the
Certificates, on each Distribution Date the Trustee shall make distributions to
each Certificateholder of record on the preceding Record Date either (x) by wire
transfer in immediately available funds to the account of such Holder at a bank
or other entity having appropriate facilities therefor, if (i) such Holder has
so notified the Trustee at least five Business Days prior to the related Record
Date and (ii) such Holder shall hold (A) 100% of the Class Certificate Balance
of any Class of Certificates or (B) Certificates of any Class with aggregate
principal Denominations of not less than $1,000,000 or (y) by check mailed by
first class mail to such Certificateholder at the address of such Holder
appearing in the Certificate Register.

     The Certificates shall be executed by manual or facsimile signature on
behalf of the Trustee by an authorized officer. Certificates bearing the manual
or facsimile signatures of individuals who were, at the time when such
signatures were affixed, authorized to sign on behalf of the Trustee shall bind
the Trustee, notwithstanding that such individuals or any of them have ceased to
be so authorized prior to the countersignature and delivery of such Certificates
or did not hold such offices at the date of such Certificate. No Certificate
shall be entitled to any benefit under this Agreement, or be valid for any
purpose, unless countersigned by the Trustee by manual signature, and such
countersignature upon any Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly executed and delivered hereunder.
All Certificates shall be dated the date of their countersignature. On the
Closing Date, the Trustee shall countersign the Certificates to be issued at the
direction of the Depositor, or any affiliate thereof.

     The Depositor shall provide, or cause to be provided, to the Trustee on a
continuous basis, an adequate inventory of Certificates to facilitate transfers.

     SECTION 5.2  Certificate Register; Registration of Transfer and Exchange of
     Certificates.

     (a)  The Trustee shall maintain, or cause to be maintained in accordance
with the provisions of Section 5.6 hereof, a Certificate Register for the Trust
Fund in which, subject to the provisions of subsections (b) and (c) below and to
such reasonable regulations as it may prescribe, the Trustee shall provide for
the registration of Certificates and of transfers and exchanges of Certificates
as herein provided. Upon surrender for registration of transfer of any
Certificate, the Trustee shall execute and deliver, in the name of the
designated transferee or transferees, one or more new Certificates of the same
Class and aggregate Percentage Interest.

                                      -76-
<PAGE>

     At the option of a Certificateholder, Certificates may be exchanged for
other Certificates of the same Class in authorized denominations and evidencing
the same aggregate Percentage Interest upon surrender of the Certificates to be
exchanged at the office or agency of the Trustee. Whenever any Certificates are
so surrendered for exchange, the Trustee shall execute, authenticate, and
deliver the Certificates which the Certificateholder making the exchange is
entitled to receive. Every Certificate presented or surrendered for registration
of transfer or exchange shall be accompanied by a written instrument of transfer
in form satisfactory to the Trustee duly executed by the Holder thereof or his
attorney duly authorized in writing.

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

     All Certificates surrendered for registration of transfer or exchange shall
be cancelled and subsequently destroyed by the Trustee in accordance with the
Trustee's customary procedures.

     (b)  No transfer of a Private Certificate shall be made unless such
transfer is made pursuant to an effective registration statement under the
Securities Act and any applicable state securities laws or is exempt from the
registration requirements under said Act and such state securities laws. In the
event that a transfer is to be made in reliance upon an exemption from the
Securities Act and such laws, in order to assure compliance with the Securities
Act and such laws, the Certificateholder desiring to effect such transfer and
such Certificateholder's prospective transferee shall each certify to the
Trustee in writing the facts surrounding the transfer in substantially the forms
set forth in Exhibit I (the "Transferor Certificate") and (i) deliver a letter
in substantially the form of either Exhibit J (the "Investment Letter") or
Exhibit K (the "Rule 144A Letter") or (ii) there shall be delivered to the
Trustee at the expense of the transferor an Opinion of Counsel that such
transfer may be made pursuant to an exemption from the Securities Act. The
Depositor shall provide to any Holder of a Private Certificate and any
prospective transferee designated by any such Holder, information regarding the
related Certificates and the Mortgage Loans and such other information as shall
be necessary to satisfy the condition to eligibility set forth in Rule
144A(d)(4) for transfer of any such Certificate without registration thereof
under the Securities Act pursuant to the registration exemption provided by Rule
144A. The Trustee and the Master Servicer shall cooperate with the Depositor in
providing the Rule 144A information referenced in the preceding sentence,
including providing to the Depositor such information regarding the
Certificates, the Mortgage Loans and other matters regarding the Trust Fund as
the Depositor shall reasonably request to meet its obligation under the
preceding sentence. Each Holder of a Private Certificate desiring to effect such
transfer shall, and does hereby agree to, indemnify the Trustee and the
Depositor, the Seller and the Master Servicer against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.

     No transfer of an ERISA-Restricted Certificate shall be made unless the
Trustee shall have received either (i) a representation from the transferee of
such Certificate acceptable to and in form and substance satisfactory to the
Trustee (in the event such Certificate is a Private Certificate, such
requirement is satisfied only by the Trustee's receipt of a representation
letter from the transferee substantially in the form of Exhibit J or Exhibit K),
to the effect that such transferee is not an employee benefit plan or
arrangement subject to Section 406 of ERISA or a plan or arrangement subject to
Section 4975 of the Code, nor a person acting on behalf of any such plan or
arrangement,

                                      -77-
<PAGE>

nor using the assets of any such plan or arrangement to effect such transfer,
(ii) in the case of a Subordinated Certificate or a Residual Certificate, if the
purchaser is an insurance company, a representation that the purchaser is an
insurance company which is purchasing such Certificates with funds contained in
an "insurance company general account" (as such term is defined in Section V(e)
of Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60")) and that the
purchase and holding of such Certificates are covered under PTCE 95-60 or (iii)
in the case of any such ERISA-Restricted Certificate presented for registration
in the name of an employee benefit plan subject to ERISA, or a plan or
arrangement subject to Section 4975 of the Code (or comparable provisions of any
subsequent enactments), or a trustee of any such plan or any other person acting
on behalf of any such plan or arrangement, or using such plan's or arrangement's
assets, an Opinion of Counsel satisfactory to the Trustee, which Opinion of
Counsel shall not be an expense of either the Trustee or the Trust Fund,
addressed to the Trustee to the effect that the purchase or holding of such
ERISA-Restricted Certificate will not result in the assets of the Trust Fund
being deemed to be "plan assets" and subject to the prohibited transaction
provisions of ERISA and the Code and will not subject the Trustee to any
obligation in addition to those expressly undertaken in this Agreement or to any
liability. For purposes of the preceding sentence, with respect to an ERISA-
Restricted Certificate that is not a Private Certificate, in the event the
representation letter referred to in the preceding sentence is not so furnished,
such representation shall be deemed to have been made to the Trustee by the
transferee's (including an initial acquiror's) acceptance of the ERISA-
Restricted Certificates. Notwithstanding anything else to the contrary herein,
any purported transfer of an ERISA-Restricted Certificate to or on behalf of an
employee benefit plan subject to ERISA or to the Code without the delivery to
the Trustee of an Opinion of Counsel satisfactory to the Trustee as described
above shall be void and of no effect.

     To the extent permitted under applicable law (including, but not limited
to, ERISA), the Trustee shall be under no liability to any Person for any
registration of transfer of any ERISA-Restricted Certificate that is in fact not
permitted by this Section 5.2(b) or for making any payments due on such
Certificate to the Holder thereof or taking any other action with respect to
such Holder under the provisions of this Agreement so long as the transfer was
registered by the Trustee in accordance with the foregoing requirements.

     (c)  Each Person who has or who acquires any Ownership Interest in a
Residual Certificate shall be deemed by the acceptance or acquisition of such
Ownership Interest to have agreed to be bound by the following provisions, and
the rights of each Person acquiring any Ownership Interest in a Residual
Certificate are expressly subject to the following provisions:

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

          (ii)  No Ownership Interest in a Residual Certificate may be
     registered on the Closing Date or thereafter transferred, and the Trustee
     shall not register the Transfer of any Residual Certificate unless, in
     addition to the certificates required to be delivered to the Trustee under
     subparagraph (b) above, the Trustee shall have been furnished with an
     affidavit (a "Transfer Affidavit") of the initial owner or the proposed
     transferee in the form attached hereto as Exhibit H.

                                      -78-
<PAGE>

          (iii) Each Person holding or acquiring any Ownership Interest in a
     Residual Certificate shall agree (A) to obtain a Transfer Affidavit from
     any other Person to whom such Person attempts to Transfer its Ownership
     Interest in a Residual Certificate, (B) to obtain a Transfer Affidavit from
     any Person for whom such Person is acting as nominee, trustee or agent in
     connection with any Transfer of a Residual Certificate and (C) not to
     Transfer its Ownership Interest in a Residual Certificate or to cause the
     Transfer of an Ownership Interest in a Residual Certificate to any other
     Person if it has actual knowledge that such Person is not a Permitted
     Transferee.

          (iv)  Any attempted or purported Transfer of any Ownership Interest in
     a Residual Certificate in violation of the provisions of this Section
     5.2(c) shall be absolutely null and void and shall vest no rights in the
     purported Transferee. If any purported transferee shall become a Holder of
     a Residual Certificate in violation of the provisions of this Section
     5.2(c), then the last preceding Permitted Transferee shall be restored to
     all rights as Holder thereof retroactive to the date of registration of
     Transfer of such Residual Certificate. The Trustee shall be under no
     liability to any Person for any registration of Transfer of a Residual
     Certificate that is in fact not permitted by Section 5.2(b) and this
     Section 5.2(c) or for making any payments due on such Certificate to the
     Holder thereof or taking any other action with respect to such Holder under
     the provisions of this Agreement so long as the Transfer was registered
     after receipt of the related Transfer Affidavit, Transferor Certificate and
     either the Rule 144A Letter or the Investment Letter. The Trustee shall be
     entitled but not obligated to recover from any Holder of a Residual
     Certificate that was in fact not a Permitted Transferee at the time it
     became a Holder or, at such subsequent time as it became other than a
     Permitted Transferee, all payments made on such Residual Certificate at and
     after either such time. Any such payments so recovered by the Trustee shall
     be paid and delivered by the Trustee to the last preceding Permitted
     Transferee of such Certificate.

          (v)   The Depositor shall use its best efforts to make available, upon
     receipt of written request from the Trustee, all information necessary to
     compute any tax imposed under Section 860E(e) of the Code as a result of a
     Transfer of an Ownership Interest in a Residual Certificate to any Holder
     who is not a Permitted Transferee.

     The restrictions on Transfers of a Residual Certificate set forth in this
Section 5.2(c) shall cease to apply (and the applicable portions of the legend
on a Residual Certificate may be deleted) with respect to Transfers occurring
after delivery to the Trustee of an Opinion of Counsel, which Opinion of Counsel
shall not be an expense of the Trust Fund, the Trustee, the Seller or the Master
Servicer, to the effect that the elimination of such restrictions will not cause
any REMIC created hereunder to fail to qualify as a REMIC at any time that the
Certificates are outstanding or result in the imposition of any tax on the Trust
Fund, a Certificateholder or another Person. Each Person holding or acquiring
any Ownership Interest in a Residual Certificate hereby consents to any
amendment of this Agreement which, based on an Opinion of Counsel furnished to
the Trustee, is reasonably necessary (a) to ensure that the record ownership of,
or any beneficial interest in, a Residual Certificate is not transferred,
directly or indirectly, to a Person that is not a Permitted Transferee and (b)
to provide for a means to compel the Transfer of a Residual Certificate which is
held by a Person that is not a Permitted Transferee to a Holder that is a
Permitted Transferee.

                                      -79-
<PAGE>

     (d)   The preparation and delivery of all certificates and opinions
referred to above in this Section 5.2 in connection with transfer shall be at
the expense of the parties to such transfers.

     (e)  Except as provided below, the Book-Entry Certificates shall at all
times remain registered in the name of the Depository or its nominee and at all
times: (i) registration of the Certificates may not be transferred by the
Trustee except to another Depository; (ii) the Depository shall maintain book-
entry records with respect to the Certificate Owners and with respect to
ownership and transfers of such Book-Entry Certificates; (iii) ownership and
transfers of registration of the Book-Entry Certificates on the books of the
Depository shall be governed by applicable rules established by the Depository;
(iv) the Depository may collect its usual and customary fees, charges and
expenses from its Depository Participants; (v) the Trustee shall deal with the
Depository, Depository Participants and indirect participating firms as
representatives of the Certificate Owners of the Book-Entry Certificates for
purposes of exercising the rights of holders under this Agreement, and requests
and directions for and votes of such representatives shall not be deemed to be
inconsistent if they are made with respect to different Certificate Owners; and
(vi) the Trustee may rely and shall be fully protected in relying upon
information furnished by the Depository with respect to its Depository
Participants and furnished by the Depository Participants with respect to
indirect participating firms and persons shown on the books of such indirect
participating firms as direct or indirect Certificate Owners.

     All transfers by Certificate Owners of Book-Entry Certificates shall be
made in accordance with the procedures established by the Depository Participant
or brokerage firm representing such Certificate Owner. Each Depository
Participant shall only transfer Book-Entry Certificates of Certificate Owners it
represents or of brokerage firms for which it acts as agent in accordance with
the Depository's normal procedures.

     If (x) (i) the Depository or the Depositor advises the Trustee in writing
that the Depository is no longer willing or able to properly discharge its
responsibilities as Depository, and (ii) the Trustee or the Depositor is unable
to locate a qualified successor, (y) the Depositor at its option advises the
Trustee in writing that it elects to terminate the book-entry system through the
Depository or (z) after the occurrence of an Event of Default, Certificate
Owners representing at least 51% of the Class Certificate Balance of the Book-
Entry Certificates together advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the Certificate
Owners, the Trustee shall notify all Certificate Owners, through the Depository,
of the occurrence of any such event and of the availability of definitive,
fully-registered Certificates (the "Definitive Certificates") to Certificate
Owners requesting the same. Upon surrender to the Trustee of the related Class
of Certificates by the Depository, accompanied by the instructions from the
Depository for registration, the Trustee shall issue the Definitive
Certificates. Neither the Master Servicer, the Depositor nor the Trustee shall
be liable for any delay in delivery of such instruction and each may
conclusively rely on, and shall be protected in relying on, such instructions.
The Master Servicer shall provide the Trustee with an adequate inventory of
certificates to facilitate the issuance and transfer of Definitive Certificates.
Upon the issuance of Definitive Certificates all references herein to
obligations imposed upon or to be performed by the Depository shall be deemed to
be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that

                                      -80-
<PAGE>

the Trustee shall not by virtue of its assumption of such obligations become
liable to any party for any act or failure to act of the Depository.

     SECTION 5.3  Mutilated, Destroyed, Lost or Stolen Certificates.

     If (a) any mutilated Certificate is surrendered to the Trustee, or the
Trustee receives evidence to its satisfaction of the destruction, loss or theft
of any Certificate and (b) there is delivered to the Master Servicer and the
Trustee such security or indemnity as may be required by them to save each of
them harmless, then, in the absence of notice to the Trustee that such
Certificate has been acquired by a bona fide purchaser, the Trustee shall
execute, countersign and deliver, in exchange for or in lieu of any such
mutilated, destroyed, lost or stolen Certificate, a new Certificate of like
Class, tenor and Percentage Interest. In connection with the issuance of any new
Certificate under this Section 5.3, the Trustee may require the payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
relation thereto and any other expenses (including the fees and expenses of the
Trustee) connected therewith. Any replacement Certificate issued pursuant to
this Section 5.3 shall constitute complete and indefeasible evidence of
ownership, as if originally issued, whether or not the lost, stolen or destroyed
Certificate shall be found at any time.

     SECTION 5.4  Persons Deemed Owners.

     The Master Servicer, the Trustee and any agent of the Master Servicer or
the Trustee may treat the Person in whose name any Certificate is registered as
the owner of such Certificate for the purpose of receiving distributions as
provided in this Agreement and for all other purposes whatsoever, and neither
the Master Servicer, the Trustee nor any agent of the Master Servicer or the
Trustee shall be affected by any notice to the contrary.

     SECTION 5.5  Access to List of Certificateholders' Names and Addresses.

     If three or more Certificateholders (a) request such information in writing
from the Trustee, (b) state that such Certificateholders desire to communicate
with other Certificateholders with respect to their rights under this Agreement
or under the Certificates, and (c) provide a copy of the communication which
such Certificateholders propose to transmit, or if the Depositor or Master
Servicer shall request such information in writing from the Trustee, then the
Trustee shall, within ten Business Days after the receipt of such request,
provide the Depositor, the Master Servicer or such Certificateholders at such
recipients' expense the most recent list of the Certificateholders of such Trust
Fund held by the Trustee, if any. The Depositor and every Certificateholder, by
receiving and holding a Certificate, agree that the Trustee shall not be held
accountable by reason of the disclosure of any such information as to the list
of the Certificateholders hereunder, regardless of the source from which such
information was derived.

     SECTION 5.6  Maintenance of Office or Agency.

     The Trustee will maintain or cause to be maintained at its expense an
office or offices or agency or agencies in New York City where Certificates may
be surrendered for registration of transfer or exchange. The Trustee initially
designates its Corporate Trust Office for such purposes. The Trustee will give
prompt written notice to the Certificateholders of any change in such location
of any such office or agency.

                                      -81-
<PAGE>

                                  ARTICLE VI
                     THE DEPOSITOR AND THE MASTER SERVICER

     SECTION 6.1  Respective Liabilities of the Depositor and the Master
     Servicer.

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

     SECTION 6.2  Merger or Consolidation of the Depositor or the Master
     Servicer.

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

     Any Person into which the Depositor or the Master Servicer may be merged or
consolidated, or any Person resulting from any merger or consolidation to which
the Depositor or the Master Servicer shall be a party, or any person succeeding
to the business of the Depositor or the Master Servicer, shall be the successor
of the Depositor or the Master Servicer, as the case may be, hereunder, without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving Person to the Master Servicer shall be
qualified to sell mortgage loans to, and to service mortgage loans on behalf of,
FNMA or FHLMC.

     SECTION 6.3  Limitation on Liability of the Depositor, the Seller, the
     Master Servicer and Others.

     None of the Depositor, the Seller, the Master Servicer or any of the
directors, officers, employees or agents of the Depositor, the Seller or the
Master Servicer shall be under any liability to the Certificateholders for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement, or for errors in judgment; provided, however, that
this provision shall not protect the Depositor, the Seller, the Master Servicer
or any such Person against any breach of representations or warranties made by
it herein or protect the Depositor, the Seller, the Master Servicer or any such
Person from any liability which would otherwise be imposed by reasons of willful
misfeasance, bad faith or gross negligence in the performance of duties or by
reason of reckless disregard of obligations and duties hereunder. The Depositor,
the Seller, the Master Servicer and any director, officer, employee or agent of
the Depositor, the Seller or the Master Servicer may rely in good faith on any
document of any kind prima facie properly executed and submitted by any Person
respecting any matters arising hereunder. The Depositor, the Seller, the Master
Servicer and any director, officer, employee or agent of the Depositor, the
Seller or the Master Servicer shall be indemnified by the Trust Fund and held
harmless against any loss, liability or expense incurred in connection with any
audit, controversy or judicial proceeding relating to a governmental taxing
authority or any legal action relating to this Agreement or the Certificates,
other than any loss,

                                      -82-
<PAGE>

liability or expense related to any specific Mortgage Loan or Mortgage Loans
(except as any such loss, liability or expense shall be otherwise reimbursable
pursuant to this Agreement) and any loss, liability or expense incurred by
reason of willful misfeasance, bad faith or gross negligence in the performance
of duties hereunder or by reason of reckless disregard of obligations and duties
hereunder. None of the Depositor, the Seller or the Master Servicer shall be
under any obligation to appear in, prosecute or defend any legal action that is
not incidental to its respective duties hereunder and which in its opinion may
involve it in any expense or liability; provided, however, that any of the
Depositor, the Seller or the Master Servicer may in its discretion undertake any
such action that it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and interests of the Trustee and
the Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund, and the Depositor, the Seller and the Master
Servicer shall be entitled to be reimbursed therefor out of the Certificate
Account.

     SECTION 6.4  Limitation on Resignation of Master Servicer.

     The Master Servicer shall not resign from the obligations and duties hereby
imposed on it except (a) upon appointment of a successor servicer and receipt by
the Trustee of a letter from each Rating Agency that such a resignation and
appointment will not result in a downgrading of the rating of any of the
Certificates, or (b) upon determination that its duties hereunder are no longer
permissible under applicable law. Any such determination under clause (b)
permitting the resignation of the Master Servicer shall be evidenced by an
Opinion of Counsel to such effect delivered to the Trustee. No such resignation
shall become effective until the Trustee or a successor master servicer shall
have assumed the Master Servicer's responsibilities, duties, liabilities and
obligations hereunder.

                                  ARTICLE VII
                                    DEFAULT

     SECTION 7.1  Events of Default.

     "Event of Default," wherever used herein, means any one of the following
     events:

          (i)   any failure by the Master Servicer to deposit in the Certificate
     Account or remit to the Trustee any payment required to be made under the
     terms of this Agreement, which failure shall continue unremedied for five
     days after the date upon which written notice of such failure shall have
     been given to the Master Servicer by the Trustee or the Depositor or to the
     Master Servicer and the Trustee by the Holders of Certificates having not
     less than 25% of the Voting Rights evidenced by the Certificates; or

          (ii)  any failure by the Master Servicer to observe or perform in any
     material respect any other of the covenants or agreements on the part of
     the Master Servicer contained in this Agreement, which failure materially
     affects the rights of Certificateholders, which failure continues
     unremedied for a period of 60 days after the date on which written notice
     of such failure shall have been given to the Master Servicer by the Trustee
     or the Depositor, or to the Master Servicer and the Trustee by the Holders
     of Certificates evidencing not less

                                      -83-
<PAGE>

     than 25% of the Voting Rights evidenced by the Certificates; provided,
     however, that the 60-day cure period shall not apply to the initial
     delivery of the Mortgage File for Delay Delivery Mortgage Loans nor the
     failure to substitute or repurchase in lieu thereof; or

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

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

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

     If an Event of Default described in clauses (i) to (v) of this Section
shall occur, then, and in each and every such case, so long as such Event of
Default shall not have been remedied, the Trustee may, or at the direction of
the Holders of Certificates evidencing not less than 66 2/3% of the Voting
Rights evidenced by the Certificates, the Trustee shall by notice in writing to
the Master Servicer (with a copy to each Rating Agency), terminate all of the
rights and obligations of the Master Servicer under this Agreement and in and to
the Mortgage Loans and the proceeds thereof, other than its rights as a
Certificateholder hereunder. On and after the receipt by the Master Servicer of
such written notice, all authority and power of the Master Servicer hereunder,
whether with respect to the Mortgage Loans or otherwise, shall pass to and be
vested in the Trustee. The Trustee, in its capacity as successor to the Master
Servicer, shall thereupon make any Advance which the Master Servicer failed to
make subject to Section 4.1 hereof.  The Trustee is hereby authorized and
empowered to execute and deliver, on behalf of the Master Servicer, as attorney-
in-fact or otherwise, any and all documents and other instruments, and to do or
accomplish all other acts or things necessary or appropriate to effect the
purposes of such notice of termination, whether to complete the transfer and
endorsement or assignment of the Mortgage Loans and related documents, or
otherwise.  Unless expressly provided in such written notice, no such
termination shall affect any obligation of the Master Servicer to pay amounts
owed pursuant to Article VIII.  The Master Servicer agrees to cooperate with the
Trustee in effecting the termination of the Master Servicer's responsibilities
and rights hereunder, including, without limitation, the transfer to the Trustee
of all cash amounts which shall at the time be credited to the Certificate
Account, or thereafter be received with respect to the Mortgage Loans.  All
expenses incurred in the transferring of the servicing duties from the Master
Servicer to a Successor Servicer shall be paid by the Master Servicer, and if
not paid by the Master Servicer, shall be paid from amounts on deposit in the
Certificate Account.

     Notwithstanding any termination of the activities of the Master Servicer
hereunder, the Master Servicer shall be entitled to receive, out of any late
collection of a Scheduled Payment on a

                                      -84-
<PAGE>

Mortgage Loan which was due prior to the notice terminating such Master
Servicer's rights and obligations as Master Servicer hereunder and received
after such notice, that portion thereof to which such Master Servicer would have
been entitled pursuant to Sections 3.8(a)(i) through (viii),and any other
amounts payable to such Master Servicer hereunder the entitlement to which arose
prior to the termination of its activities hereunder.

     SECTION 7.2  Trustee to Act; Appointment of Successor.

     On and after the time the Master Servicer receives a notice of termination
pursuant to Section 7.1 hereof, the Trustee shall, subject to and to the extent
provided in Section 3.4, be the successor to the Master Servicer in its capacity
as master servicer under this Agreement and the transactions set forth or
provided for herein and shall be subject to all the responsibilities, duties and
liabilities relating thereto placed on the Master Servicer by the terms and
provisions hereof and applicable law including the obligation to make Advances
pursuant to Section 4.1. As compensation therefor, the Trustee shall be entitled
to all funds relating to the Mortgage Loans that the Master Servicer would have
been entitled to charge to the Certificate Account or Distribution Account if
the Master Servicer had continued to act hereunder. Notwithstanding the
foregoing, if the Trustee has become the successor to the Master Servicer in
accordance with Section 7.1 hereof, the Trustee may, if it shall be unwilling to
so act, or shall, if it is prohibited by applicable law from making Advances
pursuant to Section 4.1 hereof or if it is otherwise unable to so act, appoint,
or petition a court of competent jurisdiction to appoint, any established
mortgage loan servicing institution the appointment of which does not adversely
affect the then current rating of the Certificates by each Rating Agency as the
successor to the Master Servicer hereunder in the assumption of all or any part
of the responsibilities, duties or liabilities of the Master Servicer hereunder.
Any successor to the Master Servicer shall be an institution which is a FNMA and
FHLMC approved seller/servicer in good standing, which has a net worth of at
least $10,000,000, and which is willing to service the Mortgage Loans and
executes and delivers to the Depositor and the Trustee an agreement accepting
such delegation and assignment, which contains an assumption by such Person of
the rights, powers, duties, responsibilities, obligations and liabilities of the
Master Servicer (other than liabilities of the Master Servicer under Section 6.3
hereof incurred prior to termination of the Master Servicer under Section 7.1),
with like effect as if originally named as a party to this Agreement; and
provided further that each Rating Agency acknowledges that its rating of the
Certificates in effect immediately prior to such assignment and delegation will
not be qualified or reduced, as a result of such assignment and delegation.
Pending appointment of a successor to the Master Servicer hereunder, the
Trustee, unless the Trustee is prohibited by law from so acting, shall, subject
to Section 3.4 hereof, act in such capacity as  provided above. In connection
with such appointment and assumption, the Trustee may make such arrangements for
the compensation of such successor out of payments on Mortgage Loans as it and
such successor shall agree; provided, however, that no such compensation shall
be in excess of the Master Servicing Fee permitted the Master Servicer
hereunder. The Trustee and such successor shall take such action, consistent
with this Agreement, as shall be necessary to effectuate any such succession.
Neither the Trustee nor any other successor master servicer shall be deemed to
be in default hereunder by reason of any failure to make, or any delay in
making, any distribution hereunder or any portion thereof or any failure to
perform, or any delay in performing, any duties or responsibilities hereunder,
in either case caused by the failure of the Master Servicer to deliver or
provide, or any delay in delivering or providing, any cash, information,
documents or records to it.

                                      -85-
<PAGE>

     Any successor to the Master Servicer as master servicer shall give notice
to the Mortgagors of such change of servicer and shall, during the term of its
service as master servicer maintain in force the policy or policies that the
Master Servicer is required to maintain pursuant to Section 6.5.

     SECTION 7.3  Notification to Certificateholders.

     (a)  Upon any termination of or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders and to each Rating Agency.

     (b)  Within 60 days after the occurrence of any Event of Default, the
Trustee shall transmit by mail to all Certificateholders notice of each such
Event of Default hereunder known to the Trustee, unless such Event of Default
shall have been cured or waived.

                                 ARTICLE VIII
                            CONCERNING THE TRUSTEE

     SECTION 8.1  Duties of Trustee.

     The Trustee, prior to the occurrence of an Event of Default of which a
Responsible Officer of the Trustee has actual knowledge and after the curing of
all Events of Default that may have occurred, shall undertake to perform such
duties and only such duties as are specifically set forth in this Agreement. In
case an Event of Default of which a Responsible Officer of the Trustee has
actual knowledge has occurred and remains uncured, the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same
degree of care and skill in their exercise as a prudent person would exercise or
use under the circumstances in the conduct of such person's own affairs.

     The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee that are specifically required to be furnished pursuant to any provision
of this Agreement shall examine them to determine whether they are in the form
required by this Agreement; provided, however, that the Trustee shall not be
responsible for the accuracy or content of any such resolution, certificate,
statement, opinion, report, document, order or other instrument.  If any such
instrument is found not to conform in any material respect to the requirements
of this Agreement, the Trustee shall notify the Certificateholders of such
instrument in the event that the Trustee, after so requesting, does not receive
a satisfactorily corrected instrument.

     No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own negligent action, its own negligent failure to act or
its own willful misconduct; provided, however, that:

          (i)   unless an Event of Default of which a Responsible Officer of the
     Trustee has actual knowledge shall have occurred and be continuing, the
     duties and obligations of the Trustee shall be determined solely by the
     express provisions of this Agreement, the Trustee shall not be liable
     except for the performance of such duties and obligations as are
     specifically set forth in this Agreement, no implied covenants or
     obligations shall be read

                                      -86-
<PAGE>

     into this Agreement against the Trustee and the Trustee may conclusively
     rely, as to the truth of the statements and the correctness of the opinions
     expressed therein, upon any certificates or opinions furnished to the
     Trustee and conforming to the requirements of this Agreement which it
     believed in good faith to be genuine and to have been duly executed by the
     proper authorities respecting any matters arising hereunder;

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

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

          (iv)  the Trustee shall not be required to expend or risk its own
     funds or otherwise incur financial liability in the performance of any of
     its duties hereunder or the exercise of any of its rights or powers if
     there is reasonable ground for believing that the repayment of such funds
     or adequate indemnity against such risk or liability is not assured to it,
     and none of the provisions contained in this Agreement shall in any event
     require the Trustee to perform, or be responsible for the manner of
     performance of, any of the obligations of the Master Servicer under this
     Agreement except during such time, if any, as the Trustee shall be the
     successor to, and be vested with the rights, duties, powers and privileges
     of, the Master Servicer; and

          (v)   without limiting the generality of this Section 8.1, the Trustee
     shall have no duty (A) to see to any recording, filing, or depositing of
     this Agreement or any agreement referred to herein or any financing
     statement or continuation statement evidencing a security interest, or to
     see to the maintenance of any such recording or filing or deposit or to any
     rerecording, refiling or redepositing of any thereof, (B) to see to any
     insurance, (C) to see to the payment or discharge of any tax, assessment,
     or other governmental charge or any lien or encumbrance of any kind owing
     with respect to, assessed or levied against, any part of the Trust Fund
     other than from funds available in the Distribution Account (D) to confirm
     or verify the contents of any reports or certificates of the Servicer
     delivered to the Trustee pursuant to this Agreement believed by the Trustee
     to be genuine and to have been signed or presented by the proper party or
     parties.

     SECTION 8.2  Certain Matters Affecting the Trustee.

     Except as otherwise provided in Section 8.1:

          (i)   the Trustee may request and rely upon and shall be protected in
     acting or refraining from acting upon any resolution, Officers'
     Certificate, certificate of auditors or any other certificate, statement,
     instrument, opinion, report, notice, request, consent, order, appraisal,
     bond or other paper or document believed by it to be genuine and to have
     been
                                      -87-
<PAGE>

     signed or presented by the proper party or parties and the Trustee shall
     have no responsibility to ascertain or confirm the genuineness of any
     signature of any such party or parties;

          (ii)   the Trustee may consult with counsel, financial advisers or
     accountants and the advice of any such counsel, financial advisers or
     accountants and any Opinion of Counsel shall be full and complete
     authorization and protection in respect of any action taken or suffered or
     omitted by it hereunder in good faith and in accordance with such Opinion
     of Counsel;

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

          (iv)   the Trustee shall not be bound to make any investigation into
     the facts or matters stated in any resolution, certificate, statement,
     instrument, opinion, report, notice, request, consent, order, approval,
     bond or other paper or document, unless requested in writing so to do by
     Holders of Certificates evidencing not less than 25% of the Voting Rights
     allocated to each Class of Certificates; provided, however, that if the
     payment within a reasonable time to the Trustee of the costs, expenses or
     liabilities likely to be incurred by it in the making of such investigation
     is, in the opinion of the Trustee, not assured to the Trustee by the
     security afforded to it by the terms of this Agreement, the Trustee may
     require indemnity satisfactory to the Trustee against such cost, expense or
     liability as a condition to taking any such action. The reasonable expense
     of every such examination shall be paid by the Master Servicer or, if paid
     by the Trustee, shall be repaid by the Master Servicer upon demand from the
     Servicer's own funds.

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

          (vi)   the Trustee shall not be required to risk or expend its own
     funds or otherwise incur any financial liability in the performance of any
     of its duties or in the exercise of any of its rights or powers hereunder
     if it shall have reasonable grounds for believing that repayment of such
     funds or adequate indemnity against such risk or liability is not assured
     to it;

          (vii)  the Trustee shall not be liable for any loss on any investment
     of funds pursuant to this Agreement (other than as issuer of the investment
     security);

          (viii) the Trustee shall not be deemed to have knowledge of an Event
     of Default until a Responsible Officer of the Trustee shall have received
     written notice thereof and in the absence of such notice, the Trustee may
     conclusively assume that there is no Event of Default;

                                      -88-
<PAGE>

          (ix) the Trustee shall be under no obligation to exercise any of the
     trusts, rights or powers vested in it by this Agreement or to institute,
     conduct or defend any litigation hereunder or in relation hereto at the
     request, order or direction of any of the Certificateholders, pursuant to
     the provisions of this Agreement, unless such Certificateholders shall have
     offered to the Trustee reasonable security or indemnity satisfactory to the
     Trustee against the costs, expenses and liabilities which may be incurred
     therein or thereby;

          (x)  the right of the Trustee to perform any discretionary act
     enumerated in this Agreement shall not be construed as a duty, and the
     Trustee shall not be answerable for other than its negligence or willful
     misconduct in the performance of such act; and

          (xi) the Trustee shall not be required to give any bond or surety in
     respect of the execution of the Trust Fund created hereby or the powers
     granted hereunder.

     SECTION 8.3  Trustee Not Liable for Certificates or Mortgage Loans.

     The recitals contained herein and in the Certificates shall be taken as the
statements of the Depositor or the Seller, as the case may be, and the Trustee
assumes no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates or of any Mortgage Loan or related document other than with respect
to the Trustee's execution and counter-signature of the Certificates. The
Trustee shall not be accountable for the use or application by the Depositor or
the Master Servicer of any funds paid to the Depositor or the Master Servicer in
respect of the Mortgage Loans or deposited in or withdrawn from the Certificate
Account by the Depositor or the Master Servicer.

     SECTION 8.4  Trustee May Own Certificates.

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

     SECTION 8.5  Trustee's Fees and Expenses.

     The Trustee, as compensation for its activities prior to making the
distributions pursuant to Section 4.2 hereunder, shall be entitled to withdraw
from the Distribution Account on each Distribution Date an amount equal to the
Trustee Fee for such Distribution Date. The Trustee and any director, officer,
employee or agent of the Trustee shall be indemnified by the Master Servicer and
held harmless against any loss, liability or expense (including reasonable
attorney's fees) (i) incurred in connection with any claim or legal action
relating to (a) this Agreement, (b) the Certificates or (c) in connection with
the performance of any of the Trustee's duties hereunder, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of any of the Trustee's duties hereunder or
incurred by reason of any action of the Trustee taken at the direction of the
Certificateholders and (ii) resulting from any error in any tax or information
return prepared by the Master Servicer. Such indemnity shall survive the
termination of this Agreement or the resignation or removal of the Trustee
hereunder. Without limiting the foregoing, the Master Servicer covenants and
agrees, except as otherwise agreed upon in writing by

                                      -89-
<PAGE>

the Depositor and the Trustee, and except for any such expense, disbursement or
advance as may arise from the Trustee's negligence, bad faith or willful
misconduct, to pay or reimburse the Trustee, for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance with
any of the provisions of this Agreement with respect to: (A) the reasonable
compensation and the expenses and disbursements of its counsel not associated
with the closing of the issuance of the Certificates, (B) the reasonable
compensation, expenses and disbursements of any accountant, engineer or
appraiser that is not regularly employed by the Trustee, to the extent that the
Trustee must engage such persons to perform acts or services hereunder and (C)
printing and engraving expenses in connection with preparing any Definitive
Certificates. Except as otherwise provided herein, the Trustee shall not be
entitled to payment or reimbursement for any routine ongoing expenses incurred
by the Trustee in the ordinary course of its duties as Trustee, Registrar, Tax
Matters Person or Paying Agent hereunder or for any other expenses.

     SECTION 8.6  Eligibility Requirements for Trustee.

     The Trustee hereunder shall at all times be a corporation or association
organized and doing business under the laws of a state or the United States of
America, authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, subject to supervision or
examination by federal or state authority and with a credit rating which would
not cause either of the Rating Agencies to reduce their respective then current
ratings of the Certificates (or having provided such security from time to time
as is sufficient to avoid such reduction). If such corporation or association
publishes reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority, then for the
purposes of this Section 8.6 the combined capital and surplus of such
corporation or association shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section 8.6, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.7 hereof. The entity serving
as Trustee may have normal banking and trust relationships with the Depositor
and its affiliates or the Master Servicer and its affiliates; provided, however,
that such entity cannot be an affiliate of the Master Servicer other than the
Trustee in its role as successor to the Master Servicer.

     SECTION 8.7  Resignation and Removal of Trustee.

     The Trustee may at any time resign and be discharged from the trusts hereby
created by giving written notice of resignation to the Depositor and the Master
Servicer and each Rating Agency not less than 60 days before the date specified
in such notice when, subject to Section 8.8, such resignation is to take effect,
and acceptance by a successor trustee in accordance with Section 8.8 meeting the
qualifications set forth in Section 8.6. If no successor trustee meeting such
qualifications shall have been so appointed and have accepted appointment within
30 days after the giving of such notice or resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor trustee.

     If at any time the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.6 hereof and shall fail to resign after written
request thereto by the Depositor, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as bankrupt or insolvent, or

                                      -90-
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a receiver of the Trustee or of its property shall be appointed, or any public
officer shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or liquidation, or a tax
is imposed with respect to the Trust Fund by any state in which the Trustee or
the Trust Fund is located and the imposition of such tax would be avoided by the
appointment of a different trustee, then the Depositor or the Master Servicer
may remove the Trustee and appoint a successor trustee by written instrument, in
triplicate, one copy of which instrument shall be delivered to the Trustee, one
copy of which shall be delivered to the Master Servicer and one copy to the
successor trustee.

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

     Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section 8.7 shall become
effective upon acceptance of appointment by the successor trustee as provided in
Section 8.8 hereof.

     SECTION 8.8  Successor Trustee.

     Any successor trustee appointed as provided in Section 8.7 hereof shall
execute, acknowledge and deliver to the Depositor and to its predecessor trustee
and the Master Servicer an instrument accepting such appointment hereunder and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with the like effect as if originally
named as trustee herein. The Depositor, the Master Servicer and the predecessor
trustee shall execute and deliver such instruments and do such other things as
may reasonably be required for more fully and certainly vesting and confirming
in the successor trustee all such rights, powers, duties, and obligations.

     No successor trustee shall accept appointment as provided in this Section
8.8 unless at the time of such acceptance such successor trustee shall be
eligible under the provisions of Section 8.6 hereof and its appointment shall
not adversely affect the then current rating of the Certificates.

     Upon acceptance of appointment by a successor trustee as provided in this
Section 8.8, the Depositor shall mail notice of the succession of such trustee
hereunder to all Holders of Certificates. If the Depositor fails to mail such
notice within 10 days after acceptance of appointment by the successor trustee,
the successor trustee shall cause such notice to be mailed at the expense of the
Depositor.

     SECTION 8.9  Merger or Consolidation of Trustee.

     Any corporation into which the Trustee may be merged or converted or with
which it may be consolidated or any corporation resulting from any merger,
conversion or consolidation to which

                                      -91-
<PAGE>

the Trustee shall be a party, or any corporation succeeding to the business of
the Trustee, shall be the successor of the Trustee hereunder, provided that such
corporation shall be eligible under the provisions of Section 8.6 hereof without
the execution or filing of any paper or further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding.

     SECTION 8.10  Appointment of Co-Trustee or Separate Trustee.

     Notwithstanding any other provisions of this Agreement, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time be
located, the Master Servicer and the Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for the
benefit of the Certificateholders, such title to the Trust Fund or any part
thereof, whichever is applicable, and, subject to the other provisions of this
Section 8.10, such powers, duties, obligations, rights and trusts as the Master
Servicer and the Trustee may consider necessary or desirable. If the Master
Servicer shall not have joined in such appointment within 15 days after the
receipt by it of a request to do so, or in the case an Event of Default shall
have occurred and be continuing, the Trustee alone shall have the power to make
such appointment. No co-trustee or separate trustee hereunder shall be required
to meet the terms of eligibility as a successor trustee under Section 8.6 and no
notice to Certificateholders of the appointment of any co-trustee or separate
trustee shall be required under Section 8.8.

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

          (i)   To the extent necessary to effectuate the purposes of this
     Section 8.10, all rights, powers, duties and obligations conferred or
     imposed upon the Trustee shall be conferred or imposed upon and exercised
     or performed by the Trustee and such separate trustee or co-trustee jointly
     (it being understood that such separate trustee or co-trustee is not
     authorized to act separately without the Trustee joining in such act),
     except to the extent that under any law of any jurisdiction in which any
     particular act or acts are to be performed (whether as Trustee hereunder or
     as successor to the Master Servicer hereunder), the Trustee shall be
     incompetent or unqualified to perform such act or acts, in which event such
     rights, powers, duties and obligations (including the holding of title to
     the applicable Trust Fund or any portion thereof in any such jurisdiction)
     shall be exercised and performed singly by such separate trustee or co-
     trustee, but solely at the direction of the Trustee;

          (ii)  No trustee hereunder shall be held personally liable by reason
     of any act or omission of any other trustee hereunder and such appointment
     shall not, and shall not be deemed to, constitute any such separate trustee
     or co-trustee as agent of the Trustee;

          (iii) The Trustee may at any time accept the resignation of or remove
     any separate trustee or co-trustee; and

                                      -92-
<PAGE>

          (iv)  The Master Servicer, and not the Trustee, shall be liable for
     the payment of reasonable compensation, reimbursement and indemnification
     to any such separate trustee or co-trustee.

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

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

     SECTION 8.11  Tax Matters.

     It is intended that each of the Lower REMIC and the Upper REMIC shall
constitute, and that the conduct of matters relating to such the Lower REMIC and
the Upper REMIC shall be such as to qualify each such segregated pool of assets
as, a "real estate mortgage investment conduit" as defined in and in accordance
with the REMIC Provisions. In furtherance of such intention, the Trustee
covenants and agrees that it shall act as agent (and the Trustee is hereby
appointed to act as agent) on behalf of any such REMIC and that in such capacity
it shall: (a) prepare and file, or cause to be prepared and filed, in a timely
manner, a U.S. Real Estate Mortgage Investment Conduit Income Tax Return (Form
1066 or any successor form adopted by the Internal Revenue Service) and prepare
and file or cause to be prepared and filed with the Internal Revenue Service and
applicable state or local tax authorities income tax or information returns for
each taxable year with respect to any such REMIC, containing such information
and at the times and in the manner as may be required by the Code or state or
local tax laws, regulations, or rules, and furnish or cause to be furnished to
Certificateholders the schedules, statements or information at such times and in
such manner as may be required thereby; (b) within thirty days of the Closing
Date, furnish or cause to be furnished to the Internal Revenue Service, on Forms
8811 or as otherwise may be required by the Code, the name, title, address, and
telephone number of the person that the holders of the Certificates may contact
for tax information relating thereto, together with such additional information
as may be required by such Form, and update such information at the time or
times in the manner required by the Code; (c) make or cause to be made elections
that each such segregated pool of assets be treated as a REMIC on the federal
tax return for its first taxable year (and, if necessary, under applicable state
law); (d) prepare and forward, or cause to be prepared and forwarded, to the
Certificateholders and to the Internal Revenue Service and, if necessary, state
tax authorities, all information returns and reports as and when required to be
provided to them in accordance with the REMIC Provisions,

                                      -93-
<PAGE>

including without limitation, the calculation of any original issue discount
using the prepayment assumption; (e) provide information necessary for the
computation of tax imposed on the transfer of a Residual Certificate to a Person
that is not a Permitted Transferee, or an agent (including a broker, nominee or
other middleman) of a Non-Permitted Transferee, or a pass-through entity in
which a Non-Permitted Transferee is the record holder of an interest (the
reasonable cost of computing and furnishing such information may be charged to
the Person liable for such tax); (f) to the extent that they are under its
control conduct matters relating to each such segregated pool of assets at all
times that any Certificates are outstanding so as to maintain the status as a
REMIC under the REMIC Provisions; (g) not knowingly or intentionally take any
action or omit to take any action that would cause the termination of the REMIC
status; (h) pay, from the sources specified in the last paragraph of this
Section 8.11, the amount of any federal or state tax, including prohibited
transaction taxes as described below, imposed on any such REMIC prior to its
termination when and as the same shall be due and payable (but such obligation
shall not prevent the Trustee or any other appropriate Person from contesting
any such tax in appropriate proceedings and shall not prevent the Trustee from
withholding payment of such tax, if permitted by law, pending the outcome of
such proceedings); (i) ensure that federal, state or local income tax or
information returns shall be signed by the Trustee or such other person as may
be required to sign such returns by the Code or state or local laws, regulations
or rules; (j) maintain records relating to any such REMIC, including but not
limited to the income, expenses, assets and liabilities thereof and the fair
market value and adjusted basis of the assets determined at such intervals as
may be required by the Code, as may be necessary to prepare the foregoing
returns, schedules, statements or information; and (k) as and when necessary and
appropriate, represent any such REMIC in any administrative or judicial
proceedings relating to an examination or audit by any governmental taxing
authority, request an administrative adjustment as to any taxable year of any
such REMIC, enter into settlement agreements with any governmental taxing
agency, extend any statute of limitations relating to any tax item of any such
REMIC, and otherwise act on behalf of any such REMIC in relation to any tax
matter or controversy involving it.

     In order to enable the Trustee to perform its duties as set forth herein,
the Depositor shall provide, or cause to be provided, to the Trustee within ten
(10) days after the Closing Date all information or data that the Trustee
requests in writing and determines to be relevant for tax purposes to the
valuations and offering prices of the Certificates, including, without
limitation, the price, yield, prepayment assumption and projected cash flows of
the Certificates and the Mortgage Loans. Thereafter, the Depositor shall provide
to the Trustee promptly upon written request therefor, any such additional
information or data that the Trustee may, from time to time, reasonably request
in order to enable the Trustee to perform its duties as set forth herein. The
Depositor hereby indemnifies the Trustee for any losses, liabilities, damages,
claims or expenses of the Trustee arising from any errors or miscalculations of
the Trustee that result from any failure of the Depositor to provide, or to
cause to be provided, accurate information or data to the Trustee on a timely
basis.

     In the event that any tax is imposed on "prohibited transactions" of any
REMIC created hereunder as defined in Section 860F(a)(2) of the Code, on the
"net income from foreclosure property" of any REMIC created hereunder as defined
in Section 860G(c) of the Code, on any contribution to any REMIC created
hereunder after the Startup Day pursuant to Section 860G(d) of the Code, or any
other tax is imposed, if not paid as otherwise provided for herein, such tax
shall be paid by (i) the Trustee, if any such other tax arises out of or results
from a breach by the Trustee of

                                      -94-
<PAGE>

any of its obligations under this Agreement which breach was caused by its
negligence or willful misconduct, (ii) the Master Servicer, in the case of any
such minimum tax, or if such tax arises out of or results from a breach by the
Master Servicer or Seller of any of their obligations under this Agreement,
(iii) the Seller, if any such tax arises out of or results from the Seller's
obligation to repurchase a Mortgage Loan pursuant to Section 2.2 or 2.3 or (iv)
in all other cases, or in the event that the Trustee, the Master Servicer or the
Seller fails to honor its obligations under the preceding clauses (i), (ii) or
(iii), any such tax will be paid with amounts otherwise to be distributed to the
Certificateholders, as provided in Section 3.8(b), any tax allocable to the
Lower REMIC shall be paid from Available Funds and any tax allocable to the
Upper REMIC shall be paid from amounts distributable on the Lower REMIC
Interests.

     SECTION 8.12  Periodic Filings.

     Pursuant to written instructions from the Depositor, the Trustee shall
prepare, execute and file all periodic reports required under the Securities
Exchange Act of 1934 in conformity with the terms of the "no-action" relief
granted by the SEC to issuers of asset-backed securities such as the
Certificates. In connection with the preparation and filing of such periodic
reports, the Depositor and the Master Servicer shall timely provide to the
Trustee all material information available to them which is required to be
included in such reports and not known to them to be in the possession of the
Trustee and such other information as the Trustee reasonably may request from
either of them and otherwise reasonably shall cooperate with the Trustee. The
Trustee shall have no liability with respect to any failure to properly prepare
or file such periodic reports resulting from or relating to the Trustee's
inability or failure to obtain any information not resulting from its own
negligence or willful misconduct.

                                  ARTICLE IX
                                  TERMINATION

     SECTION 9.1  Termination upon Liquidation or Purchase of all Mortgage
     Loans.

     Subject to Section 9.3, the obligations and responsibilities of the
Depositor, the Master Servicer and the Trustee created hereby with respect to
the Trust Fund shall terminate upon the earlier of (a) the purchase by the
Master Servicer of all Mortgage Loans (and REO Properties) remaining in the
Trust Fund at the price equal to the sum of (i) 100% of the Stated Principal
Balance of each Mortgage Loan plus one month's accrued interest thereon at the
applicable Adjusted Mortgage Rate and (ii) the lesser of (x) the appraised value
of any REO Property as determined by the higher of two appraisals completed by
two independent appraisers selected by the Master Servicer at the expense of the
Master Servicer and (y) the Stated Principal Balance of each Mortgage Loan
related to any REO Property, in each case plus accrued and unpaid interest
thereon at the applicable Adjusted Mortgage Rate and (b) the later of (i) the
maturity or other liquidation (or any Advance with respect thereto) of the last
Mortgage Loan remaining in the Trust Fund and the disposition of all REO
Property and (ii) the distribution to Certificateholders of all amounts required
to be distributed to them pursuant to this Agreement. In no event shall the
trusts created hereby continue beyond the earlier of (i) the expiration of 21
years from the death of the survivor of the descendants of Joseph P. Kennedy,
the late Ambassador of the United States to the Court of St. James's, living on
the date hereof, and (ii) the Latest Possible Maturity Date. The right to
purchase

                                      -95-
<PAGE>

all Mortgage Loans and REO Properties pursuant to clause (a) above shall be
conditioned upon the Pool Principal Balance, at the time of any such repurchase,
aggregating less than ten percent of the aggregate Cut-off Date Principal
Balance of the Mortgage Loans.

     SECTION 9.2  Final Distribution on the Certificates.

     If on any Determination Date, the Master Servicer determines that there are
no Outstanding Mortgage Loans and no other funds or assets in the Trust Fund
other than the funds in the Certificate Account, the Master Servicer shall
direct the Trustee promptly to send a final distribution notice to each
Certificateholder. If the Master Servicer elects to terminate the Trust Fund
pursuant to clause (a) of Section 9.1, at least 20 days prior to the date notice
is to be mailed to the affected Certificateholders, the Master Servicer shall
notify the Depositor and the Trustee of the date the Master Servicer intends to
terminate the Trust Fund and of the applicable repurchase price of the Mortgage
Loans and REO Properties.

     Notice of any termination of the Trust Fund, specifying the Distribution
Date on which Certificateholders may surrender their Certificates for payment of
the final distribution and cancellation, shall be given promptly by the Trustee
by letter to Certificateholders mailed not earlier than the 10th day and no
later than the 15th day of the month next preceding the month of such final
distribution. Any such notice shall specify (a) the Distribution Date upon which
final distribution on the Certificates will be made upon presentation and
surrender of Certificates at the office therein designated, (b) the amount of
such final distribution, (c) the location of the office or agency at which such
presentation and surrender must be made, and (d) that the Record Date otherwise
applicable to such Distribution Date is not applicable, distributions being made
only upon presentation and surrender of the Certificates at the office therein
specified. The Master Servicer will give such notice to each Rating Agency at
the time such notice is given to Certificateholders.

     In the event such notice is given, the Master Servicer shall cause all
funds in the Certificate Account to be remitted to the Trustee for deposit in
the Distribution Account on the Business Day prior to the applicable
Distribution Date in an amount equal to the final distribution in respect of the
Certificates. Upon such final deposit with respect to the Trust Fund and the
receipt by the Trustee of a Request for Release therefor, the Trustee shall
promptly release to the Master Servicer the Mortgage Files for the Mortgage
Loans.

     Upon presentation and surrender of the Certificates, the Trustee shall
cause to be distributed to the Certificateholders of each Class, in the order
set forth in Section 4.2 hereof, on the final Distribution Date, in the case of
the Certificateholders, in proportion to their respective Percentage Interests,
with respect to Certificateholders of the same Class, an amount equal to (i) as
to each Class of Regular Certificates, the Class Certificate Balance thereof
plus (a) accrued interest thereon (or on their Notional Amount, if applicable)
in the case of an interest bearing Certificate and (b) any Class PO Deferred
Amounts in the case of the Class PO Certificates, and (ii) as to the Residual
Certificates, the amount, if any, which remains on deposit in the Distribution
Account (other than the amounts retained to meet claims) after application
pursuant to clause (i) above.

     In the event that any affected Certificateholders shall not surrender
Certificates for cancellation within six months after the date specified in the
above mentioned written notice, the

                                      -96-
<PAGE>

Trustee shall give a second written notice to the remaining Certificateholders
to surrender their Certificates for cancellation and receive the final
distribution with respect thereto. If within six months after the second notice
all the applicable Certificates shall not have been surrendered for
cancellation, the Trustee may take appropriate steps, or may appoint an agent to
take appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds and other assets which remain a part of the Trust Fund. If within one year
after the second notice all Certificates shall not have been surrendered for
cancellation, the Holders of each of the Class A-RU Certificates shall be
entitled to all unclaimed funds and other assets of the Trust Fund, held for
distribution to such Certificateholders, which remain subject hereto.

     SECTION 9.3  Additional Termination Requirements.

     (a)  In the event the Master Servicer exercises its purchase option as
provided in Section 9.1, the Trust Fund shall be terminated in accordance with
the following additional requirements, unless the Trustee has been supplied with
an Opinion of Counsel, at the expense of the Master Servicer, to the effect that
the failure to comply with the requirements of this Section 9.3 will not (i)
result in the imposition of taxes on "prohibited transactions" as defined in
section 860F of the Code on any REMIC created hereunder, or (ii) cause any REMIC
created hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding:

          (1)  Within 90 days prior to the final Distribution Date set forth in
     the notice given by the Master Servicer under Section 9.2, the Master
     Servicer shall prepare and the Trustee, at the expense of the "tax matters
     person," shall adopt a plan of complete liquidation within the meaning of
     section 860F(a)(4) of the Code which, as evidenced by an Opinion of Counsel
     (which opinion shall not be an expense of the Trustee or the Tax Matters
     Person), meets the requirements of a qualified liquidation; and

          (2)  Within 90 days after the time of adoption of such a plan of
     complete liquidation, the Trustee shall sell all of the assets of the Trust
     Fund to the Master Servicer for cash in accordance with Section 9.1.

     (b)  The Trustee as agent for any REMIC established hereunder hereby agrees
to adopt and sign such a plan of complete liquidation upon the written request
of the Master Servicer, and the receipt of the Opinion of Counsel referred to in
Section 9.3(a)(1) and to take such other action in connection therewith as may
be reasonably requested by the Master Servicer.

     (c)  By their acceptance of the Certificates, the Holders thereof hereby
authorize the Master Servicer to prepare and the Trustee to adopt and sign a
plan of complete liquidation.

                                      -97-
<PAGE>

                                   ARTICLE X
                         CERTAIN MATTERS REGARDING FSA

     SECTION 10.1 Rights of FSA to Exercise Rights of Holders of Insured Retail
     Certificates.

     The Depositor, the Seller, the Master Servicer, the Trustee and, by
accepting its Certificate, each Holder of Insured Retail Certificates agrees
that unless a FSA Default exists, FSA shall have the right to exercise all
consent, voting, direction and other control rights of the Holders of Insured
Retail Certificates under this Agreement without any further consent of the
Holders of Insured Retail Certificates and such rights may not be exercised by
the Holders of the Insured Retail Certificates without the prior written consent
of FSA.

     SECTION 10.2 Claims Upon the FSA Policy; FSA Policy Payments Account.

     (a)  If, by the close of business on the third Business Day preceding the
related Distribution Date, the Trustee determines that the funds that will be on
deposit in the Distribution Account, to the extent distributable to the Holders
of Insured Retail Certificates pursuant to Section 4.2, are insufficient to pay
the Guaranteed Distribution for such Distribution Date, the Trustee shall give
notice by telephone or telecopy of the aggregate amount of such deficiency,
confirmed in writing in the form set forth as Exhibit A to the endorsement of
the FSA Policy, to FSA and the Fiscal Agent (as defined in the FSA Policy), if
any, at or before 12:00 noon, New York City time, on the second Business Day
prior to such Distribution Date. If, subsequent to such notice, and prior to
payment by FSA pursuant to such notice, additional amounts are deposited in the
Distribution Account, the Trustee shall reasonably promptly notify FSA and
withdraw the notice or reduce the amount claimed, as appropriate.

     (b)  The Trustee shall establish a separate special purpose trustee account
for the benefit of Holders of the Insured Retail Certificates and FSA referred
to herein as the "FSA Policy Payments Account" over which the Trustee shall have
exclusive control and sole right of withdrawal. The Trustee shall deposit any
amount paid under the FSA Policy in the FSA Policy Payments Account and
distribute such amount only for purposes of payment to Holders of Insured
Certificates of the Guaranteed Distribution for which a claim was made. Such
amount may not be applied to satisfy any costs, expenses or liabilities of the
Master Servicer, the Trustee or the Trust Fund. Amounts paid under the FSA
Policy shall be transferred to the Distribution Account in accordance with the
next succeeding paragraph and disbursed by the Trustee to Holders of Insured
Retail Certificates. It shall not be necessary for such payments to be made by
checks or wire transfers separate from the checks or wire transfers used to pay
the Guaranteed Distribution. However, the amount of any payment of principal of
or interest on the Insured Retail Certificates to be paid from funds transferred
from the FSA Policy Payments Account shall be noted as provided in paragraph (c)
below and in the statement to be furnished to Holders of the Certificates
pursuant to Section 4.6. Funds held in the FSA Policy Payments Account shall not
be invested by the Trustee.

     On any Distribution Date with respect to which a claim has been made under
the FSA Policy, the amount of any funds received by the Trustee as a result of
any claim under the FSA Policy, to the extent required to make the Guaranteed
Distribution on such Distribution Date, shall be

                                      -98-
<PAGE>

withdrawn from the FSA Policy Payments Account and deposited in the Distribution
Account and applied by the Trustee, together with the other funds to be
distributed to the Holders of Insured Retail Certificates pursuant to Section
4.2, directly to the payment in full of the Guaranteed Distribution due on the
Insured Retail Certificates. Any funds remaining in the FSA Policy Payments
Account on the first Business Day following a Distribution Date shall be
remitted to FSA, pursuant to the instructions of FSA, by the end of such
Business Day.

     (c)  The Trustee shall keep a complete and accurate record of the amount of
interest and principal paid into the FSA Policy Payments Account in respect of
any Insured Retail Certificate from moneys received under the FSA Policy. FSA
shall have the right to inspect such records at reasonable times during normal
business hours upon two Business Day's prior notice to the Trustee.

     SECTION 10.3 Effect of Payments by FSA; Subrogations.

     Anything herein to the contrary notwithstanding, for purposes of this
Section 10.3, any payment with respect to principal of or interest on the
Insured Retail Certificates which is made with monies received pursuant to the
terms of the FSA Policy shall not be considered payment of the Insured Retail
Certificates from the Trust Fund. The Master Servicer and the Trustee
acknowledge, and each Holder by its acceptance of an Insured Retail Certificate
agrees, that without the need for any further action on the part of FSA, the
Master Servicer, the Trustee or the Certificate Registrar, to the extent FSA
makes payments, directly or indirectly, on account of principal of or interest
on the Insured Retail Certificates to the Holders of such Certificates, FSA will
be fully subrogated to, and each Insured Retail Certificateholder, the Master
Servicer and the Trustee hereby delegate and assign to FSA, to the fullest
extent permitted by law, the rights of such Holders to receive such principal
and interest from the Trust Fund.

     The Trustee and the Master Servicer shall cooperate in all respects with
any reasonable request by FSA for action to preserve or enforce FSA's rights or
interests under this Agreement without limiting the rights or affecting the
interests of the Holders as otherwise set forth herein.

     SECTION 10.4 Notices and Information to FSA.

     (a)  All notices, statements, reports, certificates or opinions required by
this Agreement to be sent to any other party hereto or to the Certificateholders
shall also be sent to FSA.

     (b)  The Master Servicer shall designate a Person who shall be available to
FSA to provide reasonable access to information regarding the Mortgage Loans.

     SECTION 10.5 Trustee to Hold FSA Policy.

     The Trustee will hold the FSA Policy in trust as agent for the Insured
Retail Certificateholders for the purpose of making claims thereon and
distributing the proceeds thereof. Neither the FSA Policy, nor the amounts paid
on the FSA Policy will constitute part of the Trust Fund or assets of the REMICs
created by this Agreement. Each Insured Retail Certificateholder, by accepting
its Certificate, appoints the Trustee as attorney-in-fact for the purpose of
making claims on the FSA Policy. The Trustee shall surrender the FSA Policy to
FSA for cancellation upon the

                                      -99-
<PAGE>

expiration of the term of the FSA Policy as provided in the FSA Policy following
the retirement of the Insured Retail Certificates. To the extent that the FSA
Policy constitutes a reserve fund for federal income tax purposes, (1) it shall
be an outside credit support agreement and not an asset of any REMIC created
hereunder and (2) it shall be owned by FSA, all within the meaning of Section
1.860G-2(h) of the Treasury Regulations.

     SECTION 10.6 [Reserved].

     SECTION 10.7 Payment of Insurance Premium.

     Unless otherwise designated in writing by the President or a Managing
Director of FSA to the Trustee, the Insurance Premium to be paid pursuant to
Section 4.2 shall be paid by the Trustee to FSA by wire transfer with the
following details specifically stated in the wire transfer:

     Bank:  The Bank of New York
     ABA Number:  021 000 018

     For the account of: Financial Security Assurance Inc.
     Account Number:     8900297263
     Policy Number:      50965-N

                                  ARTICLE XI
                           MISCELLANEOUS PROVISIONS

     SECTION 11.1 Amendment.

     This Agreement may be amended from time to time by the Depositor, the
Master Servicer and the Trustee without the consent of any of the
Certificateholders but with the consent of FSA (i) to cure any ambiguity or
mistake, (ii) to correct any defective provision herein or to supplement any
provision herein which may be inconsistent with any other provision herein,
(iii) to add to the duties of the Depositor, the Seller or the Master Servicer,
(iv) to add any other provisions with respect to matters or questions arising
hereunder or (v) to modify, alter, amend, add to or rescind any of the terms or
provisions contained in this Agreement; provided that any action pursuant to
clauses (iv) or (v) above shall not, as evidenced by an Opinion of Counsel
(which Opinion of Counsel shall not be an expense of the Trustee or the Trust
Fund), adversely affect in any material respect the interests of any
Certificateholder; provided, however, that the amendment shall not be deemed to
adversely affect in any material respect the interests of the Certificateholders
if the Person requesting the amendment obtains a letter from each Rating Agency
stating that the amendment would not result in the downgrading or withdrawal of
the respective ratings then assigned to the Certificates; it being understood
and agreed that any such letter in and of itself will not represent a
determination as to the materiality of any such amendment and will represent a
determination only as to the credit issues affecting any such rating. The
Trustee, the Depositor and the Master Servicer also may at any time and from
time to time amend this Agreement without the consent of the Certificateholders
to modify, eliminate or add to any of its provisions to such extent as shall be
necessary or helpful to (i) maintain the qualification of any REMIC as a REMIC
under the Code, (ii) avoid or minimize the risk of the

                                     -100-
<PAGE>

imposition of any tax on any REMIC pursuant to the Code that would be a claim at
any time prior to the final redemption of the Certificates or (iii) comply with
any other requirements of the Code, provided that the Trustee has been provided
an Opinion of Counsel, which opinion shall be an expense of the party requesting
such opinion but in any case shall not be an expense of the Trustee or the Trust
Fund, to the effect that such action is necessary or helpful to, as applicable,
(i) maintain such qualification, (ii) avoid or minimize the risk of the
imposition of such a tax or (iii) comply with any such requirements of the Code.

     This Agreement may also be amended from time to time by the Depositor, the
Master Servicer and the Trustee with the consent of FSA and the Holders of a
Majority in Interest of each Class of Certificates affected thereby for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
the Holders of Certificates; provided, however, that no such amendment shall (i)
reduce in any manner the amount of, or delay the timing of, payments required to
be distributed on any Certificate without the consent of the Holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
Holders of any Class of Certificates in a manner other than as described in (i),
without the consent of the Holders of Certificates of such Class evidencing, as
to such Class, Percentage Interests aggregating 66%, or (iii) reduce the
aforesaid percentages of Certificates the Holders of which are required to
consent to any such amendment, without the consent of the Holders of all such
Certificates then outstanding.

     Notwithstanding any contrary provision of this Agreement, the Trustee shall
not consent to any amendment to this Agreement unless it shall have first
received an Opinion of Counsel, which opinion shall not be an expense of the
Trustee or the Trust Fund, to the effect that such amendment will not cause the
imposition of any tax on any REMIC or the Certificateholders or cause any REMIC
created hereunder to fail to qualify as a REMIC at any time that any
Certificates are outstanding.

     Promptly after the execution of any amendment to this Agreement requiring
the consent of Certificateholders, the Trustee shall furnish written
notification of the substance or a copy of such amendment to each
Certificateholder and each Rating Agency.

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

     Nothing in this Agreement shall require the Trustee to enter into an
amendment without receiving an Opinion of Counsel (which Opinion shall not be an
expense of the Trustee or the Trust Fund), satisfactory to the Trustee that (i)
such amendment is permitted and is not prohibited by this Agreement and that all
requirements for amending this Agreement have been complied with; and (ii)
either (A) the amendment does not adversely affect in any material respect the
interests of any Certificateholder or (B) the conclusion set forth in the
immediately preceding clause (A) is not required to be reached pursuant to this
Section 11.1.

                                     -101-
<PAGE>

     SECTION 11.2 Recordation of Agreement; Counterparts.

     This Agreement is subject to recordation in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such recordation
to be effected by the Master Servicer at its expense, but only upon direction a
majority of the Certificateholders to the effect that such recordation
materially and beneficially affects the interests of the Certificateholders.

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

     SECTION 11.3 Governing Law.

     THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE
SUBSTANTIVE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO
BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES
OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN
ACCORDANCE WITH SUCH LAWS.

     SECTION 11.4 Intention of Parties.

     It is the express intent of the parties hereto that the conveyance of the
Trust Fund by the Depositor to the Trustee be, and be construed as, an absolute
sale thereof to the Trustee. It is, further, not the intention of the parties
that such conveyance be deemed a pledge thereof by the Depositor to the Trustee.
However, in the event that, notwithstanding the intent of the parties, such
assets are held to be the property of the Depositor, or if for any other reason
this Agreement is held or deemed to create a security interest in such assets,
then (i) this Agreement shall be deemed to be a security agreement within the
meaning of the Uniform Commercial Code of the State of New York and (ii) the
conveyance provided for in this Agreement shall be deemed to be an assignment
and a grant by the Depositor to the Trustee, for the benefit of the
Certificateholders, of a security interest in all of the assets that constitute
the Trust Fund, whether now owned or hereafter acquired.

     The Depositor for the benefit of the Certificateholders shall, to the
extent consistent with this Agreement, take such actions as may be necessary to
ensure that, if this Agreement were deemed to create a security interest in the
Trust Fund, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as such
throughout the term of the Agreement. The Depositor shall arrange for filing any
Uniform Commercial Code continuation statements in connection with any security
interest granted or assigned to the Trustee for the benefit of the
Certificateholder.

                                     -102-
<PAGE>

     SECTION 11.5 Notices.

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

     1.   Any material change or amendment to this Agreement;
     2.   The occurrence of any Event of Default that has not been cured;
     3.   The resignation or termination of the Master Servicer or the Trustee
          and the appointment of any successor;
     4.   The repurchase or substitution of Mortgage Loans pursuant to Section
          2.3; and
     5.   The final payment to Certificateholders.
     6.   Any rating action involving the long-term credit rating of the Master
          Servicer, which notice shall be made by first-class mail within two
          Business Days after the Trustee gains actual knowledge thereof.

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

     1.   Each report to Certificateholders described in Section 4.6;
     2.   Each annual statement as to compliance described in Section 3.16;
     3.   Each annual independent public accountants' servicing report described
          in Section 3.17; and
     4.   Any notice of a purchase of a Mortgage Loan pursuant to Section 2.2,
          2.3 or 3.11.

     (b)  All directions, demands and notices hereunder shall be in writing and
shall be deemed to have been duly given when delivered to (a) in the case of the
Depositor, First Horizon Asset Securities Inc., 4000 Horizon Way, Irving, Texas
75063, Attention: Wade Walker; (b) in the case of the Master Servicer, First
Horizon Home Loan Corporation, 4000 Horizon Way, Irving, Texas 75063, Attention:
Wade Walker or such other address as may be hereafter furnished to the Depositor
and the Trustee by the Master Servicer in writing; (c) in the case of the
Trustee, The Bank of New York, 101 Barclay Street 12E, New York, New York 10286,
Attention: Courtney Bartholomew, or such other address as the Trustee may
hereafter furnish to the Depositor or Master Servicer; (d) in the case of FSA,
Financial Security Assurance Inc., 350 Park Avenue, New York, New York 10022,
Attention: Senior Vice President - Surveillance or such other address as may be
hereafter furnished to the Depositor, the Master Servicer and the Trustee by FSA
in writing; (e) in the case of the Rating Agencies, the address specified
therefor in the definition corresponding to the name of such Rating Agency.
Notices to Certificateholders shall be deemed given when mailed, first class
postage prepaid, to their respective addresses appearing in the Certificate
Register.

     SECTION 11.6 Severability of Provisions.

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

                                     -103-
<PAGE>

     SECTION 11.7 Assignment.

     Notwithstanding anything to the contrary contained herein, except as
provided in Section 6.02, this Agreement may not be assigned by the Master
Servicer without the prior written consent of the Trustee and Depositor.

     SECTION 11.8 Limitation on Rights of Certificateholders.

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

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

     No Certificateholder shall have any right by virtue or by availing itself
of any provisions of this Agreement to institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Agreement, unless such
Holder previously shall have given to the Trustee a written notice of an Event
of Default and of the continuance thereof, as herein provided, and unless the
Holders of Certificates evidencing not less than 25% of the Voting Rights
evidenced by the Certificates shall also have made written request to the
Trustee to institute such action, suit or proceeding in its own name as Trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as it
may require against the costs, expenses, and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after its receipt of such notice,
request and offer of indemnity shall have neglected or refused to institute any
such action, suit or proceeding; it being understood and intended, and being
expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
shall have any right in any manner whatever by virtue or by availing itself or
themselves of any provisions of this Agreement to affect, disturb or prejudice
the rights of the Holders of any other of the Certificates, or to obtain or seek
to obtain priority over or preference to any other such Holder or to enforce any
right under this Agreement, except in the manner herein provided and for the
common benefit of all Certificateholders. For the protection and enforcement of
the provisions of this Section 11.8, each and every Certificateholder and the
Trustee shall be entitled to such relief as can be given either at law or in
equity.

     SECTION 11.9 Inspection and Audit Rights.

     The Master Servicer agrees that, on reasonable prior notice, it will permit
and will cause each Subservicer to permit any representative of the Depositor or
the Trustee during the Master Servicer's normal business hours, to examine all
the books of account, records, reports and other papers of the

                                     -104-
<PAGE>

Master Servicer relating to the Mortgage Loans, to make copies and extracts
therefrom, to cause such books to be audited by independent certified public
accountants selected by the Depositor or the Trustee and to discuss its affairs,
finances and accounts relating to the Mortgage Loans with its officers,
employees and independent public accountants (and by this provision the Master
Servicer hereby authorizes said accountants to discuss with such representative
such affairs, finances and accounts), all at such reasonable times and as often
as may be reasonably requested. Any out-of-pocket expense incident to the
exercise by the Depositor or the Trustee of any right under this Section 11.9
shall be borne by the party requesting such inspection; all other such expenses
shall be borne by the Master Servicer or the related Subservicer.

     SECTION 11.10 Certificates Nonassessable and Fully Paid.

     It is the intention of the Depositor that Certificateholders shall not be
personally liable for obligations of the Trust Fund, that the interests in the
Trust Fund represented by the Certificates shall be nonassessable for any reason
whatsoever, and that the Certificates, upon due authentication thereof by the
Trustee pursuant to this Agreement, are and shall be deemed fully paid.

                                  * * * * * *

                                     -105-
<PAGE>

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

                                   FIRST HORIZON ASSET SECURITIES INC.,
                                     as Depositor

                                   ________________________________________
                                   Wade Walker
                                   Senior Vice President - Asset Securitization

                                   THE BANK OF NEW YORK,
                                     as Trustee

                                   By:_____________________________________
                                    Name:  Courtney Bartholomew
                                    Title: Assistant Vice President

                                   FIRST HORIZON HOME LOAN CORPORATION,
                                     as Seller and Master Servicer

                                   ________________________________________
                                   Wade Walker
                                   Senior Vice President - Asset Securitization

Pooling and Servicing Agreement - Signature PageEXHIBIT  10.3.  MANAGEMENT  AND  CONSULTING  AGREEMENT  BETWEEN  COSMOZ.COM  AND
SHARPMANAGEMENT, LLC

                       MANAGEMENT AND CONSULTING AGREEMENT

This  Agreement  is made and  entered  into on May 17,  2000,  but shall have an
effective date of 1/10/2000 (the "Effective  Date"), by and between  Cosmoz.com,
Inc., a Delaware corporation  ("Company") and  SharpManagement,  LLC, a Delaware
LLC  ("SharpManagement"),   and  Wilfred  Shaw,  SharpManagement's  sole  Member
("Shaw").

THE PARTIES AGREE AS FOLLOWS:

1. Retention of SharpManagement/ Performance of Services. Company hereby retains
SharpManagement to provide the services described on EXHIBIT A (the "Services"),
and  SharpManagement  hereby  agrees  to use its best  efforts  to  provide  the
Services,  in  accordance  with  EXHIBIT A. Shaw shall  personally  perform  all
Services under this Agreement on behalf of SharpManagement.  SharpManagement and
Shaw  shall  comply  with the  statutes,  rules,  regulations  and orders of any
governmental or quasi-governmental  authority,  applicable to the performance of
the Services.

2.       Compensation.  In exchange for Company's  retention of SharpManagement,
the Company agrees to provide the following compensation (the "Compensation"):

         (a)      The Company shall pay to  SharpManagement a "signing bonus" of
         $180,000.00.
         (b)      The Company shall pay to  SharpManagement,  during the term of
         this Agreement,  $15,000.00 per month for a period of one year from the
         Effective Date. (c) The Company shall grant non-qualified stock options
         to SharpManagement to purchase 1,875,000 shares of the Company's common
         stock at its 4/17/00  closing price of $0.5893 per share.  Such options
         shall be exercisable immediately.

3.       Expenses.   Unless  otherwise  specifically  authorized  by  a  Company
purchase  order,  SharpManagement  shall be  responsible  for  paying all of his
expenses related to the provision of Services.

4.       Term.  This  Agreement  shall begin with the  Effective  Date and shall
continue for one year (the "Term"). The Term shall not automatically renew.

5.       Removal by Shareholders.  At any time,  SharpManagement and/or Shaw may
be removed  as CEO by the  shareholders  of the  Company at a regular or special
meeting.  This  Agreement  shall  not  terminate  upon  any  such  vote  by  the
shareholders  to remove  SharpManagement  and/or Shaw as Director.  In the event
that SharpManagement  and/or Shaw is removed as Director, the Compensation shall
remain due and payable.

6.       Conflicting  Obligations  and  Confidentiality.  Except as specifically
disclosed  herein,  SharpManagement  and Shaw have no  outstanding  agreement or
obligation,  and will not enter into any  agreement  or  obligation,  that is in
conflict  with any of the  provisions of this  Agreement or that would  preclude
SharpManagement and Shaw from fully complying with all of SharpManagement's  and
Shaw's obligations under this Agreement. Neither SharpManagement nor Shaw shall,
during  the term of this  Agreement,  serve as the CEO of any  company or entity
which competes directly with the Company.

7.       Non-Disclosure  Agreement.  Shaw  acknowledges that he has executed the
Company's standard Non-Disclosure Agreement.

8.       GENERAL PROVISIONS.
         (a) Further  Assurances.  Each party shall  perform any and all further
         acts and  execute  and  deliver  any  documents  which  are  reasonably
         necessary to carry out the intent of this Agreement.  (b) Notices.  All
         notices or other communications required or permitted by this Agreement
         or by law shall be in writing and shall be deemed duly served and given
         when delivered personally or by facsimile, air courier,  certified mail
         (return receipt  requested),  postage and fees prepaid, to the party at
         the address  indicated in the signature  block or at such other address
         as a party may request in writing.

                                       33
<PAGE>

         (c) Arbitration. Any controversy or claim arising out of or relating to
         this  Agreement,  or the  breach  thereof,  shall be settled by binding
         arbitration  administered  by the American  Arbitration  Association in
         accordance with its Commercial  Arbitration  Rules, and judgment on the
         award rendered by the  arbitrator(s) may be entered in any court having
         jurisdiction thereof.

         (d) Governing Law,  Jurisdiction,  and Venue.  This Agreement  shall be
         governed and  interpreted  in accordance  with the laws of the State of
         California, as such laws are applied to agreements between residents of
         California  to be performed  entirely  within the State of  California.
         Subject to the  immediately  preceding  paragraph,  each  party  hereby
         consents to jurisdiction of and venue in the federal district court for
         the Northern District of California, San Francisco Division, and in the
         courts of the State of California for San Mateo County.

         (e)  Entire  Agreement/  Modification.  This  Agreement  sets forth the
         entire agreement  between the parties  pertaining to the subject matter
         hereof and  supersedes all prior written  agreements,  and all prior or
         contemporaneous oral agreements and understandings, express or implied.
         No modification to this Agreement,  nor any waiver of any rights, shall
         be effective  unless assented to in writing by the party to be charged,
         and the waiver of any breach or default  shall not  constitute a waiver
         of any other right or any subsequent breach or default.

         (f) Assignment.  The rights contained in this Agreement are of a unique
         character  and may not be assigned in whole or in part by either  party
         without  the  prior  written  consent  of the  other  party;  provided,
         however,  that Company shall be entitled to assign this  Agreement to a
         successor to all or substantially  all of its assets,  whether by sale,
         merger, or otherwise.

         (g)  Severability.  If any of the  provisions  of  this  Agreement  are
         determined to be invalid or  unenforceable,  the  remaining  provisions
         shall be deemed  severable and shall  continue in full force and effect
         to the extent the economic benefits  conferred upon the parties by this
         Agreement remain substantially unimpaired.  (h) Attorneys' Fees. Should
         any litigation be commenced  between the parties  concerning the rights
         or  obligations of the parties under this  Agreement,  each party shall
         bear its own attorney's fees and costs of litigation. (i) Construction.
         The headings of this Agreement are for convenience  only and are not to
         be  considered  in  construing  this  Agreement.  The  language of this
         Agreement  shall be  construed  according  to its fair  meaning and not
         strictly for or against any party.

         (j)  Counterparts.  This  Agreement  may be  executed  in any number of
         counterparts,  each of which  shall be deemed an  original,  but all of
         which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.

Company:                           SharpManagement:

Cosmoz.com, Inc.,                      533 Airport Blvd. Ste. 400
1515 So. El Camino Real                Burlingame, CA 94010
San Mateo, CA 94402
Fax: 650.358.0188

By: /s/Michael Spadaccini              By: /s/ Wilfred Shaw
    ----------------------                 ---------------------------------
       Michael Spadaccini                      Wilfred Shaw, Managing Member
       General Counsel                         SharpManagement, LLC

                                       34
<PAGE>

                                    EXHIBIT A

                             DESCRIPTION OF SERVICES

Responsibilities  As CEO. Shaw shall have all  responsibilities  of a CEO of the
Company imposed by Delaware or applicable law, and the Articles of Incorporation
and Bylaws of the Company.  These  responsibilities shall include, but shall not
be limited to, the following:

Shaw shall use his best efforts to attend  scheduled  meetings of the  Company's
executives and managers, as well as meetings of the Company's shareholders;

Shaw shall participate with full managing  authority and shall assist in setting
overall objectives,  approving plans and programs of operation,  shall advise on
matters of mergers, acquisitions, consolidations, financing, and shall advise on
and assist with formulating general operating policies.

Shaw  shall  offer  advice  and  counsel  to the  Board of  Directors,  & to the
Company's Officers and Employees.

Shaw shall, if requested, review management performance, and report to the Board
of Directors or Officers of the Company.

                                       35

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