RAC FINANCIAL GROUP INC, 10-K, 1996-12-23

RAC FINANCIAL GROUP INC
10-K, 1996-12-23
PERSONAL CREDIT INSTITUTIONS

Previous: RAC FINANCIAL GROUP INC, S-1, 1996-12-23

Next: AMERIPRIME FUNDS, 497, 1996-12-23

<PAGE>
=============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
---
EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
OR

____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 0-27550

RAC FINANCIAL GROUP, INC.
(Exact name of registrant as specified in its charter)

Texas 75-2561052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1250 WEST MOCKINGBIRD LANE
DALLAS, TEXAS 75247
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (214) 630-6006

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE

(Title of Class)
______________________________

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No ____
---

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /

The aggregate market value of Common Stock held by nonaffiliates of the
registrant, based on the closing price of the Common Stock as reported by the
Nasdaq National Market on November 29, 1996 was $326,435,410. For purposes
of this computation, all officers, directors and 10% beneficial owners of the
registrant are deemed to be affiliates. Such determination should not be
deemed an admission that such officers, directors or 10% beneficial owners
are, in fact, affiliates of the registrant. As of November 30, 1996,
27,497,758 shares of Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The Company's definitive proxy statement in connection with the Annual
Meeting of Shareholders to be held February 26, 1996, to be filed with the
Commission not later than 120 days after September 30, 1996, is incorporated
by reference into Part III of this report.

=============================================================================
<PAGE>
PART I

ITEM 1. BUSINESS.

RAC Financial Group, Inc. (together with its subsidiaries, the
"Company") is a specialized consumer finance company that operates under the
trade name FIRSTPLUS. The Company originates, purchases, services and sells
consumer finance receivables, substantially all of which are debt
consolidation or home improvement loans secured primarily by second liens on
real property. The Company offers uninsured home improvement and uninsured
debt consolidation loans ("Conventional Loans") and to a lesser extent
partially insured Title I home improvement loans ("Title I Loans"). The
Company sells substantially all of its Conventional Loans and Title I Loans
(together, the Company's "strategic loans") primarily through its
securitization program and retains rights to service these loans. The Company
originated and purchased an aggregate of $227.9 million and $1.1 billion of
strategic loans in the fiscal years ended September 30, 1995 and 1996,
respectively. For fiscal 1995 and 1996, the Company had total revenues of
$33.9 million and $198.1 million, respectively, Gain on Sale of loans, net
(but before provision for possible credit losses), of $29.1 million (of which
$4.1 million was related to non-strategic loans) and $158.6 million (of which
$8.4 million is related to non-strategic loans), respectively, and net income
of $5.8 million and $34.2 million, or $0.28 and $ 1.31 per share on a fully
diluted basis, respectively.

The Company relies principally on the creditworthiness of the borrower
for repayment of Conventional Loans. The Company's borrowers typically have
limited access to consumer financing for a variety of reasons, primarily
insufficient home equity values. The Company uses its own credit evaluation
criteria to classify its applicants as "A+" through "D" credits. These
criteria include, as a significant component, the credit evaluation scoring
methodology developed by Fair, Issac and Company ("FICO"). The Company
currently makes loans only to borrowers it classifies as "C+" or better on
Conventional Loans and "C" or better on Title I Loans. For fiscal 1995 and
1996, 76.7% and 83.2%, respectively, of the Company's Conventional Loan
originations were classified by the Company as "B" borrowers or better and
62.7% and 53.2%, respectively, of the Company's Title I Loans were so
classified.

The Company's principal origination channel is its network of regional
independent correspondent lenders. Correspondent lenders tend to be
commercial banks, thrifts or finance companies that do not have the
infrastructure to hold and service portfolios of Conventional and Title I
Loans. The Company's correspondent lenders originate loans using the
Company's underwriting criteria and sell these loans to the Company. During
fiscal 1995 and 1996, the Company originated loans through correspondent
lenders ("Correspondent Loans") of $81.9 million and $1.0 billion,
representing 68.5% and 93.9%, respectively, of the Company's originations of
strategic loans during such periods.

In early 1996, the Company expanded its efforts to originate loans
directly to qualified homeowners ("Direct Loans"). The Company originates
Direct Loans through television, radio and direct mail advertising campaigns
and referrals from its independent home improvement contractors. The Company
is pursuing a strategy to increase its Direct Loan originations because the
Company believes that Direct Loans should prove to be more profitable and
allow the Company to have better control over the quality and size of the
Company's production. To achieve this goal, the Company is attempting to
develop national recognition of the FIRSTPLUS brand name through increased
advertising and the use of celebrity spokespersons, such as Dan Marino, a
professional football player with the Miami Dolphins. The Company is
expanding its direct mail and telemarketing campaigns, hiring
direct-to-consumer marketing professionals and increasing its local-market
presence by acquiring or opening additional branches. The Company originated
$906,000 and $45.1 million in Direct Loans in fiscal 1995 and 1996,
respectively, representing 0.4% and 4.1%, respectively, of the Company's
originations of strategic loans during such periods.

As a result of the Company's recent acquisitions of FIRST PLUS Financial
West, Inc. ("FIRSTPLUS West") and FIRSTPLUS Financial East, Inc. ("FIRSTPLUS
East"), the Company acquired certain loan origination programs that do not
directly adhere to the Company's securitization parameters. Consequently,
these non-strategic loans originated through such programs are sold to other
lenders on a whole-loan basis with all servicing rights released. The Company
originated $83.4 million of non-strategic loans during fiscal 1995 and $382.2
million during the fiscal year ended September 30, 1996. The Company plans to
convert the non-strategic loan operations to operations that will originate
strategic loans that meet the Company's current securitization parameters.

1
<PAGE>

The Conventional Loans originated by the Company in fiscal 1995 and 1996
had an average principal amount of approximately $17,426 and $27,671,
respectively, and had a weighed average interest rate of 15.1% and 14.5% per
annum, respectively. Conventional Loans originated by the Company in fiscal
1995 and 1996 had a weighted average maturity of 14.6 years and 18.7 years,
respectively, and an average FICO score of 629 and 662, respectively. See
"Business -- Underwriting." Title I Loans are insured, subject to certain
exceptions, for 90% of the principal balance and certain interest costs under
the Title I Credit Insurance program (the "Title I Program") administered by
the Federal Housing Administration (the "FHA"). The Title I Loans originated
by the Company in fiscal 1995 and 1996 had an average principal amount of
approximately $15,160 and $17,414, respectively, and had interest rates
primarily ranging from 11.0% to 17.5% per annum.

The Company sells substantially all of the Conventional Loans and Title I
Loans it originates and purchases through its securitization program and
generally retains rights to service such loans. The Company sold through
nine securitization transactions approximately $234.8 million and $723.1
million of strategic loans during fiscal 1995 and 1996, respectively. The
Company earns servicing fees on a monthly basis ranging from 0.75% to 1.25%
on the loans it services in the various securitization pools. At September
30, 1996, the principal amount of strategic loans serviced by the Company
(the "Serviced Loan Portfolio") was $1.3 billion. The Serviced Loan
Portfolio includes strategic loans held for sale and strategic loans that
have been securitized and are serviced by the Company (including $68.0
million of loans subserviced by a third party).

LOAN PRODUCTS

The Company originates Conventional and Title I Loans. Each of those
products is typically secured by a mortgage lien, although the Company
occasionally originates unsecured Title I Loans. The loans funded by the
Company are used for debt consolidation and a wide variety of home
improvement projects, such as exterior/interior finishing, structural
additions, roofing, plumbing, heating and insulation. The Company lends to
borrowers in various credit categories. See "--Underwriting."

CONVENTIONAL LOANS. A Conventional Loan is a non-insured consumer loan
specifically undertaken for debt consolidation and/or to pay for home
improvement projects. Substantially all of the Conventional Loans originated
by the Company are secured by second mortgage liens. The Company relies
principally on the creditworthiness of the borrower, and to a lesser extent
on the underlying collateral, for repayment of Conventional Loans. The
average size of a Conventional Loan made by the Company during fiscal 1995
and 1996 was approximately $17,426 and $27,671, respectively.

Under the Company's "Buster Plus" Conventional Loan program, a minimum
of 40% of the gross loan amount must be used for home improvement purposes.
The remaining percentage of the gross loan amount can be used for any
combination of debt consolidation, closing costs and an allowable cash out,
subject to a cash out maximum. The cash out, portion may be used to purchase
property, other than real property. The loan terms under the Buster Plus
program range from one to 25 years.

The following table sets forth certain information with respect to the
Company's Buster Plus program:

BUSTER PLUS

CREDIT FICO MAXIMUM MAXIMUM MAXIMUM
GRADE SCORE LOAN AMOUNT(1) LTV(2) CASH OUT(3)
- ------ ----- -------------- -------- -----------

A+ 700 + $80,000 125.0% $25,000
A 680 - 699 $70,000 125.0% $20,000
B+ 660 - 679 $60,000 125.0% $15,000
B 640 - 659 $50,000 125.0% $10,000
C+ 620 - 639 $40,000 125.0% $ 5,000
C/D not available for this program

2
<PAGE>

(1) The maximum loan amount includes all closing costs and is $25,000 for
condos, 2-4 units, or manufactured housing, on all grades.
(2) LTV is determined by adding all debt secured by the property and dividing
the result by the value of the property. The maximum LTV for condos, 2-4
units, or manufactured housing is 100%, on all grades. Does not give
effect to any increased value from the home improvement portion of the
loan.
(3) Amounts are subject to a minimum of 40% being used for home improvement
purposes.

Under the Company's "Debt Buster" Conventional Loan program, the entire
loan amount can be used for any combination of debt consolidation, closing
costs and an allowable cash out, subject to a cash out maximum. The loan
proceeds may be used to purchase property other than real property. The loan
terms under the Debt Buster program range from one to 25 years.

3
<PAGE>

The following table sets forth certain information with respect to the
Company's Debt Buster program:

DEBT BUSTER

CREDIT FICO MAXIMUM MAXIMUM MAXIMUM
GRADE SCORE LOAN AMOUNT(1) LTV(2) CASH OUT(3)
- ------ ----- -------------- -------- -----------
A+ 700 + $65,000 125.0% $25,000
A 680 - 699 $55,000 125.0% $20,000
B+ 660 - 679 $45,000 125.0% $15,000
B 640 - 659 $35,000 125.0% $10,000
C+ 620 - 639 $25,000 125.0% $ 5,000
C/D not available for this program

TITLE I LOANS. Several types of loans may be made under the Title I
Program, including property improvement loans to finance the alteration,
repair or improvement of existing single family, multifamily and
non-residential structures. Under the Title I Program, loan processing and
credit determination procedures are carried out by the lending institution.
Under the Title I Program, the FHA does not review individual loans at the
time of approval, except when the amount of a Title I Program loan would
result in any borrower having a total unpaid principal obligation on all
Title I Loans in excess of $25,000. No equity is required in the property
subject to improvement for loans of $25,000 or less. Title I Loans are fully
amortizing with maximum terms to maturity of 20 years. All borrowers are
required to possess one-half vested interest or more in the property subject
to improvement and are qualified based upon their ability to make monthly
payments rather than on the loan-to-value ratio on the underlying real estate
collateral.

The Title I Program is an insurance program. A loan owner under the
Title I Program assumes the risk of losing up to 10% of the principal balance
on every loan, plus certain expenses submitted to the FHA for an insurance
claim, plus a portion of the interest on such loans. The FHA insures the
remaining 90% of the principal balance of each loan and certain interest
costs, provided that the owner has not depleted its loss reserve account
established with the Department of Housing and Urban Development ("HUD") and
the loan was originated within HUD guidelines. The HUD loss reserve account
balance is adjusted by HUD as claims are paid and new Title I Loans are
acquired. If at any time claims exceed the loss reserve balance, the
remaining Title I Loans will be uninsured until the reserve account balance
is increased by new loan originations or purchases. When Title I Loans are
securitized, all loss reserves related to the securitized loans are
transferred to the securitization trust. As a result, the Company's loss
reserve account is significantly reduced after each of the Company's
securitization transactions until new originations or purchases replenish the
Company's HUD loss reserve account. The loan owner generally pays to HUD an
insurance charge equal to 0.5% of the loan amount, multiplied by the number
of years of the loan term.

The average size of a Title I Loan originated by the Company for fiscal
1995 and 1996 was approximately $15,160 and $17,414 respectively. During
fiscal 1994, fiscal 1995 and 1996, originations of Title I Loans accounted
for approximately 43.8%, 49.3% and 11.1%, respectively, of the Company's
total strategic loans originated.

4
<PAGE>

CONSUMER LOANS. On October 1, 1996, the Company acquired National
Loans, Inc. ("National"), a personal consumer finance company with 26 branch
offices located in Mississippi and Tennessee and with approximately $15.3
million in finance receivables at the date of the acquisition. The
acquisition was accounted for as a pooling of interests. It is the Company's
desire to acquire additional consumer finance companies that have positive
cash flows and established branch entworks. The Company intends to deliver
its Direct Loans, in addition to the traditional personal consumer finance
products already offered, in such branches.

Consumer finance loans are typically secured by personal property and
other consumer products, evidenced by UCC filings, for amounts averaging
between $1,500 and $2,000 per loan and for a term of approximately 18 months,
although many of the loans are prior to maturity. National makes its credit
decisions primarily on its assessment of a customer's ability to repay the
obligation. In making a credit decision, in addition to the size of the
obligation, National generally considers a customer s income level, type and
length of employment, stability of residence, personal references and prior
credit history. Volume yields range from 24% to 39% on direct loans and 18%
to 24% on sales finance contracts. The average collection yield for all
accounts is approximately 34%.

LOAN ORIGINATION CHANNELS

The Company originates Correspondent Loans through its network of regional
correspondent lenders and Direct Loans through direct mail, telemarketing and
advertising. Historically, the Company originated Contractor Loans through
the Company's network of independent home improvement contractors. Recently,
however, the Company discontinued its purchases of Contractor Loans and began
using certain of its larger independent home improvement contractors for
Direct Loan referrals. From time to time the Company makes selected purchases
of Bulk Loans as another means of increasing the Serviced Loan Portfolio. As
a result of its recent acquisitions, the Company makes certain non-strategic
loans, which the Company intends to discontinue.

The table below presents for strategic and non-strategic loans the loan
production and the weighted average coupon ("WAC") for each quarter since the
beginning of fiscal 1995, subdivided into Conventional and Title I Loans:

5
<PAGE>
<TABLE>
<CAPTION>
LOAN PRODUCTION AND WAC

THREE MONTHS ENDED
------------------------------------------------------------------------------------
DECEMBER 31, 1994 MARCH 31, 1995 JUNE 30, 1995 SEPTEMBER 30, 1995
------------------ ------------------ ------------------ ------------------
DOLLARS #UNITS WAC DOLLARS #UNITS WAC DOLLARS #UNITS WAC DOLLARS #UNITS WAC
------- ------ --- ------- ------ --- ------- ------ --- ------- ------ ---
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STRATEGIC LOANS
Correspondent Loans:
Conventional $- - -% $2,114 146 15.48% $682 75 14.94% $33,698 1,407 14.74%
Title I - - - 4,950 232 13.61 13,571 665 13.52 26,851 1,774 13.74
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total $- - -% $7,064 378 13.64% $14,253 740 13.66% $60,549 3,181 14.22%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Direct Loans:
Conventional $- - -% $- - -% $- - -% $310 13 15.54%
Title I - - - 16 2 15.26 454 30 15.07 126 8 15.14
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total $- - -% $16 2 15.26% $454 30 15.07% $436 21 15.42%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Contractor Loans:
Conventional $4,248 390 15.80% $5,303 442 16.25% $7,022 497 15.77% $7,249 509 15.12%
Title I 2,719 256 15.56 2,968 278 15.56 3,690 333 14.97 3,612 311 14.24
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total $6,967 646 15.76% $8,271 720 16.02% $10,712 830 15.48% $10,861 820 14.79%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Bulk Loans:
Conventional $108 25 -% $2,063 142 -% $12,392 1,036 -% $1,454 108 -%
Title I - - - 4,606 336 - 86,695 5,907 - 1,034 289 -
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total $108 25 -% $6,669 478 -% $99,087 6,943 -% $2,488 397 -%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total Strategic Loan
Production:
Conventional $4,356 415 15.80% $9,480 730 16.03% $20,096 1,608 15.70% $42,711 2,037 14.81%
Title I 2,719 256 15.56 12,540 848 14.34 104,410 6,935 13.86 31,623 2,382 13.80
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total $7,075 671 15.76% $22,020 1,578 14.92% $124,506 8,543 14.45% $74,334 4,419 14.31%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
NON-STRATEGIC LOANS
Total Non-strategic
Loan Production $14,308 289 9.43% $11,809 465 12.06% $18,784 683 11.94% $38,522 1,023 9.84%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
Total Loan
Production: $21,383 960 10.11% $33,829 2,043 13.54% $143,290 9,226 13.31% $112,856 5,442 12.68%
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------
-------- ----- ------ ------- ----- ------ -------- ------ ------ -------- ----- ------

THREE MONTHS ENDED
------------------------------------------------------------------------------------
DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996 SEPTEMBER 30, 1996
------------------ ------------------ ------------------ ------------------
DOLLARS #UNITS WAC DOLLARS #UNITS WAC DOLLARS #UNITS WAC DOLLARS #UNITS WAC
------- ------ --- ------- ------ --- ------- ------ --- ------- ------ ---
(DOLLARS IN THOUSANDS)
STRATEGIC LOANS
Correspondent Loans:
Conventional $73,165 2,871 14.77% $100,021 3,817 14.45% $233,343 8,141 14.63% $508,729 17,871 14.59%
Title I 44,098 2,930 13.72 19,118 924 13.63 18,672 917 13.95 25,655 1,197 13.52
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total $117,263 5,801 14.39% $119,139 4,741 14.32% $252,015 9,058 14.58% $534,384 19,068 14.54%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Direct Loans:
Conventional $573 25 16.78% $4,893 174 15.77% $8,256 332 16.19% $30,659 1,192 12.73%
Title I 111 4 15.71 237 12 15.97 277 17 15.62 109 8 12.69
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total $684 29 16.60% $5,130 186 15.78% $8,533 349 16.16% $30,768 1,200 12.73%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Contractor Loans:
Conventional $4,290 312 14.90% $2,590 161 14.60% $1,525 85 13.53% $799 32 12.97%
Title I 5,023 370 14.74 3,245 249 14.73 3,108 226 14.05 974 73 14.06
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total $9,313 682 14.80% $5,835 410 14.68% $4,633 311 13.87% $1,773 105 13.57%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Bulk Loans:
Conventional $36,309 1,303 -% $- - -% $- - -% $- - -%
Title I - - - - - - - - - - - -
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total $36,309 1,303 -% $- - -% $- - -% $- - -%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total Strategic Loan
Production:
Conventional $114,337 4,511 14.79% $107,504 4,152 14.51% $243,124 8,558 14.68% $540,187 19,095 14.57%
Title I 49,232 3,304 13.83 22,600 1,185 13.81 22,057 1,160 13.99 26,738 1,278 13.53
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total $163,569 7,815 14.43% $130,104 5,337 14.39% $265,181 9,718 14.62% $566,925 20,373 14.52%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
NON-STRATEGIC LOANS
Total Non-strategic
Loan Production $61,424 1,153 9.38% $141,129 1,948 8.33% $118,325 1,760 9.15% $61,293 1,163 9.65%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
Total Loan
Production: $224,993 8,968 13.07% $271,233 7,285 11.82% $383,506 11,478 13.43% $628,218 21,536 14.04%
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
-------- ----- ------ -------- ----- ------ -------- ------ ------ -------- ------ ------
</TABLE>

6
<PAGE>

CORRESPONDENT LOANS. Correspondent Loans are originated and closed by
independent correspondent lenders in accordance with the Company's own
underwriting standards and are subsequently purchased by the Company.
Commencing in the second quarter of fiscal 1995, the Company implemented a
Correspondent Loan program. During fiscal 1995 and 1996, the Company
purchased approximately $81.9 million and $1.0 billion of Correspondent
Loans, respectively. The Company typically purchases Correspondent Loans at
or above the par value of such loans. The average principal amount of
Correspondent Loans originated during fiscal 1995 and 1996 was $19,043 and
$26,451, respectively. The Company anticipates that its correspondent
operations will continue to expand and represent the majority of its overall
business in the short-to-mid-term.

The Company's Correspondent Loan program involves the purchase of both
Conventional Loans and Title I Loans from independent correspondent lenders
with whom the Company maintains ongoing relationships. These lenders are
usually situated in local markets where they are able to contact borrowers
and independent home improvement contractors directly. Correspondent lenders
tend to be commercial banks or finance companies that lack the infrastructure
to hold and service portfolios of Conventional or Title I Loans. Instead,
these entities concentrate on originating loans and then selling that
production at a premium.

The Correspondent Loan program benefits the Company by providing a
cost-effective means for the Company to market to borrowers who are not
easily accessible by the Company. Furthermore, the correspondent agreements
require that the selling institution warrant the validity and enforceability
of the loan, thereby reducing the risk of fraud or improper documentation. In
the event such warranty is breached, the Company may require the
correspondent lender to repurchase such loan. The Correspondent Loan market
is very competitive, and loans sold by correspondent lenders are generally
priced at a premium of between 2% to 7% over par value, as compared to
purchase prices at par or slightly below par for loans originated by the
Company through indirect and direct channels.

The Company currently purchases Correspondent Loans in 26 states from
306 independent correspondent lenders. During fiscal 1995 and 1996,
approximately 79.8% and 48.6%, respectively (by dollar volume), of the
Company's Correspondent Loans were originated from 10 independent
correspondent lenders. The Company allows independent correspondent lenders
to participate in the Company's correspondent operations only after a review
of their reputation, consumer finance lending experience and financial
condition, including a review of references, credit history and financial
statements. The development of new independent correspondent lender
relationships is directed by marketing managers.

Generally, the independent correspondent lender prepares the loan
application, assembles the supporting documentation and processes the loan.
Once the loan package is complete, it is submitted to the Company's
Correspondent Loan underwriting personnel, who review each loan package and,
in some cases, perform independent employment and credit verification and
arrange for a review of the appraisal, if any, submitted with the loan
package. Each Correspondent Loan is separately underwritten by the Company in
accordance with the Company's own underwriting standards. See "-- Underwriting."
If the loan package meets the Company's underwriting criteria,
the Correspondent Loan is closed by the originating lender and then purchased
by the Company. The Company typically approves the loan within two business
days of a complete loan package being submitted by the correspondent lender.

DIRECT LOANS. The Company originated approximately $906,000 and $45.1
million principal amount of Direct Loans in fiscal 1995 and 1996,
respectively. Direct Loans are typically originated through direct mailings,
telemarketing and advertising. The Direct Loan origination channel is the
Company's newest marketing strategy and is designed to decrease the costs and
increase the volume, size and quality of its loan originations. The Company
will target its marketing efforts at creditworthy homeowners who qualify as
candidates for home improvement projects or have debt consolidation needs,
but have little equity in their homes. Recently, the Company began using
certain of its larger independent home improvement contractors for Direct
Loan referrals. Direct Loan borrowers typically pay fees that range between
3% to 7% of the loan amount at closing. Management believes that this program
will distinguish the Company from other major home lenders as its FIRSTPLUS
name recognition increases.

Direct Loan applications are processed and underwritten by Company
personnel and are funded directly by the Company. Of all Direct Loans funded
in fiscal 1995 and 1996, 75.2% and 70.2%, respectively, were made to
borrowers who the Company classified as "B" credits or better. For Direct
Loans originated during fiscal 1995 and 1996, the average principal amount
was $17,094 and $25,575, respectively, the weighted average term to maturity
was 175 months and 214 months, respectively, for Conventional Loans and 182
months and 205 months, respectively, for Title I Loans, the weighted average

7
<PAGE>

interest rate was 15.4% and 16.2%, respectively, for Conventional Loans and
14.9% and 15.4%, respectively for Title I Loans.

BULK PURCHASES. The Company occasionally makes bulk purchases of pools
of home improvement and debt consolidation loans. Bulk Loans are originated
and closed by various lenders that package the loans and then sell them in
pools to financing companies such as the Company. Although the Company has
significantly reduced its Bulk Loan purchases and instead has focused on
Direct and Correspondent Loans, the Company may choose to compete in this
loan origination channel again in subsequent quarters. The Company generally
has purchased Bulk Loans from finance companies and savings and loan
associations through a competitive bidding process. The Company has
typically purchased such loans at between 1% and 5% above the par value of
such loans. The Company reviews the Bulk Loan portfolio to ensure that it
substantially complies with the Company's underwriting criteria. For larger
Bulk Purchases, the Company generally hires a third party to undertake the
review process, which consists of reviewing either all loans in the portfolio
or a sample of loans, depending on the size of the portfolio. Since the
Company usually must purchase the entire portfolio being offered, some
individual loans may not meet the Company's underwriting standards.

CONTRACTOR LOANS. The Company has discontinued its purchases of
Contractor Loans and has begun using certain of its larger independent home
improvement contractors for Direct Loan referrals.

NON-STRATEGIC LOANS. The Company acquired FIRSTPLUS East primarily to
use its direct mail capabilities as a platform from which to expand the
Company's Direct Loan program. FIRSTPLUS East began developing its Direct
Loan program for marketing strategic loans during 1995 and has conducted
Direct Loan mailings in the markets it serves in North and South Carolina.
FIRSTPLUS East's historical operations consist of originating first lien home
mortgage loans, including residential construction loans. FIRSTPLUS East
originates these loans through its eight locations in North and South
Carolina. Prior to its acquisition by the Company, FIRSTPLUS East sold its
first mortgage production as a correspondent lender to various third-party
financial institutions. The Company intends to discontinue originating first
mortgage loans.

In addition, the Company acquired FIRSTPLUS West, a former correspondent
lender to the Company. FIRSTPLUS West is an originator of Conventional and
Title I Loans and originated approximately $260.6 million of non-strategic
(primarily subordinate lien) loans during fiscal year 1996. These loans were
sold through third-party financial institutions on a whole-loan basis,
servicing released. FIRSTPLUS West originates non-strategic Loans through its
retail offices in Seattle, Denver and Atlanta and through an 80-person
telemarketing division in Denver. Over time, the Company intends to phase out
the origination of FIRSTPLUS West's non-strategic loan products and to
emphasize FIRSTPLUS West's strategic Direct Loan products.

MARKETING

The Company's marketing program is designed to develop national
recognition of the FIRSTPLUS brand name. To achieve this objective, the
Company employs an advertising strategy that includes a combination of
national television, local radio, direct mail and telemarketing. The
television campaign utilizes the Company's spokesperson, star quarterback Dan
Marino. The national television advertising is reinforced through direct
mailings and radio advertisements to targeted borrowers in local markets.
Customer applications are taken by the Company through the use of its
1-800-510-PLUS phone number and its telemarketing operation.

The Company also is pursuing an affinity marketing strategy. The
Company currently sponsors the Eddie Cheever Indy race team, the U.S. Indy
Racing League, NASCAR racing and celebrity golf tournaments in Texas, Florida
and Puerto Rico. The Company has representatives at such events to gather
information from prospective customers and also to provide loan applications.
Additionally, the Company is developing alliances with home improvement
retailers to further the distribution of its home improvement loan products,
whereby customers will be able to apply for loans at kiosks located in home
improvement stores throughout the country.

8
<PAGE>

UNDERWRITING

The Company's underwriting group primarily operates out of the Company's
Dallas, Texas headquarters. The Company receives loan applications from its
network of independent correspondent lenders and independent home improvement
contractors via facsimile machines. In addition, individuals respond to the
Company's direct marketing program by United States mail or through direct
telephone contact with Company representatives. Loan applications are
monitored by the Company's tracking department to ensure prompt turnaround,
efficient underwriting procedures and accurate credit verification. The loan
processing staff prepares an application file by obtaining credit bureau
reports, highlighting any significant credit events and prioritizing
applications that need immediate attention before submitting the application
to the appropriate loan underwriter. The Company applies the same
underwriting criteria to Correspondent Loans. The Company's underwriters have
an average of seven years of banking, finance and consumer loan experience.
The Company has put in place a credit policy that provides a number of
guidelines to assist underwriters in the credit decision process.

Loans are classified by the Company into seven gradations of quality,
from "A+" to "D" credits. However, the Company currently makes loans only to
borrowers it classifies as "C+" or better for Conventional Loans and "C" or
better for Title I Loans. The Company's methodology for determining loan
quality considers primary credit characteristics, and a series of parameters
based on property types. Primary characteristics include the borrower's FICO
score, debt-to-income ratio, mortgage credit history, consumer credit
history, bankruptcies, foreclosures, notice of defaults, deeds in lieu of
foreclosure and repossessions. The Company believes that the most important
credit characteristics are the borrower's FICO score and debt-to-income
ratio, the latter of which, may not exceed 50% of the applicant's gross
income and may only exceed 45% of the applicant s gross income for B+ or
higher credits with strong disposable income. The Company is currently
developing an algorithm based on the consumer credit file, which, when
coupled with the FICO score (a dominant factor used in assessing the consumer
credit file), provide a means to assess the applicant's probability of
default. The algorithm utilized by the Company includes such edit checks as
age, present delinquency review, minimum satisfactory rated accounts and
maximum derogatory counters. The Company's algorithm, when developed, will
act as a cutoff, segregating likely deficit candidates from the entire pool
of applicants in an automated fashion. The primary factors operate based upon
the lowest common denominator principle and determine parameters to be
followed for that loan. The parameters limit the size of the loan and
loan-to-value by grade and property type. Generally, there are no
loan-to-value restrictions for Title I Loans.

9
<PAGE>

The following table summarizes the underlying borrower characteristics
for each classification used by the Company.

<TABLE>
CONSUMER
EXISTING HISTORY BANKRUPTCY DEBT SERVICE-TO-
CLASSIFICATION (1) MORTGAGE FICO SCORE FILINGS INCOME RATIO (2)
- ------------------ -------- ----------- ------- ----------------
<S> <C> <C> <C> <C>

"A+" Credit No 30-day late 700+ None allowed Generally 50% or
payment in last 12 less
months and no 60-day
late payment ever

"A" Credit Maximum of one 30- 680 - 699 None allowed Generally 50% or
day late payment in less
last 12 months and no
60-day late payment
ever

"B+" Credit Maximum of two 30- 660 - 679 None allowed Generally 50% or
day late payments in less
last 12 months and no
60-day late payments
ever

"B" Credit Maximum of two 30- 640 - 659 Must have been Generally 45% or
day late payments in discharged for at less
last 12 months and no least three years with
60-day late payments reestablished credit
ever prior to closing

"C+" Credit Maximum of three 620 - 639 Must have been Generally 45% or
30-day late payments discharged for at less
in last 12 months and least three years with
no 60-day late reestablished credit
payment ever prior to closing

</TABLE>

(1) The Company does not originate Conventional Loans to borrowers it
classifies as "C" or "D" credits or Title I Loans to borrowers it
classifies as "D" credits.
(2) Calculated by dividing the borrower's debt obligations (after any debt
consolidation) by their monthly gross earnings.

SERVICING OPERATIONS

GENERAL. The Company services all of the loans it originates or
purchases at its headquarters in Dallas, Texas, except for $68.0 million of
loans subserviced by Citizens. Prior to the Combination and the acquisition
of FIRSTPLUS Financial's loan servicing operations, SFAC did not service any
of its loans. See "-- Combination." The Company's servicing includes
collecting and remitting loan payments, accounting for principal and
interest, contacting delinquent borrowers, handling borrower defaults,
recording mortgages and assignments, investor and securitization reporting
and management portfolio reporting. It is the Company's strategy to grow and
build its Serviced Loan Portfolio.

The Company receives a servicing fee based on a percentage of the
declining principal balance of each loan serviced. Servicing fees are
collected by the Company out of the borrower's monthly loan payments. In
addition, the Company, as servicer, receives most late and assumption charges
paid by the borrower, as well as other miscellaneous fees for performing
various loan servicing functions. In connection with the $86.7 million Bulk
Loan purchase from Citizens, the Company permitted Citizens to continue as
subservicer of the purchased portfolio for a fee equal to one percent of the
underlying loan balance (as collected). The Company made this decision in
exchange for paying a lower purchase price for the loan portfolio. Although
the Company intends to service substantially all Bulk Loans purchased in the
future, the Company may again choose to allow the prior servicer to continue
as servicer if the Company believes that it is economically beneficial for
the Company. In general, such a decision by the Company should have an
immaterial effect on the Company's results of operations and financial
condition.

The Serviced Loan Portfolio is subject to reduction by normal monthly
payments, by prepayments, foreclosures and chargeoffs. In general, revenues
from the Serviced Loan Portfolio may be adversely affected as interest rates
decline and loan prepayments increase. In some states in which the Company
currently operates, prepayment fees may be limited or prohibited

10
<PAGE>

by applicable state law. In addition, the Company's ability to collect
prepayment fees under certain circumstances will be restricted in future
periods under recently enacted laws. Prepayment fees are prohibited on all
Title I Loans. See "-- Regulation."

The following table sets forth the dollar amount and average loan amount
of Correspondent Loans, Contractor Loans, Direct Loans and Bulk Loans, each
as subdivided into Conventional Loans and Title I Loans, included in the
Serviced Loan Portfolio as of September 30, 1996, excluding loans subserviced
by a third party:

11
<PAGE>

SERVICED LOAN PORTFOLIO
AS OF SEPTEMBER 30, 1996

<TABLE>
CONVENTIONAL
LOANS TITLE I LOANS TOTAL
------------ ------------- --------------
<S> <C> <C> <C>
Correspondent Loans:
Total dollar amount . . . . . . $764,913,659 $133,638,707 $ 898,552,366
Average loan amount . . . . . . 27,609 19,854 26,094
Contractor Loans:
Total dollar amount . . . . . . 23,289,654 55,065,319 78,354,972
Average loan amount . . . . . . 13,188 6,714 7,861
Direct Loans:
Total dollar amount . . . . . . 44,691,397 1,330,405 46,021,802
Average loan amount . . . . . . 25,744 16,425 25,328
Bulk Loans:
Total dollar amount . . . . . . 158,246,760 85,971,491 244,218,252
Average loan amount . . . . . . 26,037 14,145 20,095
Total:
Total dollar amount . . . . . . 991,141,470 276,005,922 1,267,147,392
Average loan amount . . . . . . 26,583 13,094 21,714
</TABLE>

The Company originates loans from 45 states. The following table
summarizes the loans in the Serviced Loan Portfolio by geographic location as
of September 30, 1996:

GEOGRAPHIC CONCENTRATION OF STRATEGIC LOANS
AS OF SEPTEMBER 30, 1996

LOANS PERCENT
---------- -------
(DOLLARS IN THOUSANDS)
STATE:
California . . . . . . . . . . . . . $ 750,883 59.2%
Arizona. . . . . . . . . . . . . . . 63,260 5.0
Nevada . . . . . . . . . . . . . . . 56,889 4.5
Colorado . . . . . . . . . . . . . . 54,051 4.3
Texas. . . . . . . . . . . . . . . . 29,868 2.4
All others (40 states) . . . . . . . 312,196 24.6
---------- -----
Total. . . . . . . . . . . . . . $1,267,147 100.0%
---------- -----
---------- -----

12
<PAGE>

LOANS HELD FOR SALE. Loans held for sale are carried at the lower of
cost or market. These loans represent investments the Company has made in
loans that it currently expects to sell within a 180-day period. The Company
may elect to hold the loans on its balance sheet for periods in excess of 180
days in the future in order to maximize the interest income resulting from
holding such loans on the balance sheet as well as to reduce the costs
related to securitization transactions. To implement such a strategy, it
will be necessary for the Company to obtain alternative sources of funds to
finance this longer warehouse period.

The components of loans held for sale are as follows:

YEAR ENDED SEPTEMBER 30,
----------------------------
1995 1996
----------- ------------
Conventional Loans. . . . . . . . . . . . $14,066,740 $386,934,441
Title I Loans . . . . . . . . . . . . . . 7,202,788 34,711,739
Nonstrategic loans (1). . . . . . . . . . 27,871 3,540,347
----------- ------------
Subtotal . . . . . . . . . . . . . . 21,297,399 425,186,527
Participations sold . . . . . . . . . . . (902,390) --
Allowance for possible credit losses. . . (887,879) (6,495,073)
Net purchase premiums (discount) on
conventional loans . . . . . . . . . . . (71,953) 12,120,251
----------- ------------
Total. . . . . . . . . . . . . . . . $19,435,177 $430,811,705
----------- ------------
----------- ------------

(1) Consists of first lien mortgage loans and construction loans.

The Serviced Loan Portfolio, which includes loans held for sale, as well
as loans serviced for the securitizations and other investors, consisted of
$1.0 billion in Conventional Loans and $250.9 million in Title I Loans at
September 30, 1996.

DELINQUENCIES AND FORECLOSURES. The Company's collection operations
include customer complaint monitoring, resolution of inspection
discrepancies, daily delinquency maintenance, legal remedies and HUD claims.
Loans originated or purchased by the Company are generally secured by
mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice in the state in which the property securing the
loan is located. Depending on local law, foreclosure is effected by judicial
action or nonjudicial sale, and is subject to various notice and filing
requirements. In general, the borrower, or any person having a junior
encumbrance on the real estate, may cure a monetary default by paying the
entire amount in arrears plus other designated costs and expenses incurred in
enforcing the obligation during a statutorily prescribed reinstatement
period. Generally, state law controls the amount of foreclosure expenses and
costs, including attorneys' fees, that may be recovered by a lender. After
the reinstatement period has expired without the default having been cured,
the borrower or junior lienholder no longer has the right to reinstate the
loan and must pay the loan in full to prevent the scheduled foreclosure sale.

Typically, the Company has chosen not to pursue foreclosures due to the
costs involved. The Company may pursue foreclosure as an alternative in its
default management process. The Company evaluates loans and determines
whether foreclosure is economically and procedurally the most viable
alternative for collection of each loan that is in default. For loans that
reach the later states of delinquency (typically more than 91 days), a loan
work-up is initiated. This work-up outlines the type of loan (Title I or
Conventional Loan), lien position (first or junior) and other qualification
information. An appraisal is ordered from a select group of qualified
appraisers approved by the Company in order to assess property value and
calculate potential equity. If this initial assessment suggests that equity
exists above certain thresholds, the Company will order a title opinion from
a qualified source. The title opinion reveals lien position as well as any
potential tax delinquency issues or judgments. Upon completion of this
work-up, the recovery potential is assessed. For Title I Loans, if the
recovery potential approximates 100% of the principal balance plus a
pre-determined amount, the loan is considered for foreclosure. If this
potential recovery is not met, the loan will be referred to HUD as a claim.
For Conventional Loans, a determination is made on the partial or full
recovery of principal balance and associated expense. If the recovery
potential is sufficient from a cost/benefit/loss perspective, the Company may
initiate foreclosure proceedings. If the evaluations indicate that
foreclosure offers no economic advantage to the Company, it may be determined
to secure and file a judgment against the borrower instead of pursuing
further foreclosure efforts and incurring additional costs. In addition, the
Company may choose to pursue garnishment proceedings against the borrower.

13
<PAGE>

The Company's loans under the Title I Loan Program are eligible for HUD
insurance; this insurance insures 90% of Title I Loans, provided that the
Company has not depleted its loss reserve account established with HUD and
provided the loans were originated within applicable HUD guidelines. The
balance in the loss reserve account is adjusted by HUD as claims are paid and
new Title I Loans are originated or purchased. At September 30, 1996, claims
in process for all loans serviced by the Company were approximately $4.3
million. If at any time claims exceed the Company's or any securitization
trust's loss reserve balance, the remaining Title I Loans will be uninsured
until the respective reserve account balance is increased by new loan
originations or purchases. The Company's Conventional Loans are non-insured.

The activity in the allowance for possible credit losses is summarized
as follows:

<TABLE>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1994 1995 1996
-------- ---------- -----------
<S> <C> <C> <C>
Balance, beginning of year . . . . . . . . . . . . . $131,367 $ 325,429 $ 4,794,385
Allowance from FIRSTPLUS Financial acquisition . . . - 160,000 -
Provision for possible credit losses . . . . . . . . 264,429 4,452,286 59,644,195
Participations purchased with a reserve. . . . . . . - - 214,909
Charge-offs, net . . . . . . . . . . . . . . . . . . (70,367) (143,330) (3,901,616)
Balance, end of year . . . . . . . . . . . . . . . . $325,429 $4,794,385 $60,751,873
-------- ---------- -----------
-------- ---------- -----------

Components of Allowance:
Allowance for possible credit losses on
loans held for sale. . . . . . . . . . . . . . . . . $325,429 $ 887,879 $ 6,495,073
Allowance for possible credit losses on
loans sold . . . . . . . . . . . . . . . . . . . . . - 3,906,506 54,256,800
-------- ---------- -----------

Total . . . . . . . . . . . . . . . . . . . . . $325,429 $4,794,385 $60,751,873
-------- ---------- -----------
-------- ---------- -----------

Allowance for possible credit losses on
loans held for sale as a percentage of
loans held for sale. . . . . . . . . . . . . . . . . 4.7% 4.2% 1.5%
Allowance for possible credit losses on
loans sold as a percentage of the
outstanding balance of loans sold. . . . . . . . . . - % 1.8% 6.1%
</TABLE>

At September 30, 1996 and 1995, the gross allowance for possible credit
losses on loans sold was approximately $69.6 million and $6.8 million,
respectively, which was recorded at a discount using a risk-free discount
rate of 6.5%.

The following tables set forth delinquency, loss and default information
with respect to the Serviced Loan Portfolio at the dates and for the periods
indicated:

DELINQUENCY CHARACTERISTICS
OF THE SERVICED LOAN PORTFOLIO
<TABLE>
FIRSTPLUS FINANCIAL (1) COMPANY
----------------------------- --------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
1993 1994 ----------------------------- -----------------------------
------------- ------------- CONVENTIONAL CONVENTIONAL
TITLE I LOANS TITLE I LOANS TITLE I LOANS LOANS TITLE I LOANS LOANS
------------- ------------- ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Amount of Serviced
Loan Portfolio at end
of period . . . . . . . $62,629,000 $52,835,000 $174,479,000 $64,105,000 $275,789,000 $991,358,000
Delinquent loans as
a percentage of
loans serviced
(period end)(2):
31-60 days . . . . . . 3.1% 2.5% 2.1% 1.0% 2.1% 0.4%
61-90 days . . . . . . 0.8 0.8 0.7 0.8 1.0 0.2
91 days and
over. . . . . . . . . 2.9 3.6 1.9 2.8 4.8 0.8
----------- ----------- ------------ ----------- ------------ ------------

Total . . . . . . . . 6.8% 6.9% 4.7% 4.6% 7.9% 1.4%
----------- ----------- ------------ ----------- ------------ ------------
----------- ----------- ------------ ----------- ------------ ------------
</TABLE>
- ---------------
(1) Data is presented for FIRSTPLUS Financial because prior to October 4, 1994
the Company did not have servicing operations and because the servicing
operations of FIRSTPLUS West for such periods related primarily to
non-strategic loans.

14
<PAGE>

(2) Includes loans on properties on which the Company is foreclosing and
properties in bankruptcy, but excludes real estate owned.

LOSS AND DEFAULT CHARACTERISTICS
OF THE SERVICED LOAN PORTFOLIO
<TABLE>
FIRSTPLUS FINANCIAL (1) COMPANY
----------------------- ----------------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED
----------------------- ----------------------------------------
1993 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996
------ ------ ----------------- ------------------
<S> <C> <C> <C> <C>
Net losses as a percentage of the
average Serviced Loan Portfolio (2) 0.39% 0.44% 0.04% 0.12%

Defaults as a percentage of the
average Serviced Loan Portfolio (2)(3) 2.04% 2.64% 0.69% 1.29%
</TABLE>
- ---------------
(1) Data is presented for FIRSTPLUS Financial because prior to October 4, 1994
the Company did not have servicing operations and because the servicing
operations of FIRSTPLUS West for such periods related primarily to
non-strategic loans.

(2) The average Serviced Loan Portfolio is calculated by adding the beginning
and ending balances for the fiscal year and dividing the sum by two.

(3) A loan is defaulted when management deems that the loan is no longer
collectible. Generally, this occurs after 180 days of delinquency.

While the preceding tables generally indicate that the Company is
experiencing declining delinquency, loss and default rates on its Serviced
Loan Portfolio as a whole, such rates have followed the historical trends on
a pool-by-pool basis, which trends assume increased rates of delinquencies
over time. Although such increases to date have been within the parameters
anticipated by the Company at the time of each securitization, there can be
no assurance that such rates will not continue to increase. Loans selected by
the Company to contribute to the securitization trusts generally possess
reduced delinquency, default and loss rates due to certain requirements of
the securitization trusts and to the Company's own policy with regard to
selecting loans to contribute. As these loans age, the securitization trusts
will tend to experience gradual increases in delinquency, default and loss
rates as the securitized loans trend toward historically higher delinquency,
default and loss rates. The overall decline in such rates on the Serviced
Loan Portfolio is principally due to the increased volume of loans originated
by the Company. The Company calculates its delinquency and default rates by
dividing the amount of delinquent or defaulted loans in the Serviced Loan
Portfolio by the total Serviced Loan Portfolio. Since the Company is
originating higher volumes of new loans that, due to their lack of seasoning,
tend to have lower delinquency and default rates, the Company's overall
delinquency and default rates have decreased. See "-- Securitization."

The following table sets forth certain delinquency and default
information with respect to the Company s securitizations:

<PAGE>
DELINQUENCY AND DEFAULTS FOR THE COMPANY'S SECURITIZATIONS(1)
<TABLE>
<CAPTION>
1994-1 1995-1 1995-2 1995-3 1995-4
----------------- ----------------- ------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1995
Current $34,868,000 91.3% $15,139,000 92.5% $96,420,000 96.0% $65,297,000 99.4%
------------ --- ----------- ---- ------------ ----- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ----
31-60 days $1,387,000 3.6% $453,000 2.8% $1,800,000 1.8% $199,000 0.3%
61-90 days 473,000 1.3 250,000 1.5 793,000 0.8 191,000 0.3
91 days and over 1,444,000 3.8 526,000 3.2 1,433,000 1.4 30,000 0.0
------------ --- ----------- ---- ------------ ----- ----------- ----
Total $3,304,000 8.7% $1,229,000 7.5% $4,026,000 4.0% $420,000 0.6%
------------ --- ----------- ---- ------------ ----- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ----
Defaults/Defaults as a
percentage of average
monthly balance $71,000 0.2% $ -- 0.0% $ -- 0.0% $ -- 0.0%
------------ --- ----------- ---- ------------ ----- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ----
As of December 31, 1995
Current $32,363,000 91.3% $14,259,000 93.0% $91,198,000 94.6% $72,189,000 98.0% $74,663,000 99.7%
31-60 days $1,778,000 5.0% $444,000 2.9% $2,080,000 2.2% $947,000 1.3% $218,000 0.3%
61-90 days 379,000 1.1 204,000 1.3 785,000 0.8 229,000 0.3 16,000 0.0
91 days and over 939,000 2.6 425,000 2.8 2,345,000 2.4 317,000 0.4 25,000 0.0
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Total $3,096,000 8.7% $1,073,000 7.0% $5,210,000 5.4% $1,493,000 2.0% $259,000 0.3%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Defaults/Defaults as a
percentage of average
monthly balance $987,000 2.4% $490,000 3.0% $558,000 0.6% $ -- 0.0% $ -- 0.0%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
As of March 31, 1996
Current $30,713,649 94.2% $13,811,292 93.8% $86,622,634 93.9% $69,665,579 96.1% $77,427,295 98.5%
31-60 days $905,179 2.8% $278,372 1.9% $1,491,122 1.6% $1,295,274 1.8% $617,991 0.8%
61-90 days 239,990 0.7 125,908 0.9 838,610 0.9 549,267 0.8 225,096 0.3
91 days and over 793,467 2.4 508,113 3.4 3,330,116 3.6 970,070 1.3 275,033 0.4
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Total $1,938,636 5.9% $912,393 6.2% $5,659,848 6.1% $2,814,611 3.9% $1,118,120 1.5%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Defaults/Defaults as a
percentage of average
monthly balance $185,054 0.5% $105,556 0.7% $471,493 0.5% $97,304 0.1% $40,000 0.1%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
As of June 30, 1996
Current $28,168,294 93.0% $13,019,667 92.9% $81,073,528 92.8% $66,219,920 93.8% $73,917,023 95.9%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
31-60 days $855,792 2.8% $398,922 2.8% $1,820,636 2.1% $1,287,665 1.8% $1,283,481 1.7%
61-90 days 297,607 1.0 130,923 0.9 823,536 0.9 732,604 1.0 782,049 1.0
91 days and over 970,497 3.2 475,344 3.4 3,700,779 4.2 2,429,046 3.4 108,581 1.4
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Total $2,123,896 7.0% $1,005,189 7.1% $6,344,951 7.2% $4,449,315 6.2% $3,149,111 4.1%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Defaults/Defaults as a
percentage of average
monthly balance $199,381 0.6% $225,326 1.6% $1,110,712 1.2% $137,237 0.2% $100,109 0.1%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
As of September 30,1996
Current $26,144,645 93.0% $11,679,850 91.2% $75,587,362 92.3% $62,174,546 93.0% $70,611,343 95.4%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
31-60 days $715,727 2.5% $550,826 4.3% $1,774,053 2.2% $1,664,704 2.5% $1,379,826 1.9%
61-90 days 242,578 0.9 114,445 0.9 819,700 1.0 894,362 1.3 687,279 0.9
91 days and over 1,004,791 3.6 464,207 3.6 3,722,225 4.5 2,118,067 3.2 1,356,079 1.8
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Total $1,963,096 7.0% $1,129,478 8.8% $6,315,978(1) 7.7% $4,677,133 7.0% $3,423,184 4.6%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
Defaults/Defaults as a
percentage of average
monthly balance $320,051 1.1% $264,774 2.0% $1,536,788 1.8% $857,380 1.2% $394,616 0.5%
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
------------ --- ----------- ---- ------------ ----- ----------- ---- ----------- ----
</TABLE>

<TABLE>
<CAPTION>
1996-1 1996-2 1996-A 1996-3
----------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As of September 30, 1995
Current
31-60 days
61-90 days
91 days and over
Total
Defaults/Defaults as a
percentage of average
monthly balance
As of December 31, 1995
Current
31-60 days
61-90 days
91 days and over
Total
Defaults/Defaults as a
percentage of average
monthly balance
As of March 31, 1996
Current $117,918,981 99.3%
------------ ----
------------ ----
31-60 days $326,276 0.3%
61-90 days 361,219 0.3
91 days and over 74,722 0.1
------------ ----
Total $762,217 0.7%
------------ ----
------------ ----
Defaults/Defaults as a
percentage of average
monthly balance $ -- 0.0%
------------ ----
------------ ----
As of June 30, 1996
Current $113,928,024 97.4% $208,420,466 99.8 % $8,333,228 99.2%
------------ ---- ------------ ----- ---------- ----
------------ ---- ------------ ----- ---------- ----
31-60 days $1,511,784 1.3% $427,930 0.2 % $65,949 0.8%
61-90 days 638,324 0.6 -- 0.0 0 0.0
91 days and over 860,779 0.7 28,385 0.01 0 0.0
------------ ---- ------------ ----- ---------- ----
Total $3,010,887 2.6% $456,315 .21% $65,949 0.8%
------------ ---- ------------ ----- ---------- ----
------------ ---- ------------ ----- ---------- ----
Defaults/Defaults as a
percentage of average
monthly balance $ -- 0.0% $ -- 0.0 % $ -- 0.0%
------------ ---- ------------ ----- ---------- ----
------------ ---- ------------ ----- ---------- ----
As of September 30,1996
Current $109,902,730 96.3% $243,902,224 98.9 % $7,690,213 96.9% $254,868,067 100.0%
------------ ---- ------------ ----- ---------- ---- ------------ -----
------------ ---- ------------ ----- ---------- ---- ------------ -----
31-60 days $1,336,403 1.2% $1,480,512 0.6 % $116,977 1.5% $25,000 0.0%
61-90 days 558,174 0.5 591,187 0.3 55,477 0.7 20,000 0.0
91 days and over 2,266,643 2.0 589,090 0.2 72,897 0.9 0 0.0
------------ ---- ------------ ----- ---------- ---- ------------ -----
Total $4,161,220 3.7% $2,660,789 1.1 % $245,351 3.1% $45,000 0.0%
------------ ---- ------------ ----- ---------- ---- ------------ -----
------------ ---- ------------ ----- ---------- ---- ------------ -----
Defaults/Defaults as a
percentage of average
monthly balance $175,637 0.2% $200,030 0.1 % $ -- 0.0% $ -- 0.0%
------------ ---- ------------ ----- ---------- ---- ------------ -----
------------ ---- ------------ ----- ---------- ---- ------------ -----
</TABLE>

______________
(1) A loan is defaulted when management deems that the loan is no longer
collectible. Generally, this occurs after 180 days of deliquency.

<PAGE>

MANAGEMENT INFORMATION SYSTEMS

The Company's servicing operations are currently operated on an IBM
AS/400-based system. Management believes that the Company's existing computer
capacity will be sufficient through fiscal 1997 but has begun to implement a
program to upgrade and expand its current systems. Such plan includes
upgrading and enhancing the Company's current "front-end" origination and
servicing systems. In addition, the Company is evaluating certain document
imaging technologies and direct "on line" communications with correspondent
lenders. Management believes that such advances should increase the
efficiency of the Company's underwriting and servicing operations. The
Company currently stores a duplicate of all system information in an off-site
protected facility. The Company is in the process of developing a complete
disaster recovery plan that will result in only a few hours of down time in
the event of a disaster. This plan is expected to be completed during 1997.
Consideration of future consumer finance company acquisitions will include
the assessment of system capabilities as they relate to consumer finance
loans. Currently, National depends on a third party to maintain automated
servicing records.

SECURITIZATION

In fiscal 1995 and 1996, substantially all of the loans originated or
purchased by the Company were sold through securitization transactions. The
Company intends to execute securitizations regularly; however, there can be
no assurance that it will be able to do so. The Company sold through nine
securitization transactions approximately $234.8 million and $723.1 million
of loans during fiscal 1995 and 1996, respectively.

In a securitization transaction, investors purchase pass-through
certificates evidencing fractionalized but undivided beneficial ownership
interests in a pool of loans sold to a grantor trust. The principal and
interest payments on the pooled loans, less the servicing fee and certain
expenses, are distributed by the trust to the senior certificate holders and
to the Company as beneficial holder of the Excess Serving Receivable. In some
cases the Company retains an unrated subordinate certificate that provides
additional credit enhancement to the senior certificate.

The pooling and servicing agreements that govern the distribution of
cash flows from the loans included in the securitization trusts require
either (i) the establishment of a reserve account that may be funded with an
initial cash deposit by the Company or (ii) the overcollateralization of the
trust intended to result in receipts and collections on the loans that exceed
the amounts required to be distributed to holders of interests. The Company's
interest in each reserve account and overcollateralized amount is reflected
in the Company's Financial Statements as "Receivable from trusts." To the
extent that borrowers default on the payment of principal or interest on the
loans, losses will be paid out of the reserve account or will reduce the
overcollateralization to the extent that funds are available. The reserve
account or overcollateralization account will thereafter be replenished, to
the extent required by each securitization pooling and servicing agreement,
to the extent of the appropriate Excess Servicing Receivable related to each
securitization pool. If payment defaults exceed the amount in the reserve
account or the amount of overcollateralization, as applicable, the Company's
insurance policy, if applicable, will pay any further losses experienced by
holders of the senior interests in the related trust to the extent these
interests are insured; however, the Excess Servicing Receivable will not be
paid until the insurer and the trust are repaid for any losses. At September
30, 1996 the Company's reserve accounts in its securitizations totaled $26.3
million. Sharing agreements required third parties to maintain certain
reserve accounts in the trusts as of September 30, 1996 totaling $2.6
million. The outstanding securitized loan balance was $887.3 million as of
September 30, 1996.

The Company may be required either to repurchase or to replace loans
that do not conform to the representations and warranties made by the Company
in the pooling and servicing agreements entered into when the loans are
pooled and securitized. To the extent these nonconforming loans breach a
warranty made by a correspondent lender or the seller of such loan, the
Company may require the correspondent lender or seller to repurchase the
nonconforming loan; however, there is no assurance that the correspondent
lender will have the financial capability to purchase the loan.

HOME IMPROVEMENT INDUSTRY

Home improvement lending is a large, highly fragmented industry. In
recent years, a trend toward consolidation has developed. From the standpoint
of individual owners, the Company believes that this trend results from
family succession issues, a desire for liquidity and increasing tax estate
planning and regulatory complexities, as well as the increasing competitive
threat posed by larger lenders. From the standpoint of such larger lenders,
it appears that the consolidation trend is driven by the benefits derived
from economies of scale, improved managerial control and strategic planning.

17
<PAGE>

Data from the U.S. Census Bureau indicates that 1995 home improvement
spending totaled $111.7 billion. Management believes that the amount of home
improvements financed in 1995 was a significant percentage of the total home
improvement market.

While there are many factors driving the home improvement market the
Company believes that appreciation of housing values is a key factor driving
the growth of the industry. Other factors that affect the growth of the
industry include aging and turnover rates of the housing stock, the length of
time the homeowner has lived in the home and real rental rates.

COMPETITION

The consumer finance market is highly competitive and fragmented. The
Company competes with a number of finance companies providing financing
programs to individuals who cannot qualify for traditional financing. To a
lesser extent, the Company competes, or will compete, with commercial banks,
savings and loan associations, credit unions, insurance companies and captive
finance arms of major manufacturing companies that currently tend to apply
more traditional lending criteria. In addition, in recent months, several
companies have announced loan programs that will compete directly with the
Company's loan products, particularly its Conventional Loans. Many of these
competitors or potential competitors are substantially larger and have
significantly greater capital and other resources than the Company. In fiscal
1995 and 1996, approximately 68.5% and 93.9%, respectively, of the Company's
loans originated were Correspondent Loans, which are expected to remain a
significant part of the Company's loan production program. As a purchaser of
Correspondent Loans, the Company is exposed to fluctuations in the volume and
price of Correspondent Loans resulting from competition from other purchasers
of such loans, market conditions and other factors. In addition, Fannie Mae
has purchased and is expected to continue to purchase significant volumes of
Title I Loans on a whole-loan basis. Purchases by Fannie Mae could be made
from sources from which the Company also purchases loans. To the extent that
purchasers of loans, such as Fannie Mae, enter, or increase their purchasing
activities in, the markets in which the Company purchases loans, competitive
pressures may decrease the availability of loans or increase the price the
Company would have to pay for loans a phenomenon that has occurred with
respect to Title I Loans. In addition, increases in the number of companies
seeking to originate loans tends to lower the rates of interest the Company
can charge borrowers, thereby reducing the potential value of subsequently
earned Gain on Sale of loans. To the extent that any of these lenders or
Fannie Mae significantly expand their activities in the Company's market, or
to the extent that new competitors enter the market, the Company's results of
operations and financial condition could be materially adversely affected.
However, by focusing primarily on higher LTV home improvement loans and debt
consolidation loans and reliance on the creditworthiness of the borrower
rather than the collateral, the Company believes it is able to differentiate
itself from other participants in the market.

REGULATION

The operations of the Company are subject to extensive regulation,
supervision and licensing by federal, state and local governmental
authorities. Regulated matters include, without limitation, loan origination,
credit activities, maximum interest rates and finance and other charges,
disclosure to customers, the terms of secured transactions, the collection,
repossession and claims handling procedures utilized by the Company, multiple
qualification and licensing requirements for doing business in various
jurisdictions and other trade practices.

The Company's loan origination activities are subject to the laws and
regulations in each of the states in which those activities are conducted.
The Company's activities as a lender are also subject to various federal laws
including the Truth in Lending Act ("TILA"), the Real Estate Settlement
Procedures Act ("RESPA"), the Equal Credit Opportunity Act ("ECOA"), the Home
Mortgage Disclosure Act ("HMDA") and the Fair Credit Reporting Act ("FCRA").

TILA and Regulation Z promulgated thereunder contain disclosure
requirements designed to provide consumers with uniform, understandable
information with respect to the terms and conditions of loans and credit
transactions in order to give them the ability to compare credit terms. TILA
also guarantees consumers a three-day right to cancel certain credit
transactions, including loans of the type originated by the Company.
Management of the Company believes that it is in compliance with TILA in all
material respects. If the Company was found not to be in compliance with
TILA, aggrieved borrowers could have the right to rescind their loan
transactions with the Company and to demand the return of finance charges
paid to the Company.

In September 1994, the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "Riegle Act") was enacted. Among other things,
the Riegle Act makes certain amendments to TILA. The TILA amendments, which

18
<PAGE>

became effective in October 1995, generally apply to mortgage loans ("covered
loans") with (i) total points and fees upon origination in excess of the
greater of eight percent of the loan amount or $400, or (ii) an annual
percentage rate of more than 10 percentage points higher than comparably
maturing United States Treasury securities. A substantial majority of the
loans originated or purchased by the Company are covered by the Riegle Act.

The TILA amendments impose additional disclosure requirements on lenders
originating covered loans and prohibit lenders from originating covered loans
that are underwritten solely on the basis of the borrower's home equity
without regard to the borrower's ability to repay the loan. The Company
believes that only a small portion of its loans originated since fiscal 1994
are of the type that, unless modified, are prohibited by the TILA amendments.
The Company applies to all covered loans underwriting criteria that take into
consideration the borrower's ability to repay.

The TILA amendments will also prohibit lenders from including prepayment
fee clauses in covered loans to borrowers with a debt-to-income ratio in
excess of 50% or covered loans used to refinance existing loans originated by
the same lender. The Company reported immaterial amounts of prepayment fee
revenues in fiscal 1993, 1994, 1995 and 1996. The Company will continue to
collect prepayment fees on loans originated prior to effectiveness of the
TILA amendments and on non-covered loans, as well as on covered loans in
permitted circumstances. Because the TILA amendments did not become effective
until October 1995, the level of prepayment fee revenues were not affected in
fiscal 1995, but the level of prepayment fee revenues may decline in future
years. The TILA amendments impose other restrictions on covered loans,
including restrictions on balloon payments and negative amortization
features, which the Company does not believe will have a material effect on
its operations.

The Company is also required to comply with ECOA, which prohibits
creditors from discriminating against applicants on the basis of race, color,
sex, age or marital status. Regulation B promulgated under ECOA restricts
creditors from obtaining certain types of information from loan applicants.
It also requires certain disclosures by the lender regarding consumer rights
and requires lenders to advise applicants of the reasons for any credit
denial. In instances where the applicant is denied credit or the rate or
charge for loans increases as a result of information obtained from a
consumer credit agency, another statute, the Fair Credit Reporting Act of
1970, as amended, requires lenders to supply the applicant with the name and
address of the reporting agency. The Company is also subject to RESPA and is
required to file an annual report with HUD pursuant to the HMDA.

In addition, the Company is subject to various other federal and state
laws, rules and regulations governing, among other things, the licensing of,
and procedures that must be followed by, mortgage lenders and servicers, and
disclosures that must be made to consumer borrowers. Failure to comply with
these laws may result in civil and criminal liability and may, in some cases,
give consumer borrowers the right to rescind their mortgage loan transactions
and to demand the return of finance charges paid to the Company.

In the course of its business, the Company may acquire properties
securing loans that are in default. See "--Servicing Operations--Delinquencies
and Foreclosures." There is a risk that hazardous or toxic
waste could be found on such properties. In such event, the Company could be
held responsible for the cost of cleaning up or removing such waste, and such
cost could exceed the value of the underlying properties.

Because the Company's business is highly regulated, the laws, rules and
regulations applicable to the Company are subject to subsequent modification
and change. There are currently proposed various laws, rules and regulations
which, if adopted, could have an adverse effect on the Company. There can be
no assurance that these proposed laws, rules and regulations, or other such
laws, rules or regulations, will not be adopted in the future that could make
compliance much more difficult or expensive, restrict the Company's ability
to originate, broker, purchase or sell loans, further limit or restrict the
amount of commissions, interest and other charges earned on loans originated,
brokered, purchased or sold by the Company, or otherwise adversely affect the
business or prospects of the Company.

COMBINATION

The Company was incorporated in Nevada in October 1994, to combine the
operations of SFAC, a Conventional Loan originator and FIRSTPLUS Financial,
an approved Title I Loan originator and servicer. The Company entered into an
agreement with the shareholders of SFAC and with Farm Bureau Life Insurance
Company, Inc. ("Farm Bureau"), which at the time was an affiliate of a
principal shareholder of FIRSTPLUS Financial, whereby the shareholders of
SFAC exchanged their common and preferred stock of SFAC and Farm Bureau
exchanged its common stock of FIRSTPLUS Financial for common

19
<PAGE>

and preferred stock of the Company. Effective October 4, 1994, FIRSTPLUS
Financial and SFAC became wholly owned subsidiaries of the Company, with the
shareholders of SFAC controlling the voting shares of the Company. For
accounting purposes, the Combination was treated as a purchase of FIRSTPLUS
Financial by the Company, and SFAC was accounted for at book value in a
manner similar to a pooling of interests as a transaction between entities
under common control. In connection with the Combination, each of SFAC and
FIRSTPLUS Financial changed their respective fiscal year end from a calendar
year end to a September 30 year end.

EMPLOYEES

At September 30, 1996 the Company employed 949 persons: 204 primarily in
loan origination, 121 primarily in loan servicing and the rest in various
other clerical and administrative functions. Of the total number of employees
at such date, 506 were located at the Company's headquarters in Dallas,
Texas, and 443 at the Company's other offices. None of the Company's
employees is subject to a collective bargaining agreement, and the Company
believes that its relations with its employees are good.

ITEM 2. PROPERTIES.

The executive and administrative offices of the Company are located at
1250 West Mockingbird Lane, Dallas, Texas 75247, and consist of approximately
113,431 square feet. The lease on the premises extends through January 31,
2003 and the current annual rental is approximately $662,000.

The Company also leases space for 49 of its offices. These facilities
aggregate approximately 104,358 square feet, with an annual aggregate base
rental of approximately $1.0 million. The terms of these leases vary as to
duration and escalation provisions. In general, the leases expire through
September 2000.

The Company believes that its facilities are adequate for its current
needs, but it will need additional space within the next 12 months. In order
to support the growth of its business, the Company is pursuing the purchase
and sale-leaseback of a significantly larger headquarters building in Dallas,
Texas.

ITEM 3. LEGAL PROCEEDINGS.

The Company is involved from time to time in routine litigation
incidental to its business. However, the Company believes that it is not a
party to any material pending litigation which, if decided adversely to the
Company, would have a significant adverse effect on the business, income,
assets or operations of the Company. The Company is not aware of any material
threatened litigation that might involve the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matter was submitted to a vote of the shareholders of the Company
during the fourth quarter of the fiscal year ended September 30, 1996.

20
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.

The share price information below has been retroactively adjusted to
give effect to the one-for-one Common Stock dividend paid by the Company on
November 29, 1996 to stockholders of record on November 15, 1996. The Common
Stock has been quoted on the Nasdaq National Market under the symbol "RACF"
since the Company's initial public offering in February 1996 at $8.50 per
share. The following table sets forth the high and low sales prices of the
Common Stock for the periods indicated, as reported by the Nasdaq National
Market.

YEAR ENDED SEPTEMBER 30, 1996 HIGH LOW
- ----------------------------- ---- ---
Second Quarter (beginning February 1, 1996)............ $11.88 $ 8.75
Third Quarter.......................................... $16.25 $11.00
Fourth Quarter......................................... $22.88 $12.44
YEAR ENDING SEPTEMBER 30, 1997
- ------------------------------
First Quarter (through December 18, 1996).............. $30.75 $19.75

On December 18, the last reported sales price for the Common Stock was
$20.75 per share. As of November 30, 1996, the Company had 23,057,082
outstanding shares of Voting Common Stock held by 42 stockholders of record.
As of November 30, 1996, the Company had 4,440,676 outstanding shares of
Non-Voting Common Stock held by three stockholders of record.

The Company has never paid, and has no present intention of paying, cash
dividends on its Common Stock. The Company currently intends to retain its
earnings to finance the growth and development of its business. Any
determination in the future to pay dividends will depend on the Company's
financial condition, capital requirements, results of operations, contractual
limitations and any other factors deemed relevant by the Board of Directors.
Under the terms of the Company's warehouse facilities and Subordinated Notes,
the Company's ability to pay cash dividends to its stockholders is limited.

ITEM 6. SELECTED FINANCIAL DATA.

The following table sets forth historical selected financial information
of the Company as of the dates and for the periods indicated. The Company was
formed by the shareholders and management of SFAC and the parent of FIRSTPLUS
Financial to acquire FIRSTPLUS Financial in the Combination, which was
accounted for as a purchase of FIRSTPLUS Financial and was consummated on
October 4, 1994. In May 1996, the Company acquired FIRSTPLUS West in a
transaction accounted for as a pooling of interests. As a result of the
pooling, the historical financial information of the Company has been
restated to include the financial information of FIRSTPLUS West. The
financial information for FIRSTPLUS West included in the three years ended
September 30, 1995, reflects information for FIRSTPLUS West's three fiscal
years ended April 30, 1995. The financial information for the fiscal years
ended September 30, 1996 has been recast to conform to the Company's fiscal
year end. See Note 1 to the consolidated financial statements of the Company.

The income statement and balance sheet data is derived from the
consolidated audited financial statements of the Company. The information set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and all of the
financial statements and the notes thereto and other financial information
included elsewhere in this Report.

<TABLE>
YEAR ENDED SEPTEMBER 30
-----------------------
1993 1994 1995 1996
---- ---- ---- ----
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Gain on sale of loans, before sharing............. $17,115 $27,671 $40,112 $159,175
Sharing arrangements.............................. - - (10,999) (536)

21
<PAGE>

Gain on sale of loans, net (1)(2)................ 17,115 27,671 29,113 158,639
Interest.......................................... 145 1,845 2,860 25,727
Servicing income.................................. - 72 1,049 4,008
Other income...................................... 54 252 873 9,683
------- ------- ------- --------
Total revenue.................................... 17,314 29,840 33,895 198,057
Expenses:
Salaries and employee benefits.................... 7,265 17,054 10,110 36,402
Interest.......................................... 28 1,041 2,660 16,892
Other operating expense........................... 2,632 6,465 6,963 29,938
Provision for possible credit losses.............. - 125 4,420 59,644
------- ------- ------- --------
Total expenses................................... 9,925 24,685 24,153 142,876
------- ------- ------- --------

Income before income taxes......................... 7,389 5,155 9,742 55,181
Provision for income taxes......................... - - (3,903) (20,969)
------- ------- ------- --------

Net income (3)..................................... $7,389 $5,155 $5,839 $34,212
------- ------- ------- --------
------- ------- ------- --------

PER SHARE DATA (3):
Net income per share of common stock (2)(3):
Primary............................................ $ 0.47 $ 0.31 $ 0.28 $ 1.35
------- ------- ------- --------
------- ------- ------- --------
Fully diluted...................................... $ 0.47 $ 0.31 $ 0.28 $ 1.31
------- ------- ------- --------
------- ------- ------- --------
Weighted average common and common
equivalent shares outstanding:
Primary....................................... 15,596,874 16,276,874 20,296,874 25,358,162
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Fully diluted................................. 15,596,874 16,276,874 20,296,874 26,353,526
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------

</TABLE>

SEPTEMBER 30,
-------------
1994 1995 1996
---- ---- ----

BALANCE SHEET DATA: (IN THOUSANDS)

Excess servicing receivable, net....... $ - $29,744 $187,230
Loans held for sale.................... 6,105 19,435 430,812
Total assets........................... 12,141 61,341 710,384
Warehouse financing facilities......... 4,995 18,530 354,481
Warehouse Lender Term Line............. - 9,249 57,465
Subordinated notes..................... - 8,003 7,003
Convertible Subordinated Notes......... - - 100,000
Total liabilities...................... 7,821 49,607 615,815
Stockholders' equity................... 4,321 11,734 94,569
- -------------------

(1) Gain on sale of loans, net, is net of sharing arrangements and the
premiums related to and costs of securitizations but not net of the
Company's related provision for possible credit losses.

(2) Excluding the effect of the pooling of interests with FIRSTPLUS West,
gain on sale of loans, net, was $439,000, $2.1 million, $25.1 million and
$149.4 million for fiscal 1993, 1994, 1995 and 1996, respectively.
Excluding the effect of the pooling of interests with FIRSTPLUS West, the
Company experienced a loss of $180,000 and $647,000 for fiscal 1993 and
1994, respectively, and earned $6.9 million and $34.3 million, or $0.36
and $1.35 per share on a fully diluted basis, for fiscal 1995 and 1996,
respectively. See Notes 1 and 9 to the consolidated financial statements
of the Company.

(3) Net income per common share is computed by dividing net income, less
accrued and unpaid dividends on preferred stock (the balance of which was
redeemed in connection with the Company's initial public offering in
February 1996), by the weighted average common and common equivalent
shares outstanding.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

22
<PAGE>

The following analysis of the financial condition and results of
operations of the Company should be read in conjunction with the preceding
"Selected Financial Data." Additionally, the Company's Consolidated
Financial Statements and the notes thereto, and the separate financial
statements of FIRSTPLUS Financial and the notes thereto, as well as other
data included in this Report, should be read and analyzed in combination with
the analysis below.

GENERAL

The Company is a specialized consumer finance company that originates,
purchases, services and sells consumer finance receivables, substantially all
of which are home improvement or debt consolidation loans secured primarily
by second liens on real property. The Company offers Conventional Loans and
Title I Loans to certain qualified borrowers and sells substantially all of
such strategic loans primarily through its securitization program, retaining
rights to service these loans. The Company originated and purchased an
aggregate of $227.9 million and $1.1 billion of strategic loans (including
bulk purchases of loans) in the fiscal years ended September 30, 1995 and
September 30, 1996, respectively. The Company securitized an aggregate of
$234.8 million and $723.1 million of loans in fiscal 1995 and 1996,
respectively. The Company also originated $83.4 million and $382.2 million of
non-strategic loans in fiscal 1995 and 1996, respectively, which it sold to
third-party lenders on a whole-loan basis, with servicing rights released. As
of September 30, 1996, the principal amount of loans in the Serviced Loan
Portfolio was $1.3 billion.

CERTAIN ACCOUNTING CONSIDERATIONS

As a fundamental part of its business and financing strategy, the
Company sells substantially all of its strategic loans to third-party
investors in securitization transactions. In a securitization transaction,
loans originated and purchased by the Company are sold to an independent
entity, generally a grantor or owner trust, which holds the loans as trustee
for third-party investors. The Company retains the right to service the
securitized loans or appoint an approved subservicer. In addition, the
Company is entitled to receive excess cash flows generated by the securitized
loans calculated as the difference between (a) interest at the stated rate
paid by borrowers and (b) the sum of (i) pass-through interest paid to third
party investors, (ii) trustee fees, (iii) FHA insurance fees, (iv)
third-party credit enhancement fees, (v) normal servicing fees and (vi) loan
portfolio losses. The Company's right to receive this excess cash flow stream
begins after certain reserve requirements have been met, which are specific
to each securitization and are used as a means of credit enhancement. The
Company determines the present value of this anticipated revenue stream at
the time each securitization transaction closes utilizing valuation
assumptions appropriate for each particular transaction and records it as an
asset called Excess Servicing Receivable. The significant assumptions are
generally related to the anticipated average lives of the loans sold and the
anticipated credit losses related thereto. In order to determine the present
value of this excess cash flow, the Company currently applies an estimated
market discount rate of between 10% and 11% to the expected pro forma gross
cash flow calculated utilizing the weighted average maturity of the
securitized loans, and currently applies a risk free discount rate of 6.5% to
the anticipated losses attendant to this pro forma cash flow stream (the
"Allowance for Possible Credit Losses on Loans Sold"). Accordingly, the
overall effective discount rate utilized on the cash flows, net of expected
credit losses is approximately 12.5%. As of September 30, 1996, the Company's
Excess Servicing Receivable was $187.2 million, and its Allowance for
Possible Credit Losses on Loans Sold was $54.3 million or approximately 26.6%
of the Company's Excess Servicing Receivable. The present value of the
Company's portion of the expected future excess cash flow to be received on
loans sold through securitization transactions, in excess of securitization
costs and net premiums paid, is recorded as Gain on Sale of loans revenue,
and the discounted value of the anticipated losses is recorded as provision
for possible credit losses, in the period during which the securitization
occurs. "Gain on Sale of loans, net" refers to Gain on Sale of loans less
any sharing arrangements, but before any provision for possible credit losses.

With respect to the calculation of the gross charge-off rate for a
particular securitization pool, the Company, in part, utilizes the FICO
scores of that securitization pool to measure the creditworthiness of the
borrowers whose loans are included in the pool. The Company's securitization
pool score distribution typically falls between 590 and 750 with a weighted
average pool score of between 650 and 680. A FICO score of 590 or below will
generally constitute a borrower that the Company classifies as a "D" credit
with an estimated average annual default rate of 4.0% or more, and a FICO
score of approximately

<PAGE>

680 or better will generally constitute a borrower that the Company
classifies as an "A" credit with an estimated average annual default rate of
1.2% or less. The Company estimates default rates for FICO scores based on
historical loan performance and other data available to the Company. The
Company has developed historical default rates for its borrowers based on
each ten point increment of the FICO score range. Using the expected default
rate for each ten point FICO score interval for each securitization, the
Company estimates the default rate for the borrowers in the securitized pool.
When valuing the Excess Servicing Receivable attributable to these
securitizations, the Company assumes that its securitization pools will
produce annual default rates that correspond to the historical default rates
for the FICO score ranges associated with the individual pools, adjusted for
accelerated levels of defaults for loan pools with FICO scores lower than 620
and for seasoned loans that have little or no increase in the frequency of
defaults.

In its estimates of annual default rates and total delinquencies, the
Company utilizes assumptions that it believes are reasonable. During fiscal
1996, the Company recognized a provision for losses on loans sold of between
4.5% and 10.2%. The Company estimates annual default rates and total
delinquencies based upon FICO scores, the life of the loans and the mix of
the Title I Loans to Conventional Loans in the securitization. To more
accurately reflect the timing of the actual loan default rates and the impact
of the defaults on the overall prepayment rates, the Company began utilizing
default curves beginning in the 1996-3 securitization rather than assuming
defaults occur in a straight line manner over time. The use of the default
curves does not impact the estimated total amount of defaults in a
securitization, only the timing of when such defaults will occur. As of
September 30, 1996, the Allowance Possible Credit losses on Loans Sold
equaled $39.1 million or 29.0% of the Company's Excess Servicing Receivable.
The Company believes that this allowance is adequate to cover anticipated
losses. The Company also estimates total deliquencies (i.e., loans more than
30 days past due) to average 6% to 9% over the life of each securitization.

As of September 30, 1996, the allowance for possible credit losses on
the loans held for sale equaled $6.5 million, or 1.5% of the Company's $430.8
million portfolio of loans held for sale. The Company nets this allowance
against its loans held for sale on the balance sheet. The Company believes
this allowance is adequate to cover anticipated losses resulting from
liquidation of outstanding loans.

The annual prepayment rate of the securitized loans is a function of
full and partial prepayments and defaults. In the calculation of its Gain on
Sale, the Company makes an assumption of the prepayment rate, which the
Company believes is reasonable. During fiscal 1996, the prepayment
assumptions utilized by the Company ranged from 13.5% to 16.0%. The Company
estimates the prepayment speeds of its loans based on prior performance, the
presence or absence of prepayment penalties, the LTV of the loans and
industry analysis. Beginning with the 1996-3 securitization, the Company
began utilizing a prepayment curve developed by the Company's structured
finance and risk management groups, which the Company believes will
approximate the timing of payments over the life of the loans. The Company
currently expects the prepayment curves on the loans it securitizes to
generally begin slowly in the first month, gradually increasing to 13% to 15%
annual prepayment rate in years two to four, then decreasing gradually and
flattening thereafter.

The estimated weighted average life of the Company's loan pools
determines the structure and duration of the securities issued as well as the
U.S. Treasury instruments upon which the prices of the loan tranches are
based. Weighted average lives are based on the remaining maturities and
estimated prepayment rates of the loans to be securitized. The terms of the
Company's loan originations range from six to 300 months. The majority of
the Company's originations carry contractual terms to maturity from 180 to
300 months.

The Company records its loans at the lower of cost or market. The
Company typically originates Direct Loans and Contractor Loans at or below
par and Correspondent Loans at or above par. Any originations below par are
recorded as loan origination discounts, thereby reducing the Company's cost
basis in such loans. Any purchases above par are recorded as loan purchase
premiums, thereby increasing the Company's cost basis in its loans. If the
Company's accounts reflect net discounts in excess of premiums at the time it
securitizes such loans, the Company recognizes such net discount as a
reduction to its cost of loans sold. Conversely, if the Company's accounts
reflect net premiums in excess of discounts at the time it securitizes its
loans, the Company recognizes such net premium as an addition to its cost of
loans sold.

The Gain on Sale and the related Excess Servicing Receivable is
recognized in the period during which loans are sold, although subsequently
earned servicing fees paid to the Company by the securitization trustee are
recognized as received over the lives of the securitized loans. The Company
records the Excess Servicing Receivable as an asset on its balance sheet in
an amount equal to the present value of the pro forma cash flow utilizing the
prepayment and charge-off curves described above. The receivable is
subsequently reduced as cash attributable to the Excess Servicing Receivable
is collected by the Company. The Company also reports any origination
premiums (net of origination discounts) as reductions of income at the time
the securitization transaction closes. The Company earns additional income
from its Excess Servicing Receivable, which it records on an interest accrual
method, and servicing revenues and fees (ranging from 0.75% to 1.00% of the
outstanding loan balance serviced) as they are earned and collected.

24
<PAGE>

There can be no assurance that the Company's estimates used to determine
the Gain on Sale and Excess Servicing Receivable valuations will remain
appropriate for the life of each securitization. If actual loan prepayments
or defaults exceed the Company's estimates, the carrying value of the
Company's Excess Servicing Receivable may have to be written down or the
Company may increase its Allowance for Possible Credit Losses on Loans Sold
through a charge against earnings during the period within which management
recognizes the disparity. The Company will not write up its Excess Servicing
Receivable to reflect slower than expected prepayments, although slow
prepayments may ultimately result in subsequent additional earnings for the
Company if actual excess cash flows exceed the original excess cash flow
estimates used to record the sale. Other factors may also result in a
writedown of the Company's Excess Servicing Receivable in subsequent periods.
See Note 5 to the consolidated financial statements of the Company.

The Company also originates non-strategic loans, which it sells to
third-party lenders, on a servicing-released basis. These loans are either
first liens or subordinate liens that do not meet the Company's
securitization criteria. The Company plans to convert the non-strategic loan
operations to operations that will originate strategic loans that meet the
Company's current securitization parameters.

RESULTS OF OPERATIONS

FISCAL YEAR ENDED SEPTEMBER 30, 1996
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1995

The Company's total revenues increased to $198.0 million for fiscal 1996
from $33.9 million for fiscal 1995, a $164.2 million increase or 484.3%.
Excluding the effect of the pooling of interests with FIRSTPLUS West, the
Company's total revenues increased to $185.9 million for fiscal 1996 from
$29.0 million for fiscal 1995, an increase of $156.9 million or 542.1%. This
increase was primarily the result of increases in the Company's Gain on Sale
of loans, net, although the Company also experienced significant increases in
its servicing related income, interest income and other income during this
time period.

The following table sets forth information regarding the components of
the Company's revenues for fiscal 1995 and 1996:

YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996
(IN THOUSANDS)
Gain on sale of loans, before sharing....... $40,113 $159,175
Sharing arrangements........................ (10,999) (536)
-------- --------
Gain on sale of loans, net (1)............. 29,114 158,639
Interest income............................. 2,860 25,727
Servicing income............................ 1,049 4,008
Other income................................ 873 9,683
-------- ---------
Total.................................... $33,896 $198,057
-------- ---------
-------- ---------
- -------------------

(1) Gain on sale of loans, net, is net of sharing arrangements and the
premiums related to and costs of securitizations but not net of the
Company's related provision for possible credit losses.

Gain on Sale of loans, net, increased to $158.6 million for fiscal 1996
from $29.1 million for fiscal 1995, an increase of $129.5 million or 444.9%.
The Company securitized and sold $723.1 million of strategic loans during
fiscal 1996 (resulting in Gain on Sale of loans, net, of $158.6 million) and
$234.8 million of strategic loans during fiscal 1995 (resulting in Gain on
Sale of loans, net of $26.6 million) an increase of $488.6 million or 208.1%.
The Company sold $290.5 million of non-strategic loans in whole-loan sales
during fiscal 1996 (resulting in Gain on Sale of loans, net, of $8.4 million)
and $113.9 million of non-strategic loans in whole-loan sales during fiscal
year 1995 (resulting in Gain on Sale of loans, net, of $4.1 million).
Additionally, the Company earned a weighted average 13.3% profit margin (the
ratio

<PAGE>

of its Gain on Sale of loans, after provision for possible credit losses, as
a percentage of loans securitized and sold) on the loans it securitized and
sold during fiscal 1996, compared to a 8.8% weighted average profit margin on
the loans securitized and sold during 1995.

The following table sets forth certain data with respect to each of the
securitizations the Company closed during fiscal 1996:

<TABLE>

1995-3(1) 1995-4 1996-1 1996-2 1996-A (2) 1996-3(3)
--------- ------ ------ ------ ---------- ---------

(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Loans sold.................................... $9,284 $77,599 $115,559 $241,625 $8,516 $299,887
Overcollateralization......................... - 2,400 4,440 8,375 - 113(4)
------ ------- -------- -------- ------ --------
Total loans securitized....................... $9,284 $79,999 $119,999 $250,000 $8,516 $300,000
------ ------- -------- -------- ------ --------
------ ------- -------- -------- ------ --------
Gain on sale of loans, net.................... $2,040 $16,049 $24,190 $43,131 $691 $67,197
Provision for possible credit losses.......... 537 3,505 5,751 12,547 203 30,681
------ ------- -------- -------- ------ --------

Gain on sale of loans, after provision for
possible credit losses....................... $1,503 $12,544 $18,439 $30,585 $488 $36,516
------ ------- -------- -------- ------ --------
------ ------- -------- -------- ------ --------

Net gain after provision for credit losses
as a percentage of total loans securitized
and sold (profit margin) (5)................. 16.2% 16.2% 16.0% 12.7% 5.7% 12.2%
Weighted average maturity of
certificates sold (yrs.)..................... 4.9 4.2 4.4 4.8 2.9 5.4
Weighted average FICO score................... 636 645 656 662 651 664
Percentage of total loans securitized:
Conventional................................. 53.9% 62.5% 80.7% 89.0% 41.5% 100.0%
Title I...................................... 46.1% 37.5% 19.3% 11.0% 58.5% 0.0%

</TABLE>

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

(1) Reflects remaining portion of securitization, the larger portion of which
was completed during the quarter ended September 30, 1995.

(2) Most of the Title I Loans in this securitization were unsecured.

(3) Only $255.4 million of the $300.0 million securitization was funded
during fiscal 1996. Therefore, $5.9 million of the gain will be recorded
subsequently in fiscal 1997.

(4) Represents the portion of the initial overcollateralization requirement
that is funded with loans.

(5) Gain after commissions earned, premiums paid and provision for possible
credit losses.

The Company's increased securitization activity is related to the
increased origination of strategic loans for fiscal 1996. The Company was
able to increase its production of strategic loans during fiscal 1996,
compared to fiscal 1995, due to the following reasons:

1. The Company increased the size of its correspondent network during this
time period, both in number (306 versus 86 for the respective periods),
and geographically (26 states versus 19 states during the respective fiscal
years);

2. The Company increased its production of Direct Loans from $906,000 to
$45.1 million during the respective fiscal years;

3. The Company decreased its production of Contractor Loans, which are
generally of lower quality, from $36.8 million to $21.6 million during the
respective fiscal years; and

26
<PAGE>

4. The Company acquired FIRSTPLUS East in December 1995 in a purchase
transaction and FIRSTPLUS West in May 1996 in a pooling transaction.
During fiscal 1996, FIRSTPLUS East and FIRSTPLUS West originated a total
of $206.0 million of strategic loans.

During fiscal 1996, the Company originated and securitized a greater
percentage of Conventional Loans, when compared to fiscal 1995. This
continued increase in Conventional Loan emphasis is a result of the
relatively small size of the Title I Loan market (the Company estimates this
market at approximately $2 billion in originations annually) and the
Company's desire to meet the needs of its customers, who generally request
higher loan amounts and more flexible loan proceeds utilization than the
Title I program offers. Although Conventional Loans require the Company to
reserve greater amounts for anticipated losses than do Title I Loans, Title I
Loans generally produce lower gross revenues, due to the increased premiums
paid in acquiring Title I Loans.

The Company's profit margin on securitized loans sold increased from a
weighted average of 8.8% for fiscal 1995 to 13.3% for fiscal 1996. A portion
of this increase was due to the fact that the Company was required to share
its securitization gains in its 1994-1 and 1995-2 securitizations, which
closed in December 1994 and June 1995, respectively. The Company was not
required to share any securitization gain for any securitizations closed
during fiscal 1996; however, $9.2 million of loans delivered in October 1995,
which were attributable to the 1995-3 securitization, were subject to sharing
with the Warehouse Lender. Profit margin increases also resulted from the
favorable interest rate environment during the period from October 1995 to
January 1996, and from increases in interest paid over the life of the loan.

The Company's Gain on Sale profit margin for the four fiscal quarters of
1996 was 16.2%, 16.0%, 12.4% and 12.2%. During fiscal 1996, the Company's
Gain on Sale profit margin was reduced, primarily due to the sharp increases in
general interest rates during the period from February 1996 to June 1996.

The Company paid net loan premiums of $36.4 million for fiscal 1996,
compared to $826,082 of net loan discounts received for fiscal 1995. This
represented an average loan purchase price of 102.4% of par for fiscal 1996,
and 99.6% of par for fiscal 1995. This increase resulted from the Company
purchasing loans with relatively higher FICO scores and increased competition
for Title I Loans. Loan purchase prices are directly related to the quality
of the loans purchased, the face interest rate of the acquired loans, the
quantity of loans the correspondent lender commits to sell, the nature and
longevity of the relationship the Company maintains with the correspondent
lender and competitive pressures.

Interest income increased from $2.9 million for fiscal 1995, to $25.7
million for fiscal 1996, an increase of $22.9 million or 799.5%. This
increase was primarily the result of a significant increase in the Company's
average balance of Loans Held for Sale and an increased balance in its Excess
Servicing Receivable. The Company securitizes its loans on a regular basis;
however, it earns interest income on the loans it originates prior to such
securitizations. During fiscal 1995 and 1996, the Company's average monthly
balance of Loans Held for Sale, including non-strategic loans, was $19.4
million and $430.8 million at par, respectively, an increase of $411.4
million or 2120.6%.

Servicing fee income increased from $1.0 million for fiscal 1995 to $4.0
million for fiscal 1996, a 282.0% increase. This increase was primarily the
result of a significant increase in the average balance of the Serviced Loan
Portfolio for the respective time periods: $238.6 million for fiscal 1995 to
$1.3 billion for fiscal 1996, a $1.0 billion or a 431.1% increase. This
increase in the Company's average Serviced Loan Portfolio was the result of
the Company's increases in loan originations and securitizations during the
respective time period.

Other income increased from $873,077 for fiscal 1995 to $9.7 million for
fiscal 1996, an increase of $8.8 million or 1009.0%. Other income consists
primarily of loan application fees that are funded by borrowers at closing.

The following table sets forth information regarding the components of
the Company's expenses for fiscal 1996 and 1995:

YEAR ENDED SEPTEMBER 30,
-----------------------
1995 1996
---- ----
(IN THOUSANDS)
Salaries and employee benefits............... $10,110 $36,402
Interest expense............................. 2,660 16,892

27
<PAGE>

Other expenses............................... 6,963 29,938
Provision for possible credit losses......... 4,420 59,644
------- --------
Total....................................... $24,153 $142,876
------- --------
------- --------

Salaries and employee benefits increased from $10.1 million for fiscal
1995 to $36.4 million for fiscal 1996, an increase of $26.3 million or
260.0%. The Company employed 484 persons as of September 30, 1995 and 949
persons as of September 30, 1996, an increase of 96.1%. However, during the
same time, total revenues increased from $33.9 million to $198.1 million, an
increase of $164.2 million or 484.0%. Therefore, although the number of
employees increased, the Company's employees were able to originate,
securitize and service a disproportionately larger amount of loan volume,
thereby generating disproportionately larger revenues per employee. The
Company earned $70,034 of revenue per employee for fiscal 1995 compared to
$208,701 of revenue per employee for fiscal 1996.

Interest expense increased from $2.7 million for fiscal 1995 to $16.9
million for fiscal 1996, an increase of $14.2 million or 535.0%. Interest
expense increased primarily because of the significant increases in
borrowings under the Company's warehouse facilities incurred during fiscal
1996 when compared to fiscal 1995, partially offset by more favorable
interest rates. As of September 30, 1996, the Company's warehouse debt
totaled $354.5 million and bore interest at a weighted average rate of
approximately 6.6%. As of September 30, 1995, the Company's warehouse debt
totaled $18.5 million and bore interest at a weighted average interest rate
of approximately 9.25%.

Other operating expenses increased to accommodate the significantly
expanded loan origination, loan servicing and loan securitization volumes
during the respective fiscal years. Other operating expenses consist
primarily of Title I Program insurance premiums paid upon the origination of
Title I Loans, professional fees, rents and the costs associated with
marketing, underwriting, administration and servicing. The Company expects to
incur significantly greater marketing expenses in fiscal 1997, due to its
strategy of increasing its brand name recognition, and its goal of generating
significantly larger amounts of Direct Loans.

The provision for possible credit losses increased from $4.4 million for
fiscal 1995 to $59.6 million for fiscal 1996, an increase of $55.2 million or
1,249.5%. The increase was primarily attributable to the 208.1% increase in
volume of loans securitized in fiscal 1996 ($723.1 million) compared to
fiscal 1995 ($234.8 million) and to the fact that a greater amount of
securitized loans in fiscal 1996 were Conventional Loans, which require the
Company to provide for a higher level of losses as compared to insured Title
I Loans. To a lesser extent, the increase is the result of (i) an increase of
$2.5 million because the default rate for a pool of Bulk Loans included in
the 1995-2 securitization exceeded the estimates made at the time of the
securitization, which adjustment was determined in conformity with the
Company's current estimation methodology, (ii) an increase of $5.6 million
taken for the increased amount of loans held for sale on the Company's
balance sheet and (iii) the Company's change from a constant default rate to
default curves commencing in the fourth quarter of fiscal 1996.

Income tax expense increased from $3.9 million for fiscal 1995, to $21.0
million for fiscal 1996, an increase of $17.1 million or 437.0%. The income
tax expense was recorded at statutory rates.

FISCAL YEAR ENDED SEPTEMBER 30, 1995
VERSUS FISCAL YEAR ENDED SEPTEMBER 30, 1994

The Company's total revenues increased to $33.9 million in fiscal 1995
from $29.8 million in fiscal 1994, an increase of $4.1 million or 13.7%.
Excluding the effect of the pooling of interests with FIRSTPLUS West, the
Company's total revenues increased to $29.0 million in fiscal 1995 from $2.4
million in fiscal 1994, an increase of $26.5 million or 1,084%. The increase
in the volume of strategic loans originated and purchased by the Company and
the commencement of the Company's securitization program in fiscal 1995 were
primarily responsible for this increase in revenues, although interest,
servicing and other income also increased substantially during fiscal 1995.
The Company's securitization transactions resulted in Gain on Sale, which is
treated as a revenue item. Gain on Sale increased because the Company was
able to sell a larger volume of loans more efficiently through securitization
transactions than through whole-loan sales.

Total expenses decreased from $24.7 million in fiscal 1994 to $24.2
million in fiscal 1995, a decrease of $500,000 or 2.2%. Excluding the effect
of the pooling of interests with FIRSTPLUS West, total expenses increased
from $3.1 million to $18.2 million, an increase of $15.1 million or 488%;
however, as a percentage of total revenues, total expenses decreased from
126.5% in fiscal 1994 to 62.8% in fiscal 1995. The Company incurred an income
tax expense of $3.9 million in fiscal

28
<PAGE>

1995. As a result of the improved revenues, net income increased from $5.2
million for fiscal 1994 to net income of $5.8 million for fiscal 1995.

The following table sets forth information regarding the components of
the Company's revenues for the years ended September 30, 1994 and 1995:

YEAR ENDED SEPTEMBER 30,
-----------------------
1994 1995
---- ----
(IN THOUSANDS)

Gain on sale of loans, before sharing......... $27,671 $40,113
Sharing arrangements.......................... -- (10,999)
------- --------
Gain on sale of loans, net (1)............... 27,671 29,114
Interest income............................... 1,845 2,860
Servicing income.............................. 72 1,049
Other income.................................. 252 873
------- -------
Total...................................... $29,840 $33,896
------- -------
------- -------
- -------------------
(1) Gain on sale of loans, net, is net of sharing arrangements and the
premiums related to and costs of securitizations but not net of the
Company's related provision for possible credit losses.

Gain on Sale of loans, net, increased to $29.1 million in fiscal 1995
from $27.7 million in fiscal 1994, an increase of $1.4 million or 5.2%.
Excluding the effect of the pooling of interests with FIRSTPLUS West, Gain on
Sale of loans, net, increased to $25.1 million from $2.1 million, an increase
of $23.0 million or 1,110%. The increase was the result of the Company
beginning its securitization program in fiscal 1995 following the acquisition
of FIRSTPLUS Financial. The Company completed four securitizations in fiscal
1995 as compared to none in fiscal 1994.

The acquisition of FIRSTPLUS Financial allowed the Company to enter the
securitization market for Conventional Loans and Title I Loans by providing
the Company with a Title I Loan portfolio, which the Company could continue
to expand, and a servicing platform, which was necessary for the Company to
pursue a successful securitization strategy. Each of the Company's four
securitizations in fiscal 1995 included a majority of Title I Loans. The FHA
insurance associated with these loans was passed through to the
securitization investors. The following table sets forth certain data with
respect to each of the four securitizations completed in fiscal 1995:

<TABLE>

1994-1 1995-1 1995-2 1995-3(1)
------ ------ ------ --------
(DOLLARS IN THOUSANDS)

Loans sold.................................................................. $46,768 $17,331 $104,935 $73,250
Overcollateralization....................................................... -- -- -- 1,750 (2)
------- ------- -------- -------
Total loans securitized..................................................... $46,768 $17,331 $104,935 $75,000
------- ------- -------- -------
------- ------- -------- -------
Gain on sale of loans, net................................................. $ 1,973 $ 2,623 $ 10,767 $11,214
Provision for possible credit losses....................................... 704 800 1,485 2,181
------- ------- -------- -------
Gain on sale of loans, after provision for possible credit
losses..................................................................... $ 1,269 $ 1,823 $ 9,282 $ 9,033
------- ------- -------- -------
------- ------- -------- -------
Net gain after provision for credit losses as a percentage of
total loans securitized and sold (profit margin)........................... 2.7% 10.5% 8.8% 12.3%
Weighted average maturity of certificates sold (yrs.)...................... 3.2 5.1 5.0 4.9
Weighted average FICO score................................................ 636 620 667 634
Percentage of total loans securitized:
Conventional............................................................ 10% 33.6% 7.9% 62.2%
Title I................................................................. 90% 66.4% 92.1% 37.8%

</TABLE>

(1) Only $65.7 million of the $75.0 million securitization was funded during
the fiscal year ended September 30, 1995. Therefore, $1.5 million of the
gain is recorded in the subsequent fiscal year.

(2) Represents the portion of the initial overcollateralization requirement
that is funded with loans.

29
<PAGE>

The 1995-2 securitization included $8.3 million of Conventional Loans
originated by the Company, $10.0 million of Title I Loans originated by the
Company and $86.7 million of Title I Loans purchased by the Company in a bulk
purchase from Citizens Thrift & Loan ("Citizens"). These Citizens loans
represented 82.6% of the 1995-2 securitization. Conventional Loans originated
by the Company therefore totaled 45% of the total loans originated by the
Company and sold in the 1995-2 securitization (i.e., excluding bulk
purchases). The 1995-3 securitization included $40.9 million of Conventional
Loans and $24.8 million of Title I Loans, or 62.2% and 37.8%, respectively,
of the loans securitized in the fourth quarter of fiscal year 1995. The
Company originated increasingly larger percentages of Conventional Loans with
each succeeding fiscal 1995 quarter.

In June 1995, the Company entered into the Warehouse Lender Facility and
the Warehouse Lender Term Line. In exchange for entering into these
facilities, the Warehouse Lender was entitled to purchase from the Company,
at cost, a percentage of the Excess Servicing Receivable earned from loan
securitizations. Additionally, the Excess Servicing Receivable generated from
the 1994-1 securitization of $4.5 million was shared with Farm Bureau in the
amount of $2.6 million, as it was the owner of a portion of the loans that
were securitized in the transaction.

For various reasons, including the existence of higher quality loan
pools with longer average lives and higher coupon rates, as well as a
declining interest rate environment, the Company's Gain on Sale before
sharing arrangements as a percentage of loans securitized increased from 7.9%
in the 1994-1 securitization to 17.3% in the 1995-3 securitization.

Due to the Company's ability to access the securitization markets,
whole-loan sales decreased during fiscal 1995. Whole-loan sale gains
decreased to $478,000 in fiscal 1995 from $777,000 in fiscal 1994, a decrease
of $300,000 or 39%.

The Company earned net discounts of $1.3 million in fiscal 1994, as
compared with net loan premiums of $826,082 in fiscal 1995. This represented
an average loan purchase price of 90% of par in fiscal 1994 and an average
loan purchase price of 100.4% of par in fiscal 1995. During fiscal 1995, the
Company significantly reduced its origination and purchases of loans to
borrowers it classifies as "D" credits in order to furnish securitization
investors with a higher grade investment. Additionally, in fiscal 1995, the
Company expanded its longer term relationships with larger independent
contractors and correspondents in order to increase its loan volume. Also,
the Company experienced greater competitive pressures during fiscal 1995, as
competitors became more familiar with the Title I product. The combination of
these three factors required the Company to buy its loans at greater prices
during fiscal 1995 as compared with fiscal 1994. The effect of this increase
in prices has been reduced by the increased volume of loans purchased by the
Company.

Interest income increased from $1.8 million during fiscal 1994 to $2.9
million in fiscal 1995, an increase of $1.0 million or 55%. Excluding the
effect of the pooling of interests with FIRSTPLUS West, interest income
increased from $143,000 in fiscal 1994 to $2.3 million in fiscal 1995, an
increase of $2.2 million or 1,543%; this increase was a result of the
Combination and the Company's securitization program. Interest income is
earned primarily from loans owned and accumulated by the Company for future
securitizations. During fiscal 1994, the Company's average monthly loan
portfolio was $19.2 million at par. During fiscal 1995, the Company's average
monthly loan portfolio was $21.5 million at par. The significant increase in
interest income is primarily due to the Company's increases in the average
monthly loan portfolio.

Servicing fee income increased from $72,000 in fiscal 1994 to $1.0
million in fiscal 1995. Servicing fees are approximately 1% of the
unamortized loan balance and are paid monthly. The Company's Serviced Loan
Portfolio at September 30, 1995 was $238.6 million; however, $83.1 million of
this amount is subserviced by Citizens as the Company elected not to replace
Citizens as the servicer when it acquired such loans from Citizens in
September 1995. The servicing fees earned by the Company for the loans
subserviced by Citizens are minimal. See "Business -- Servicing Operations --
General."

Other income increased from $252,000 in fiscal 1994 to $873,077 in
fiscal 1995, an increase of $621,311 or 246.8%. Other income is proportional
to the Company's loan origination volume from selected dealers. It consists
primarily of loan application fees, which are funded by borrowers at closing.

The following table sets forth information regarding the components of
the Company's expenses for the years ended September 30, 1994 and 1995:

<PAGE>

YEAR ENDED SEPTEMBER 30,
-----------------------
1994 1995
---- ----
(IN THOUSANDS)

Salaries and employee benefits............... $17,054 $10,110
Interest expense............................. 1,041 2,660
Other expenses............................... 6,465 6,963
Provision for possible credit losses......... 125 4,420
------- -------
Total..................................... $24,685 $24,153
------- -------
------- -------

Salaries and employee benefits decreased from $17.0 million in fiscal
1994 to $10.1 million in fiscal 1995, a decrease of $6.9 million or 40.7%.
Excluding the effect of the pooling of interests with FIRSTPLUS West,
salaries and employee benefits increased from $1.6 million in fiscal 1994 to
$6.2 million in fiscal 1995, an increase of $4.6 million or 295%. The
increase was attributable to the Company hiring additional personnel in order
to generate increased levels of loan originations and to manage the increased
servicing activity.

Interest expense increased from $1.0 million in fiscal 1994 to $2.7
million in fiscal 1995, an increase of $1.6 million or 155.7%. Excluding the
effect of the pooling of interests with FIRSTPLUS West, interest expense
increased from $198,000 in fiscal 1994 to $2.4 million in fiscal 1995, an
increase of $2.2 million or 1,120%; interest expense increased because of the
significant increases in warehouse debt and other debts incurred by the
Company during fiscal 1995 as a result of higher levels of loan originations
and purchases and the incurrence of securitization costs and increased
infrastructure costs. Total debt outstanding at September 30, 1994 was $5.6
million as compared with $36.6 million at September 30, 1995. As a percentage
of total revenues, interest expense increased from 3.5% in fiscal 1994
compared to 7.8% in fiscal 1995.

Other operating expenses increased from $6.5 million in fiscal 1994 to
$7.0 million in fiscal 1995, or 7.7%. Excluding the effect of the pooling of
interests with FIRSTPLUS West, other operating expenses increased from $1.2
million in fiscal 1994 to $5.1 million in fiscal 1995, an increase of $3.9
million or 328%. Other operating expenses increased in order to accommodate
the significantly expanded loan origination, loan servicing and loan
securitization volumes experienced by the Company during fiscal 1995. Other
operating expenses consist primarily of Title I Program insurance premiums
paid upon the origination of Title I Loans, professional fees, rents, and the
costs associated with marketing, underwriting, administration and servicing.

The provision for possible credit losses increased from $125,000 for
fiscal 1994 to $4.4 million for fiscal 1995, an increase of $4.3 million. The
provision increased primarily because no loans were securitized in fiscal
1994, and the Company securitized and sold $234.8 million of loans during
fiscal 1995. This provision for fiscal 1995 represented 1.9% of the loans
securitized and sold during the period.

Income tax expense was $3.9 million during fiscal year 1995. The income
tax expense was recorded at statutory rates, but was reduced by net operating
loss carryovers.

LIQUIDITY AND CAPITAL RESOURCES

The Company's operations require continued access to financing sources.
The Company's primary operating cash requirements include the funding of (i)
loan originations and purchases, (ii) reserve accounts, overcollateralization
requirements, fees and expenses incurred in connection with its
securitization transactions, (iii) tax payments due on the Company's taxable
net income, (iv) television, radio and direct mail advertising and other
marketing, and (v) administrative and other operating expenses.

Adequate credit facilities and other sources of funding, which permit
the Company to fund its operating cash requirements and to securitize or sell
loans in the secondary market, are essential to the continuation of the
Company's ability to originate and purchase loans. After utilizing available
working capital, the Company borrows money to fund its loan originations and
purchases, and repays these borrowings as the loans are repaid or sold. Upon
the securitization or sale of loans and the subsequent repayment of the
borrowings, the Company's working capital and warehouse lines of credit then
become available to fund additional loan originations and purchases.

The Warehouse Lender Facility is secured by loans originated or
purchased by the Company and bears interest payable monthly at the rate of
1.25% over the commercial paper rate of the Warehouse Lender's parent (6.6%
per annum as of September 30, 1996). This warehouse facility has a loan
advance rate equal to the lesser of loan cost or 95% of the market

31
<PAGE>

value as determined by the Warehouse Lender. Advances under the Warehouse
Lender Facility were and will continue to be incurred to originate and
purchase loans. In February 1996, the Company increased the Warehouse Lender
Facility from $100 million to $130 million, extended its expiration to March
1997 and eliminated all sharing arrangements.

The Company also has the Warehouse Lender Term Line with the Warehouse
Lender, which is secured by the Company's servicing rights and Excess
Servicing Receivable. This line of credit bears interest at the rate of 2.5%
over the commercial paper rate of the Warehouse Lender's parent (7.8% per
annum as of September 30, 1996), with advances of principal amortized over 60
months. The Warehouse Lender Term Line may be utilized for any working
capital need; to date, however, the Company has used the Warehouse Lender
Term Line primarily to finance the Company's share of premium costs, cost of
issuance and initial reserve deposits for credit enhancement. The Company may
only borrow up to 65% of the value of the Company's Excess Servicing
Receivable (as calculated by the lender) under this facility. Portions of the
Excess Servicing Receivable earned upon the successful execution of the
1995-2 and 1995-3 securitization were shared between the Company and the
Warehouse Lender as specified in the Warehouse Lender Term Line agreement. At
September 30, 1996, the Company had borrowed $62.5 million under this
facility and $7.5 million remained available for borrowing, subject to the
Company completing future securitizations. In January 1996, the Warehouse
Lender increased the Warehouse Lender Term Line from $20 million to $70
million, eliminated the Warehouse Lender Term Line excess servicing
arrangements effective with respect to the 1995-4 securitization (which was
funded primarily in November and December 1995) and extended the expiration
of the Warehouse Lender Term Line to March 1997. In order to facilitate the
increased size of the line, and to secure other modifications favorable to
the Company, Farm Bureau, BOCP II, Limited Liability Company ("BOCP II"),
formerly Banc One Capital Partners II, Limited Partnership, Banc One Capital
Partners V, Ltd. ("BOCP V"), Ronald M. Mankoff and the Phillips Partnership
sold to the Warehouse Lender an aggregate of 250,000 shares of Common Stock
owned by them for $3.50 per share and the Company issued to Warehouse Lender
warrants to purchase 500,000 shares of Common Stock at an exercise price of
$7.00 per share. See "Description of Capital Stock -- Registration Rights."

The Company has the $110 million Bank One Facility, which is secured by
loans originated or purchased by the Company and expires on October 16, 1997.
Interest is payable monthly and accrues at 1.00% over the thirty-day federal
funds rate. This warehouse facility has a loan advance rate generally equal
to the lesser of 100% of the face amount of the loan or 97% of loan cost or
market value of the loan as determined by Bank One. At September 30, 1996,
approximately $50.9 million was outstanding under this line of credit. Upon
the repayment of underlying loan principal payments or the sale or
refinancing of the underlying loans, this facility is paid down. In January
1996, the Company increased the Bank One Facility from $20 million to $40
million, increased the advance rate from 95% to 97% and decreased the
interest rate on the facility from prime plus 1% to the federal funds rate
plus 1.25%. In June 1996, the Company increased the Bank One Facility from
$40 million to $60 million. In October 1996, the Company increased the Bank
One Facility from $60 million to $110 million.

In May 1996, the Company entered into the Bear Stearns Facility. The term
of the financing matures and is renewed on a daily basis. The interest rate
on the amount financed is computed on a daily basis and is paid monthly in
arrears. The agreement is not a committed facility; therefore, the Company
could incur a significant repurchase obligation in the event the lender is
unable or unwilling to continue with the repurchase agreement. In August
1996, the Company increased the Bear Stearns Facility from $200 million to
$300 million. In October 1996, the Company increased the Bear Stearns
Facility from $300 million to $500 million.

In November 1996, the Company entered into the $75 million Bear Stearns
Term Line. The Bear Stearns Term Line may be utilized by the Company with
respect to Excess Servicing Receivable generated by securitization in which
Bear Stearns is the lead Manager.

In December 1996, the Company entered into the $100 million PaineWebber
Term Line and the $400 million PaineWebber Facility. The PaineWebber Term
Line bears interest at LIBOR plus 2.1% and the PaineWebber Facility bears
interest at LIBOR plus 1.00%.

In August 1996, the issued the Convertible Notes in the aggregate
principal amount of $100 million. The Notes mature in August 2003, Company
and bear interest at 7.25% and are convertible into Common Stock at a
conversion price of $16.30 per share. On December 17, 1996, a holder agreed
to convert $17.1 million principal amount of Convertible Notes into
1,047,852 shares of Common Stock, plus approximately $402,000, representing
accrued interest from August 20, 1996, and additional shares of Common Stock
as an incentive for the early conversion of the Convertible Notes.

32
<PAGE>

The Company also has two other warehouse facilities with other lenders
aggregating $70 million, which are secured by Loans originated or purchased
by the Company.

As of September 30, 1996, the Company owed an aggregate of $7.0 million
principal amount of Subordinated Notes to BOCP II, BOCPV and Farm Bureau. The
Subordinated Notes are secured by certain assets of the Company, but are
subordinated to the rights of the warehouse lenders. Interest is payable
quarterly, and the Subordinated Notes may be prepaid with written consent of
the warehouse lenders without penalty.

At September 30, 1996, the Company also had certain other notes payable
totaling approximately $2.0 million with maturities in September 1998. In
addition, at September 30, 1996, FIRSTPLUS East had $9.2 million outstanding
under its $22.5 million warehouse facilities, primarily with Leader Federal
Bank of Bartlet, Tennessee, and FIRSTPLUS West had $33.9 million outstanding
under its $40 million warehouse facilities, primarily with Bank United of
Texas.

As indicated above, the Company's ability to continue to originate and
purchase loans is dependent, in large part, upon its ability to securitize or
sell the loans in the secondary market in order to generate cash proceeds for
new originations and purchases. The value of and market for the Company's
loans are dependent upon a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
such factors may affect the Company's ability to purchase, securitize or sell
loans for acceptable prices within a reasonable period of time. A prolonged,
substantial reduction in the size of the secondary market for loans of the
type originated or purchased by the Company may adversely affect the
Company's ability to securitize or sell loans in the secondary market, with a
consequent adverse impact on the Company's profitability and ability to
continue to originate and purchase loans.

As a result of the Company's increasing volume of loan originations and
purchases, and its expanding securitization activities, the Company has
operated, and expects to continue to operate, on a negative operating cash
flow basis, which is expected to increase as the volume of the Company's loan
purchases and originations increase and its securitization program grows. The
Company's operations provided $5.0 million and $3.7 million of cash in fiscal
1993 and fiscal 1994, respectively, and used $25.7 million and $496.7 million
of cash in fiscal 1995 and fiscal 1996, respectively. The increase in the use
of cash in operations is primarily related to the cost of an enlarged
infrastructure, employee base, and the costs that accompany the Company's
securitization strategy (which increases the Gain on Sale of loans but
reduces the amount of cash received on the sale of loans as compared to
whole-loan sales). In June 1996, the Commission declared effective the
Company's shelf registration statement covering up to $1 billion dollars of
asset-backed securities. The Company's first drawdown under this registration
statement was the 1996-2 securitization. The Company completed total
securitizations in the amount of $234.8 million and $723.1 million for fiscal
1995 and the fiscal year ended September 30, 1996, respectively. In
connection with securitizations, the Company is required to provide credit
enhancements in the form of reserve accounts and/or overcollateralizations.
The accumulated amounts of such cash reserves are reflected on the Company's
balance sheet as "receivable from trusts" and equaled $26.3 million as of
September 30, 1996. These accounts cannot be used by the Company for
operating purposes. The Company's financings and investing activities used
cash in the amount of $2.7 million in fiscal 1994, and generated cash in the
amount $25.9 million and $517.3 million in fiscal 1995 and 1996,
respectively. Cash from financing and investing activities increased
primarily due to additional borrowings related to the Subordinated Notes and
the various warehouse and term line facilities which have been used to fund
loan originations, working capital and securitization costs.

In addition, the Company has begun to implement a strategy of
maintaining a significant quantity of loans on its balance sheet, thus
increasing the length of time that loans are held for sale and materially
increasing its interest rate risk. Because the Company's present loan
facilities bear interest at variable rates, the Company has a need for medium
to long term, fixed-rate financing. If the Company is unable to obtain such
financing, it could have a material adverse effect on the Company's results
of operations and financial condition.

The increased use of securitization transactions as a funding source by
the Company has resulted in a significant increase in the amount of Gain on
Sale (from securitizations) recognized by the Company. During fiscal 1996,
the Company recognized Gain on Sale (from securitizations) in the amount of
approximately $158.6 million compared to $25.6 for fiscal 1995. This Gain on
Sale has a negative impact on the cash flow of the Company since the Company
may be required to pay state and federal income taxes and must currently pay
securitization costs, including overcollateralization costs, in the period
the income is recognized, although the Company does not receive the cash
representing the gain until later periods as the related loans are repaid or
otherwise collected. Beginning with 1996-3, the Company began utilizing an
owner trust securitization structure, which allows the Company to defer an
increased percentage of the book gain for tax purposes and

33
<PAGE>

therefore the requirement to pay such federal income taxes on a current
basis. The Company has funded these cash requirements primarily through its
Warehouse Lender Term Line. The Company had cash of approximately $23.2
million at September 30, 1996.

Based on the Company's anticipated rate of growth, the Company believes
that it will need to arrange additional warehouse lines of credit or other
financing sources within the next 90 days. The Company is currently
negotiating for increased and/or additional warehouse facilities. The
Company's existing warehouse lines of credit restrict its ability to incur
other indebtedness. The Company has no commitments for such increased and/or
additional financings, and there can be no assurance that the Company will be
successful in consummating any such financing transactions in the future or
on terms the Company would consider to be favorable. In such event, the
Company's growth and operations could be curtailed, which could have a
material adverse effect on the Company's results of operations and financial
condition. See "Risk Factors -- Liquidity and Capital Resources."

IMPACT OF INFLATION

Increases in the inflation rate generally result in increased interest
rates. Since the Company borrows funds at a variable rate, increased interest
rates will increase the borrowing costs of the Company. Inflation will also
increase the operating costs of the Company. The Company may not be able to
pass on the effects of inflation and accompanying higher interest rates to
its borrowers due to usury or other regulatory restrictions or competitive
pressures.

SEASONALITY

The Company is affected by consumer demand for home improvements, which
is partially influenced by regional trends, economic conditions and personal
preferences. The Company's business is generally subject to seasonal trends,
with home improvements generally peaking during the spring and summer seasons
and declining to lower levels in the fall and winter months. Delinquencies on
loan payments typically increase in November and December of each calendar
year.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1996, the FASB issued FASB 125, "Accounting for Transfer and
Servicing of Financial Assets and Extinguishment of Liabilities". FASB 125
addresses the accounting for all types of securitization transactions,
securities lending and repurchase agreements, collateralized borrowing
arrangements and other transactions involving the transfer of financial
assets. FASB 125 distinguishes transfers of financial assets that are sales
from transfers that are secured borrowings. FASB 125 is generally effective
for transactions that occur after December 31, 1996, and it is to be applied
prospectively. FASB 125 will require the Company to allocate the total cost
of mortgage loans sold to the mortgage loans sold (servicing released),
retained certificates and servicing rights based on their relative fair values.
The Company will be required to assess the retained certificates and servicing
rights for impairment based upon the fair value of those rights. The
pronouncement also will require the Company to provide additional disclosure
about the retained certificates in its securitizations and to account for
these assets at fair value in accordance with FASB 115. The Company will
apply the new rules prospectively beginning in the first calendar quarter of
1997 and, based on current circumstances, does not believe the application of
the new rules will have a material impact on the Company's financial
statements. There can be no assurance, however, that the implementation by
the Company of FASB 125 will not reduce the Company s Gain on Sale of Loans
in the future or otherwise adversely affect the Company's results of
operations or financial condition.

FORWARD LOOKING STATEMENTS

Certain information contained in this Form 10-K constitutes
"Forward-Looking Statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, which can be identified by the use of
forward-looking terminology such as "may," "will," "expect," " anticipate,"
"estimate" or "continue" or the negative thereof or other variations thereon
or comparable terminology. The statements in "Risk Factors" contained in the
Company's current report on Form 8-K, filed with the Securities and Exchange
Commission on December 19, 1996, constitute cautionary statements identifying
important factors, including certain risks and uncertainties, with respect to
such forward-looking statements that could cause actual results to differ
materially from those reflected in such forward-looking statements.

34
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Financial Statements and Supplementary Data are set forth herein
commencing on page F-1 of this Report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not Applicable.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The information required in response to this Item is incorporated herein
by reference to the Company's proxy statement to be filed with the Securities
and Exchange Commission pursuant to Regulation 14A, not later than 120 days
after the end of the fiscal year covered by this report.

ITEM 11. EXECUTIVE COMPENSATION.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(a) Documents filed as part of Report.

1. FINANCIAL STATEMENTS:

The Financial Statements are listed in the index to Consolidated
Financial Statements on page F-1 of this Report.

2. FINANCIAL STATEMENT SCHEDULES:

Not applicable

3. EXHIBITS:

The exhibits are listed on the Exhibit Index attached hereto.

36
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
------
RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

Report of Independent Auditors........................................F-2

Consolidated Balance Sheets as of September 30, 1995 and 1996.........F-3

Consolidated Statements of Income for the Years Ended
September 30, 1994, 1995 and 1996.....................................F-4

Consolidated Statements of Stockholders' Equity for the
Years Ended September 30, 1994, 1995 and 1996.........................F-5

Consolidated Statements of Cash Flows for the Years Ended
September 30, 1994, 1995 and 1996.....................................F-6

Notes to Consolidated Financial Statements............................F-7

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

Board of Directors
RAC Financial Group, Inc.

We have audited the accompanying consolidated balance sheets of RAC
Financial Group, Inc. and subsidiaries as of September 30, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the three years in the period ended September 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of RAC
Financial Group, Inc. and subsidiaries at September 30, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles.

/s/ Ernst & Young LLP

Dallas, Texas
October 25, 1996

F-2

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
ASSETS (NOTE 7)
SEPTEMBER 30,
---------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 2,485,511 $ 23,167,198
Loans held for sale, net (Notes 3 and 4) . . . . . . . . . 19,435,177 430,811,705
Excess servicing receivable (Note 5) . . . . . . . . . . . 29,743,987 187,229,584
Subordinated certificates held for sale (Note 5) . . . . . 1,312,500 16,527,471
Receivable from trusts . . . . . . . . . . . . . . . . . . 2,571,668 32,105,423
Other assets (Note 6). . . . . . . . . . . . . . . . . . . 5,791,665 20,542,375
------------ ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $ 61,340,508 $710,383,756
------------ ------------
------------ ------------

LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities . . . . . . . . . $ 6,936,703 $ 19,669,370
Warehouse financing facilities (Note 7). . . . . . . . . . 18,529,557 354,480,790
Warehouse Lender term line of credit (Note 7). . . . . . . 9,248,872 57,464,872
Notes payable (Note 7) . . . . . . . . . . . . . . . . . . 871,906 1,966,818
Subordinated notes payable (Note 7). . . . . . . . . . . . 8,002,500 7,002,500
Convertible subordinated notes . . . . . . . . . . . . . . -- 100,000,000
Allowance for possible credit losses on loans
sold (Note 4) . . . . . . . . . . . . . . . . . . . . 3,906,506 54,256,800
Deferred tax liabilities, net (Note 8) . . . . . . . . . . 2,110,593 20,973,879
------------ ------------
Total liabilities . . . . . . . . . . . . . . . . . . 49,606,637 615,815,029
------------ ------------
Contingencies and Commitments (Note 14)
Stockholders' equity:
Preferred stock Series A, non-voting, $1.00 par value,
8% cumulative dividend (Note 9):
Authorized -- 300,000
Issued and outstanding shares -- 100,000 -- 1995;
none -- 1996 . . . . . . . . . . . . . . . . . . . . . 100,000 --
Preferred stock Series B, non-voting, $1.00 par value,
8% cumulative dividend (Note 9):
Authorized, issued, and outstanding shares -- 2,300,000
- 1995; none - 1996. . . . . . . . . . . . . . . . . 2,300,000 --
Common stock, $0.01 par value (Note 9):
Authorized shares -- 100,000,000
Issued and outstanding shares -- 15,000,000 -- 1995;
22,499,140 -- 1996 . . . . . . . . . . . . . . . . . . 150,000 224,991
Non-voting common stock, $0.01 par value (Note 9):
Authorized shares -- 25,000,000
Issued and outstanding shares -- 2,948,804 -- 1995;
4,440,676 -- 1996. . . . . . . . . . . . . . . . . . . 29,488 44,407
Additional capital . . . . . . . . . . . . . . . . . . . 3,537,184 54,695,558
Retained earnings. . . . . . . . . . . . . . . . . . . . 5,617,199 39,603,771
------------ ------------
Total stockholders' equity . . . . . . . . . . . . . . 11,733,871 94,568,727
------------ ------------
Total liabilities and stockholders' equity . . . . . . $61,340,508 $710,383,756
------------ ------------
------------ ------------

</TABLE>

See accompanying notes.

F-3

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Revenues:
Gains on sales of loans, net . . . . . . . $27,671,211 $29,113,701 $158,639,463
Interest income. . . . . . . . . . . . . . 1,845,001 2,860,372 25,726,629
Servicing income . . . . . . . . . . . . . 71,982 1,049,188 4,007,544
Other income . . . . . . . . . . . . . . . 251,766 873,077 9,683,463
------------ ------------ -------------
Total revenues. . . . . . . . . . . . . 29,839,960 33,896,338 198,057,099
Expenses:
Salaries and employee benefits . . . . . . 17,054,236 10,110,448 36,401,629
Interest . . . . . . . . . . . . . . . . . 1,040,552 2,660,407 16,891,544
Other operating. . . . . . . . . . . . . . 6,464,674 6,962,933 29,938,395
Provision for possible credit losses . . . 125,000 4,419,736 59,644,195
------------ ------------ -------------
Total expenses. . . . . . . . . . . . . 24,684,462 24,153,524 142,875,763
------------ ------------ -------------
Income before income taxes . . . . . . . . . 5,155,498 9,742,814 55,181,336
Provision for income taxes . . . . . . . . . -- (3,903,304) (20,968,908)
------------ ------------ -------------
Net income . . . . . . . . . . . . . . . . . $5,155,498 $5,839,510 $34,212,428
------------ ------------ -------------
------------ ------------ -------------

Weighted average common shares and
common equivalent shares outstanding . . . . 16,276,874 20,296,874 25,358,162
------------ ------------ -------------
------------ ------------ -------------
Primary net income per share of
common stock . . . . . . . . . . . . . . . . $.31 $.28 $1.35
------------ ------------ -------------
------------ ------------ -------------
Weighted average fully diluted common
and common equivalent shares outstanding . . 16,276,874 20,296,874 26,353,526
------------ ------------ -------------
------------ ------------ -------------
Fully diluted net income per share of
common stock . . . . . . . . . . . . . . . . $0.31 $0.28 $1.31
------------ ------------ -------------
------------ ------------ -------------

</TABLE>

See accompanying notes.

F-4

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
PREFERRED STOCK
-----------------------------------------------
SERIES "A" SERIES "B"
------------------------ ---------------------
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at September 30, 1993. . . . . . . . . . . . . 300,000 $300,000
Preferred stock dividends. . . . . . . . . . . . . . .
Issuance of common stock . . . . . . . . . . . . . . .
Cancellation of loans to officer assumed by
stockholders . . . . . . . . . . . . . . . . . . .
Distributions (Note 1) . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . .
------- ------- --------- ----------
Balance at September 30, 1994. . . . . . . . . . . . . 300,000 300,000
Investment in subsidiary -- RNFC . . . . . . . . . . . 2,300,000 $2,300,000
Issuance of common stock and exercise of
warrants. . . . . . . . . . . . . . . . . . . . .
Redemption of preferred stock. . . . . . . . . . . . . (200,000) (200,000)
Preferred stock dividends. . . . . . . . . . . . . . .
Distributions (Note 1) . . . . . . . . . . . . . . . .
Net (loss) income. . . . . . . . . . . . . . . . . . .
------- ------- --------- ----------
Balance at September 30, 1995. . . . . . . . . . . . . 100,000 100,000 2,300,000 2,300,000
Issuance of common stock and exercise of stock
warrants . . . . . . . . . . . . . . . . . . . . .
Transfer of non-
voting to voting . . . . . . . . . . . . . . . . .
Redemption of preferred stock. . . . . . . . . . . . . (100,000) (100,000) (2,300,000) (2,300,000
Preferred stock dividends. . . . . . . . . . . . . . .
Net income (loss). . . . . . . . . . . . . . . . . . .
Other. . . . . . . . . . . . . . . . . . . . . . . . .
------- ------- --------- ----------
Balance at September 30, 1996. . . . . . . . . . . . . - $ - - $ -
------- ------- --------- ----------
------- ------- --------- ----------
<CAPTION>
COMMON STOCK
---------------------------------------------
VOTING NON-VOTING RETAINED
---------------------- --------------------- ADDITIONAL EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
------ ------ ------ ------ ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993. . . . . . . . . 10,300,000 $103,000 $4,537,920 $(295,377) $4,645,543
Preferred stock dividends. . . . . . . . . . . (70,500) (70,500)
Issuance of common stock . . . . . . . . . . . 680,000 6,800 1,656,448 1,663,248
Cancellation of loans to officer assumed by
stockholders . . . . . . . . . . . . . . . (200,000) (200,000)
Distributions (Note 1) . . . . . . . . . . . . (6,872,928) (6,872,928)
Net (loss) income. . . . . . . . . . . . . . . 5,802,860 (647,362) 5,155,498
---------- -------- --------- ------- ----------- ----------- -----------
Balance at September 30, 1994. . . . . . . . . 10,980,000 109,800 5,124,300 (1,213,239) 4,320,861
Investment in subsidiary -- RNFC . . . . . . . 4,020,000 40,200 1,127,139 3,467,339
Issuance of common stock and exercise of
warrants. . . . . . . . . . . . . . . . . 2,948,804 $29,488 470,512 500,000
Redemption of preferred stock. . . . . . . . . (200,000)
Preferred stock dividends. . . . . . . . . . . (26,864) (26,864)
Distributions (Note 1) . . . . . . . . . . . . (2,166,975) (2,166,975)
Net (loss) income. . . . . . . . . . . . . . . (1,017,792) 6,857,302 5,839,510
---------- -------- --------- ------- ----------- ----------- -----------
Balance at September 30, 1995. . . . . . . . . 15,000,000 150,000 2,948,804 $29,488 3,537,184 5,617,199 11,733,871
Issuance of common stock and exercise of stock
warrants . . . . . . . . . . . . . . . . . 6,590,000 65,900 2,401,012 24,010 51,121,044 51,210,954
Transfer of non-
voting to voting . . . . . . . . . . . . . 909,140 9,091 (909,140) (9,091) --
Redemption of preferred stock. . . . . . . . . (2,400,000)
Preferred stock dividends. . . . . . . . . . . (264,842) (264,842)
Net income (loss). . . . . . . . . . . . . . . (38,986) 34,251,414 34,212,428
Other. . . . . . . . . . . . . . . . . . . . . 76,316 76,316
Balance at September 30, 1996. . . . . . . . . 22,499,140 $224,991 4,440,676 $44,407 $54,695,558 $39,603,771 $94,568,727
---------- -------- --------- ------- ----------- ----------- -----------
---------- -------- --------- ------- ----------- ----------- -----------

</TABLE>

See accompanying notes.

F-5

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $5,155,498 $5,839,510 $34,212,428
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Provision for possible credit losses. . . . . . . . . . . 264,429 4,387,186 59,644,195
Depreciation and amortization . . . . . . . . . . . . . . 359,629 419,801 663,294
Gain on sales of loans. . . . . . . . . . . . . . . . . . (2,071,620) (34,009,029) (170,679,358)
Changes in operating assets and liabilities:
Excess servicing receivable amortization . . . . . . . -- 487,618 13,391,590
Loans originated or acquired . . . . . . . . . . . . . (812,643) (208,709,884) (1,662,943,324)
Principal collected and proceeds from sale of loans. . -- 203,840,116 1,257,526,186
Accrued interest receivable. . . . . . . . . . . . . . -- 457,945 (3,030,595)
Excess servicing receivable, net . . . . . . . . . . . -- 1,364,909 (197,829)
Receivable from trusts . . . . . . . . . . . . . . . . -- (2,417,202) (33,323,944)
Subordinated certificates held for sale. . . . . . . . -- (1,312,500) (15,214,971)
Other assets . . . . . . . . . . . . . . . . . . . . . (639,279) (1,048,753) (7,845,077)
Accounts payable and accrued expenses. . . . . . . . . 979,293 2,381,646 12,303,330
Other liabilities. . . . . . . . . . . . . . . . . . . 416,532 483,988 --

Deferred tax liability . . . . . . . . . . . . . . . . -- 2,110,593 18,841,605
---------- ----------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . 3,651,839 (25,724,056) (496,652,470)
INVESTING ACTIVITIES:
Cash from acquisitions . . . . . . . . . . . . . . . . . . -- 624,571 251,894
Acquisition costs of RNFC. . . . . . . . . . . . . . . . . -- (530,562) --
Advances to stockholders . . . . . . . . . . . . . . . . . (776,168) 552,932 --
Marketable securities. . . . . . . . . . . . . . . . . . . 628,735 -- --
Purchases of equipment and leasehold improvements. . . . . (635,366) (761,132) (4,447,279)
---------- ----------- --------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . (782,799) (114,191) (4,195,385)
FINANCING ACTIVITIES:
Borrowings on warehouse financing facilities, net. . . . . 157,260 10,436,052 324,891,823
Borrowings on term line of credit. . . . . . . . . . . . . 2,888,872 9,248,872 48,216,000
Borrowings on notes payable, net . . . . . . . . . . . . . 350,000 221,906 875,607
Proceeds from subordinated notes payable to affiliates . . -- 8,002,500 --
Proceeds from convertible subordinated notes . . . . . . . -- -- 100,000,000
Repayments on subordinated notes payable to affiliates . . -- -- (1,000,000)
Redemptions of preferred stock . . . . . . . . . . . . . . -- (200,000) (2,400,000)
Common stock issued. . . . . . . . . . . . . . . . . . . . 1,663,248 500,000 51,210,954
Distributions. . . . . . . . . . . . . . . . . . . . . . . (6,872,928) (2,166,975) --
Preferred stock dividends. . . . . . . . . . . . . . . . . (70,500) (26,864) (264,842)
---------- ----------- --------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES. . . . . . . . . . . . . . . . . . . . . . . . (1,884,048) 26,015,491 521,529,542
---------- ----------- --------------
INCREASE IN CASH . . . . . . . . . . . . . . . . . . . . . 984,992 177,244 20,681,687
Cash and cash equivalents at beginning of year . . . . . . 1,323,275 2,308,267 2,485,511
---------- ----------- --------------
Cash and cash equivalents at end of year . . . . . . . . . $2,308,267 $2,485,511 $23,167,198
---------- ----------- --------------
---------- ----------- --------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid during the year. . . . . . . . . . . . . . . $1,040,552 $1,997,129 $16,891,543
---------- ----------- --------------
---------- ----------- --------------
Non-cash investing and financing activities:
Acquisition of assets, net . . . . . . . . . . . . . . . . -- $2,312,206 --

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

</TABLE>

See accompanying notes.

F-6

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 1996

1. DESCRIPTION OF BUSINESS AND ACQUISITIONS

RAC Financial Group, Inc., a Nevada corporation (RAC or the Company),
through its four subsidiaries, FIRSTPLUS Financial, Inc. (FIRSTPLUS Financial),
formerly known as Remodelers National Funding Corp., a Texas corporation, SFA:
State Financial Acceptance Corp., a Texas corporation (SFAC), FIRSTPLUS
Financial West, Inc., formerly known as Mortgage Plus Incorporated, a Colorado
corporation, and First Security Mortgage Corporation (FIRSTPLUS East), a South
Carolina corporation, is a specialized consumer finance company that originates,
services, and sells Conventional and Title I home improvement, debt
consolidation and combination home improvement/ debt consolidation loans. The
Company originates loans through wholesale purchase, contractor referrals and
direct to consumer transactions. The Company historically sold substantially all
of the loans it originated or purchased through asset-backed securitizations to
investors in the form of pass-through certificates and retains the loan
servicing rights.

SFAC is a conventional home improvement lender. In prior years, SFAC
purchased property improvement loans at a discount from contractors and sold
packages of these loans at a premium. On October 4, 1994, RAC was formed to
combine the operations of SFAC and FIRSTPLUS Financial, an approved Title I Loan
originator and servicer. The Company entered into an agreement with the
shareholders of SFAC and with Farm Bureau Life Insurance Company ("Farm
Bureau"), which at the time was an affiliate of a principal shareholder of
FIRSTPLUS Financial, whereby the shareholders of SFAC exchanged their common and
preferred stock of SFAC and FIRSTPLUS Financial exchanged its common stock of
FIRSTPLUS Financial for common and preferred stock of the Company. FIRSTPLUS
Financial and SFAC became wholly owned subsidiaries of the Company (the
Combination).

In May 1996, 1,600,000 common shares of the Company were issued in exchange
for all of the outstanding common stock of Mortgage Plus Incorporated (MPI), in
a transaction accounted for as a pooling of interests. MPI was subsequently
renamed FIRSTPLUS Financial West, Inc. (FIRSTPLUS West). As such, the
consolidated financial information of the Company has been restated to include
the accounts of FIRSTPLUS West for all periods presented. As FIRSTPLUS West was
a Subchapter S corporation prior to the pooling with RAC, its retained earnings
activity (net income (loss) and distributions) on a separate company basis has
been reclassified to additional capital. Prior to the acquisition, FIRSTPLUS
West operated on a fiscal year end of April 30. FIRSTPLUS West's prior years
financial statements have been combined with the Company's financial statements
without recasting the periods presented, except for the financial information as
of and for the fiscal years ended September 30, 1996 and 1995. Such combination
results in operations for FIRSTPLUS West for the period from July 1, 1995
through September 30, 1995 being excluded from the presentation. Net income for
FIRSTPLUS West for this period was approximately $58,000. Separate results of
the Company and FIRSTPLUS West for the periods presented are as follows (dollars
in thousands):

<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Revenue:
RAC . . . . . . . . . . . . . . . . . . . . . . . . $ 2,446 $ 28,951 $ 180,307
FIRSTPLUS West. . . . . . . . . . . . . . . . . . . 27,394 4,962 21,622
Elimination of intercompany transactions. . . . . . -- (18) (3,872)
-------- -------- ---------
29,840 33,895 198,057
Expenses:
RAC . . . . . . . . . . . . . . . . . . . . . . . . 3,093 18,172 121,389
FIRSTPLUS West. . . . . . . . . . . . . . . . . . . 21,592 5,981 21,487
Provision for income taxes. . . . . . . . . . . . . -- 3,903 20,969
-------- -------- ---------
24,685 28,056 163,845
Net income (loss):
RAC . . . . . . . . . . . . . . . . . . . . . . . . (647) 6,876 37,949
FIRSTPLUS West. . . . . . . . . . . . . . . . . . . 5,802 (1,019) 135
Elimination of intercompany transactions. . . . . . -- (18) (3,872)
-------- -------- ---------
$5,155 $5,839 $34,212
-------- -------- ---------
-------- -------- ---------

</TABLE>

F-7

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of RAC and its
wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.

REVENUE RECOGNITION

The Company generates revenue from the sale of loans through asset-backed
securitizations by selling pass-through certificates through grantor trusts or
asset-backed notes through owner trusts (the Trusts). Excess servicing gains on
sales of loans through securitizations principally represent the present value
of the differential between the interest rates charged on the loans and the
interest rates passed on to the purchasers of the certificates, after
considering the effects of estimated prepayments, servicing fees, and other
administrative costs. Excess servicing gains on sales of loans are recorded at
the settlement date. All related premiums or discounts on the loans sold are
netted against the gain on sale of the loans.

An excess servicing receivable (the Receivable) is recorded at the time of
sale that is equal to the excess servicing gain on sale of loans before
reductions for related premiums and costs. The Receivable is amortized in
proportion to and over the expected lives of the related loans giving effect to
the prepayment assumptions utilized in its determination and is carried at its
estimated net realizable value.

The carrying value of the Receivable is analyzed for possible impairment
quarterly by the Company on a disaggregated basis by the predominant risk
characteristic of loan type to determine whether prepayment and default
experience has an impact on carrying value. Expected cash flows of the
underlying loans sold are reviewed based upon current economic conditions and
the type of loans originated and are revised as necessary using the original
discount rate used in calculating the gain on sale. The Company generally makes
loans to borrowers whose borrowing needs may not be met by traditional financial
institutions due to credit qualification requirements, primarily due to high
loan-to-value ratios. The Company has found that its borrowers are payment
sensitive rather than interest-rate sensitive. As such, the Company does not
consider interest rates to be a predominant risk characteristic for purposes of
valuation impairment. Impairment losses, if any, arising from adverse prepayment
and default experience are recognized as a charge to earnings while favorable
experience is not recognized until realized.

During the fiscal year ended September 30, 1996, the Company pooled and
securitized $723.1 million of loans through five grantor trusts and one owner
trust. Four trusts sold pass-through certificates in private placements. One
trust (1996-2) sold pass-through certificates in a public offering. One Trust
(1996-3) sold mortgage-backed notes in a public offering. The certificates have
fixed coupon rates and estimated remaining maturities ranging from 2 to
20 years.

To a lesser extent, the Company generates revenue from the bulk sale of
loans. Bulk sale gains represent the difference between the sale price, which is
received in cash, and the cost of the loans sold.

The Company generally retains servicing rights and recognizes servicing
income from fees, prepayment penalties and late payment charges earned for
servicing the loans owned by investors, certificate holders, and others.
Servicing and other fees are generally earned at rates ranging from
approximately 0.75% to 1.00% of the unamortized loan balance being serviced.
Servicing income is recognized when collected.

Interest income from loans is recognized using the interest method. The
Company ceases to accrue interest income on loans which become 90 days past due.

CASH EQUIVALENTS

F-8

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.

LOANS HELD FOR SALE

Loans held for sale are carried at the lower of cost or market. Typically,
the Company obtains a second or third property improvement lien as collateral.

RECEIVABLE FROM TRUSTS

The Company is required to maintain a deposit with the trustees for the
Trusts equal to a set percentage of the par value of the securitized portfolio
to supplement unanticipated shortfalls in payments to certificate holders (the
Receivable from Trusts). The certificate holders' recourse to the Company is
limited to this required reserve balance and the Receivable related to the
specific securitization. The amounts on deposit are invested in certain
short-term instruments as permitted by each Trust's pooling and servicing
agreement. To the extent that amounts on deposit exceed specified levels,
distributions are made to the Company. Upon maturity of the certificates, any
remaining amounts on deposit are distributed to the Company.

ALLOWANCE FOR POSSIBLE CREDIT LOSSES

Provision for credit losses is charged to income in amounts sufficient to
maintain the allowance at a level considered adequate to cover anticipated
losses resulting from liquidation of outstanding loans. The allowance for credit
losses is based upon periodic analysis of the portfolio, economic conditions and
trends, historical credit loss experience, borrowers' ability to repay, and
collateral values. The allowance for credit losses on loans sold represents the
Company's best estimate of future credit losses likely to be incurred over the
life of the loans sold. This allowance has been discounted at 6.5% which is
considered to be equivalent to the risk-free market rate for securities with a
duration consistent with the estimated timing of losses. The Company charges off
defaulted loans based on a review of each individual receivable.

INCOME TAXES

Federal and state income taxes are accounted for utilizing the liability
method, and deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using enacted tax rates and laws that will be in effect when
the differences are expected to reverse.

EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE

Primary earnings per common and common equivalent share are computed by
dividing net income less preferred dividends by the weighted average number
of shares of Common Stock and Common Stock equivalents outstanding for the
period. Common Stock equivalents consist of the dilutive effect of Common
Stock which may be issued assuming exercise of stock options or warrants for
the period such options or warrants were outstanding, using the treasury
stock method. Fully diluted earnings per share reflect the dilutive effect
of Common Stock that may be issued, assuming conversion of the convertible
subordinated notes and exercise of stock options and warrants. Pursuant to
the requirements of the Securities and Exchange Commission, common shares and
common equivalent shares issued at prices below the estimated initial public
offering price during the 12 months immediately preceding the date of the
filing of the registration statement relating thereto have been included in
the calculation of common shares and common share equivalents, using the
treasury stock method, as if they were outstanding for all periods presented.

USE OF ESTIMATES

F-9

<PAGE>
RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company's financial instruments at September 30, 1996 and September 30,
1995 consist primarily of loans held for sale, excess servicing receivable and
subordinated certificates held for sale as well as warehouse financing
facilities, term lines of credit and other debt instruments. The loans held for
sale represent recent production and as such, their carrying value approximates
their current fair value. On a quarterly basis, the performance of the excess
servicing receivable is analyzed by management for impairment, focusing on
market discount rates, prepayment and default assumptions. Accordingly, based
on such analysis, management believes that the carrying value of the excess
servicing receivable approximates its fair value. All significant outstanding
debt, including the warehouse financing facilities, term lines of credit and
other debt instruments, are at variable rates at terms the Company believes
represent present market conditions. As such, the carrying amounts of the
Company's outstanding debt instruments approximate their respective fair values.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125 ("FASB 125"). "Accounting
for Transfer and Servicing of Financial Assets and Extinguishment of
Liabilities." FASB 125 addresses the accounting for all types of
securitization transactions, securities lending and repurchase agreements,
collateralized borrowing arrangements and other transactions involving the
transfer of financial assets. FASB 125 distinguishes transfers of financial
assets that are sales from transfers that are secured borrowings. FASB 125 is
generally effective for transactions that occur after December 31, 1996, and
it is to be applied prospectively. FASB 125 will require the Company to
allocate the total cost of mortgage loans sold to the mortgage loans sold
(servicing released), retained certificates and servicing rights based on
their relative fair values. The Company will be required to assess the retained
certificates and servicing rights for impairment based upon the fair value of
those rights. The pronouncement also will require the Company to provide
additional disclosure about the retained certificates in its securitizations
and to account for these assets at fair value in accordance with FASB 115.
The Company will apply the new rules prospectively beginning in the first
calendar quarter of 1997 and, based on current circumstances, does not
believe the application of the new rules will have a material impact on the
Company's financial statements.

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which is effective beginning in the Company's 1997 fiscal year.
SFAS No. 123 allows companies to continue to account for stock-based employee
compensation plans under the existing accounting standard Accounting Principles
Board ("APB") Opinion No. 25, or adopt a fair value-based method of accounting
for stock options as compensation expense over the service period (generally the
vesting period) as defined in the new standard. SFAS No. 123 requires that if a
company continues to account for stock options under APB Opinion No. 25, it must
provide pro forma net income and earnings per share information "as if" the new
fair value approach had been adopted. The Company plans to continue to account
for stock-based compensation under APB Opinion No. 25 and will make the required
disclosures in its 1997 fiscal year financial statements.

3. LOANS HELD FOR SALE

The components for loans held for sale are as follows:

SEPTEMBER 30,
-------------------------
1995 1996
----------- ------------
Conventional loans . . . . . . . . . . . . . . $14,066,740 $386,934,441
Title I loans. . . . . . . . . . . . . . . . . 7,202,788 34,711,739
First lien mortgages . . . . . . . . . . . . . 27,871 1,713,497
Construction loans . . . . . . . . . . . . . . -- 1,826,850
----------- ------------
Subtotal. . . . . . . . . . . . . . . . . . 21,297,399 425,186,527
Participations sold. . . . . . . . . . . . . . (902,390) --
Allowance for possible credit losses . . . . . (887,879) (6,495,073)
Net purchase premiums (discount) on
conventional loans. . . . . . . . . . . . . . (71,953) 12,120,251
----------- ------------
Total . . . . . . . . . . . . . . . . . . . $19,435,177 $430,811,705
----------- ------------
----------- ------------
F-10
<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The serviced loan portfolio, which includes the loans held for sale, as
well as loans serviced for the securitizations and other investors, consisted of
$1.0 billion in Conventional Loans and $250.9 million in Title I loans at
September 30, 1996.

4. ALLOWANCE FOR POSSIBLE CREDIT LOSSES

The activity in the allowance for possible credit losses is summarized as
follows:

YEAR ENDED SEPTEMBER 30,
------------------------
1995 1996
---------- -----------
Balance, beginning of year . . . . . . . . . . . $325,429 $4,794,385
Allowance from FIRSTPLUS Financial acquisition . 160,000 --
Provision for possible credit losses . . . . . . 4,452,286 59,644,195
Participations purchased with a reserve. . . . . -- 214,909
Charge-offs, net . . . . . . . . . . . . . . . . (143,330) (3,901,616)
---------- -----------
Balance, end of year . . . . . . . . . . . . . . $4,794,385 $60,751,873
---------- -----------
---------- -----------

Components of Allowance:
Allowance for possible credit losses on
loans held for sale. . . . . . . . . . . . . . $887,879 $6,495,073
Allowance for possible credit losses on
loans sold . . . . . . . . . . . . . . . . . . 3,906,506 54,256,800
---------- -----------
Total . . . . . . . . . . . . . . . . . . . $4,794,385 $10,751,845
---------- -----------
---------- -----------

5. EXCESS SERVICING RECEIVABLE AND SUBORDINATED CERTIFICATES AVAILABLE FOR
SALE

The activity in the Receivable is summarized as follows:

YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1996
----------- ------------
Balance, beginning of year . . . . . . . . . . . $-- $29,743,987
Acquired in FIRSTPLUS East and FIRSTPLUS
West acquisition. . . . . . . . . . . . . . . 1,685,887 197,829
Excess servicing gains . . . . . . . . . . . . . 30,065,093 170,679,358
Excess servicing write-off . . . . . . . . . . . (969,412) (408,915)
Amortization . . . . . . . . . . . . . . . . . . (487,618) (12,982,675)
Receivable reclassified to Receivable
from Trust . . . . . . . . . . . . . . . . (549,963) --
----------- ------------
Balance, end of year . . . . . . . . . . . . . . $29,743,987 $187,229,584
----------- ------------
----------- ------------

The Company discounts the cash flows on the securitized loans at a rate it
believes a purchaser would require as a rate of return. The rates used to
discount the cash flows were between 10% and 11% for the fiscal years ended
September 30, 1995 and September 30, 1996.

At September 30, 1996, the Company held as available for sale four
subordinated certificates from securitizations. The certificates were unrated
and as such there was no current established market values. Estimates of the
fair market value based on discounted cash flow analysis indicates that the
carrying value of the subordinated certificates approximates their fair value.

F-11

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. OTHER ASSETS

Other assets consist of the following:

SEPTEMBER 30,
-------------------------
1995 1996
----------- ------------
Goodwill, net. . . . . . . . . . . . . . . . . . $477,506 $423,951
Furniture, equipment and leasehold improvements,
net . . . . . . . . . . . . . . . . . . . . 1,277,660 5,497,037
Debt offering costs. . . . . . . . . . . . . . . --- 3,112,341
Prepaids and other . . . . . . . . . . . . . . . 4,036,499 11,509,046
----------- ------------
$5,791,665 $20,542,375
----------- ------------
----------- ------------

Depreciable assets are stated at cost less accumulated depreciation.
Equipment is depreciated using a straight-line method based on estimated useful
lives ranging from 1 to 5 years. Leasehold improvements are amortized over the
life of the lease or asset whichever is shorter.

Goodwill is amortized on a straight-line basis over ten years.

7. DEBT

WAREHOUSE FINANCING FACILITIES

The Company has a $60 million warehouse facility (Bank One Warehouse Lender
Facility) with Bank One, Texas, N.A., an affiliate, for warehousing loans prior
to sale through securitization. In March 1996, the Company increased the Bank
One Facility from $20 million to $40 million, and, in June 1996, increased the
Bank One Facility to $60 million. At September 30, 1996, approximately
$50.9 million was outstanding under the Bank One Warehouse Lender Facility. This
warehouse facility bears interest at the federal funds rate (5.3% at
September 30, 1996) plus 1.25%, payable monthly. During the term of the
facility, borrowings have no stated maturity other than the repayment
obligations coincident with the principal payments of the underlying loans. Upon
the sale of the warehoused loans, borrowings under the warehouse facility are
repaid. The Bank One Warehouse Lender Facility matures in March 1997.

The Company also has a $130 million warehouse financing facility with a
nationally recognized finance company (the Warehouse Lender) for warehousing
loans prior to sale through securitization. This warehouse facility bears
interest at a rate based on the commercial paper rate of the Warehouse Lender's
parent plus 125 basis points payable monthly. This warehouse facility matures in
March 1997. The Warehouse Lender received a participation interest in the
securitizations completed in June and September 1995. At September 30, 1996,
approximately $116.4 million was outstanding under this warehouse facility.

Additionally, at September 30, 1996, the Company had approximately
$42.5 million outstanding under several other warehouse lines bearing interest
at rates primarily based on spreads above LIBOR or prime.

In May 1996, the Company entered into a master repurchase agreement with
Bear Stearns Home Equity Trust 1996-1, which provided the Company with a
$200 million loan repurchase facility (the "Bear Stearns Facility") which bears
interest based on a spread over the 30-day LIBOR and expires in May 1997.
Approximately $144.6 million was outstanding under this facility at
September 30, 1996. In August 1996, the Bear Stearns Facility was increased to
$300 million.

WAREHOUSE LENDER TERM LINE OF CREDIT

The Company has a $70 million working capital term line of credit with the
Warehouse Lender that is secured by the Company's subordinated certificates and
the Company's excess servicing receivable. This line of credit bears interest
at the rate of 2.5% over the thirty day rate for commercial paper issued by the
Warehouse Lender's parent with the principal

F-12

<PAGE>
RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amortized over 60 months. No additional borrowings may occur under the term line
beyond March 1997. The line of credit matures in February 1999.

SUBORDINATED NOTES

At September 30, 1996, the Company had $5.7 million principal amount of 12%
fixed rate subordinated notes (the Notes) outstanding which are held by Banc
One, which is an affiliate. The Notes mature on March 31, 2000. In addition, at
September 30, 1996, the Company had $1.3 million principal amount of Notes
outstanding, which are held by Farm Bureau, which is an affiliate. Advances
under the facility carry 12% interest rates with principal due March 31, 2000.

Both the Banc One Notes and the Farm Bureau Notes referred to above were
issued with detachable stock warrants, allowing the affiliates to purchase a
total of 15% of the Company. All such warrants were exercised in February 1996.
See Note 9. The Notes are recorded at a discount which equals the value of the
warrants at the time of issuance. The Notes are secured by the assets of the
Company, but are subordinated to the rights of the warehouse lenders.

In August 1996, the Company issued the Convertible Subordinated Notes in
the aggregate principal amount of $100 million. The Notes mature in August
2003 and bear interest at 7.25%, and are convertible into Common Stock at a
conversion price of $16.30 per share. Common Stock reserved for conversion
totaled 6,134,970 at September 30, 1996.

In conjunction with the various borrowings, the Company has agreed to
certain financial covenants regarding tangible net worth and leverage. In
addition, FIRSTPLUS Financial is restricted from transferring the Excess
Servicing receivable to RAC or any of its subsidiaries. The Company was in
compliance with all such financial covenants at September 30, 1996.

8. INCOME TAXES

The provision for income taxes consists of the following:

YEAR ENDED SEPTEMBER 30,
-------------------------
1995 1996
----------- ------------
Current:
Federal. . . . . . . . . . . . . . . . . . . $1,613,443 $1,883,977
State. . . . . . . . . . . . . . . . . . . . 179,268 221,645
----------- ------------
1,792,711 2,105,622

Deferred:
Federal. . . . . . . . . . . . . . . . . . . 1,794,000 16,877,677
State. . . . . . . . . . . . . . . . . . . . 316,593 1,985,609
----------- ------------
2,110,593 18,863,286
----------- ------------
$3,903,304 $20,968,908
----------- ------------
----------- ------------

The tax effects of temporary differences that give rise to the deferred tax
asset and liabilities are as follows:

SEPTEMBER 30,
------------------------
1995 1996
---------- -----------
Deferred tax asset --
allowance for possible credit losses . . . . $1,787,800 $2,566,376
Deferred tax liabilities:
Excess servicing rights. . . . . . . . . . . 3,705,325 23,455,459
Other. . . . . . . . . . . . . . . . . . . . 193,068 84,796
---------- -----------
3,898,393 23,540,255
---------- -----------
Net deferred tax liabilities . . . . . . . . . . $2,110,593 $20,973,879
---------- -----------
---------- -----------
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate is as follows:
F-13
<PAGE>
RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30,
----------------------------
1995 1996
------------- -------------
Statutory rate . . . . . . . . . . . . . . . . . 34.0 % 35.0%
State tax, net of federal benefit. . . . . . . . 3.0 3.0
Non deductible S-Corp losses . . . . . . . . . . (3.5) --
Other. . . . . . . . . . . . . . . . . . . . . . (.4) --
------------- -------------
40.1 % 38.0%
------------- -------------
------------- -------------

Net income reflects the effect of FIRSTPLUS West as a Subchapter S
corporation and, accordingly, FIRSTPLUS West included no federal income taxes in
its financial statements since its income was taxed at the shareholder level.
Due to net operating losses experienced by RAC prior to the pooling with
FIRSTPLUS West and as FIRSTPLUS West was a Subchapter S corporation, no tax
provision was necessary for the year ended September 30, 1994.

9. STOCKHOLDERS' EQUITY

PREFERRED STOCK

The Series A Preferred Stock and Series B Preferred Stock paid dividends,
when declared by the Board of Directors, at an annual rate of $0.08 per share.
The dividends accrued and were payable upon redemption. The remaining
outstanding shares of the preferred stock were redeemed and all related
dividends were paid in February 1996.

WARRANTS

As of September 30, 1995, the Company had outstanding stock warrants held
by affiliates that were exercised for 2,401,012 shares of Non-voting Common
Stock for a nominal exercise price during the fiscal year ended September 30,
1996. The warrants were associated with the issuance of and amendments to the
Notes. In January 1996, to facilitate the increase in the term line, the Company
issued the Warehouse Lender warrants to purchase 500,000 shares of the Common
Stock at an exercise price of $7.00 per share.

10. EMPLOYEE STOCK OPTION, DIRECTOR STOCK OPTION, AND EMPLOYEE STOCK PURCHASE
PLANS

The Company has adopted the 1995 Employee Stock Option Plan. The 1995
Employee Stock Option Plan provides for grants of incentive stock options
(Incentive Options) and nonqualified stock options (Nonqualified Options) to all
eligible employees of the Company and its subsidiaries. All Incentive Options
will have an exercise price per share no less than the market value of the
Company's Common Stock on the date the option is granted. Nonqualified Options
may be granted with an exercise price per share less than fair market value of
the Common Stock at the date of grant. No options under the 1995 Employee Option
Plan may be exercised more than ten years from the date of grant. A maximum of
3,200,000 shares of Common Stock have been reserved for sale upon exercise of
options under this plan. Approximately 1,331,650 options have been granted
during the fiscal year ended September 30, 1996 at exercise prices equal to the
market value on the date of grant. No options have been exercised through
September 30, 1996.

The Company has adopted the 1995 Non-Employee Director Plan to grant
options to members of the Board of Directors who are not employees of the
Company or its subsidiaries on the date they become a director. Each
non-employee director, at the time the 1995 Non-Employee Director Plan was
adopted, received an option to purchase 10,000 shares of Common Stock (Initial
Option) at the initial public offering price less the underwriter's discount.
Subsequently, on the date of each annual stockholders' meeting, after such
director's Initial Option has vested, the director will receive a nonqualified
stock option to purchase 2,000 shares of Common Stock with an exercise price
equal to the fair market value of the Common Stock on the date of grant. A
maximum of 100,000 shares of Common Stock have been reserved under the 1995
Director Plan.
F-14
<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company has adopted the RAC Financial Group, Inc. Employee Stock
Purchase Plan (Purchase Plan) and reserved a total number of common shares
issuable under this plan of 500,000. The Purchase Plan provides a means for
employees to purchase shares of Common Stock at 85% of the fair market value.

The activity related to options granted during the year ended September 30,
1996, is as follows:

NUMBER
NUMBER OF OPTION PRICE OF SHARES
SHARES PER SHARE EXERCISABLE
--------------- -------------- ------------
Outstanding

September 30, 1995

Granted 1,450,020 $7.00 - 22.69 --

Forfeitures 48,370 7.00 --
--------- ------------- ---
September 30, 1996 1,401,650 $7.00 - 22.69 --
--------- ------------- ---
--------- ------------- ---

11. GAINS ON SALES OF LOANS

The gains on sales of loans, as defined in Note 2, and the related cost is
as follows:

YEAR ENDED SEPTEMBER 30,
---------------------------
1995 1996
------------- -------------
Excess servicing gain. . . . . . . . . . . . $41,064,028 $171,215,906
Sharing arrangements . . . . . . . . . . . . (10,998,935) (536,548)
------------- -------------
30,065,093 170,679,358
Gain on whole loan and bulk sales. . . . . . 4,517,100 11,196,110
------------- -------------
34,582,193 181,875,468
Residual interest income . . . . . . . . . . -- 5,114,883
Premiums, net. . . . . . . . . . . . . . . . (1,993,613) (20,835,867)
Transaction costs. . . . . . . . . . . . . . (3,474,879) (7,515,021)
------------- -------------
Gains on sales of loans, net . . . . . . . . $29,113,701 $158,639,463
------------- -------------
------------- -------------

12. TRANSACTIONS WITH AFFILIATES

In December 1994, the Company repurchased certain loan participations from
an affiliate, Farm Bureau, and other investors at par value. The repurchased
loans were sold in a securitization transaction. The affiliate received a
participation interest in the securitization. The affiliate held $2,569,706 of
loan participations at September 30, 1995. These participations were
subsequently repurchased by the Company.

The Company has a warehouse facility with Bank One, an affiliate of Banc
One Capital Partners II and Banc One Capital Partners V, which are stockholders
of the Company (See Note 7).

The Company has issued the Notes to Banc One Capital Partners II, Banc One
Capital Partners V, and Farm Bureau.

Additionally, the Company used Bear, Stearns & Co. Inc., as co-placement
agent in the Company's 1995-4, 1996-1, , 1996-2 and 1996-3 securitization
transactions. The Company also is provided financing through the Bear Stearns
Facility. A managing director from Bear, Stearns & Co. Inc., is a director of
the Company. (See Note 7).

The Company had a credit facility with Farm Bureau, which is a stockholder
of the Company (See Note 7).

F-15

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. EMPLOYEE BENEFIT PLANS

The Company has an Employees' 401(k) Savings Plan (the Plan) for eligible
employees. An employee is eligible to participate in the Plan after employment
of at least one month.

Participants may elect to make contributions to the Plan in amounts equal
to not less than 1% nor more than 15% of their eligible compensation. The
Company may elect to match elective contributions up to a maximum of 4% of the
participant's eligible compensation. The Company has made no such contributions
for the fiscal year ended September 30, 1996.

14. CONTINGENCIES AND COMMITMENTS

The Company leases premises and equipment under operating leases with
various expiration dates. Approximate future minimum lease payments are as
follows:

1997 . . . . . . . . . . . . . . . . . . . . $4,605,659
1998 . . . . . . . . . . . . . . . . . . . . 3,677,977
1999 . . . . . . . . . . . . . . . . . . . . 3,059,760
2000 . . . . . . . . . . . . . . . . . . . . 2,750,515
-----------
$14,093,911
-----------
-----------

Rent expense for the years ended September 30, 1994, 1995 and 1996 was
$1,221,113, $715,088 and $2,803,011, respectively.

The Company is involved in certain litigation arising in the normal course
of business. Management's opinion is that the resolution of such litigation will
not have a material adverse effect on the Company's financial condition.

15. CONCENTRATION OF CREDIT RISK

The Company is active in originating loans to customers throughout the
United States. All loans are made on a secured or unsecured basis after
reviewing each potential borrower's credit application and evaluating their
financial history and ability to repay.

Approximately 59% of the loans in the Company's serviced loan portfolio at
September 30, 1996 was secured by residential properties located in California.
No other state accounted for more than 10%.

16. QUARTERLY RESULTS OF OPERATIONS (unaudited)

The quarterly results of operations for the year end September 30, 1996
are as follows:

<TABLE>
QUARTER ENDED
-----------------------------------------------------------------------
DECEMBER 31, 1995 MARCH 31, 1996 JUNE 30, 1996 SEPTEMBER 30, 1996
----------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C>
REVENUES $ 20,273 $28,220 $41,322 $68,824
Gain on Sales of Loans, net
Sale of Servicing Rights
Interest 1,767 2,290 6,704 14,965
Servicing Income 694 940 1,040 1,334
Other Income 734 2,348 2,310 4,292
-------- ------- ------- -------
Total Revenues 23,468 33,798 51,376 89,415

EXPENSES
Salaries and Employee Benefits 5,459 7,699 9,383 13,859
Interest 2,043 2,816 3,751 8,282
Other Operating 3,761 5,100 8,458 12,619
Provision for Possible Credit
Loss 4,649 7,855 14,058 33,084
-------- ------- ------- -------
Total Expenses 15,912 23,470 35,650 67,844
-------- ------- ------- -------
Income Before Income Taxes 7,556 10,328 15,726 21,571

Provision for Income Taxes (2,871) (3,929) (5,976) (8,193)
-------- ------- ------- -------
Net Income $ 4,685 $6,399 $9,750 $13,378
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>

17. PARENT COMPANY ONLY INFORMATION

The condensed financial statements of RAC Financial Group, Inc., prepared
on a parent company unconsolidated basis are as follows:

Condensed Balance Sheet
September 30, 1996
-----------------
Assets
Cash and cash equivalents $ 31,351
Investment in subsidiaries 206,548,089
Receivable from subsidiary 2,166,124
Other assets 6,648,763
-------------
$ 215,394,327
-------------
-------------

Liabilities and Stockholders' Equity
Accrued expenses and other liabilities $ 20,825,600
Convertible subordinated notes 100,000,000

Stockholders' equity
Common stock 224,991
Non-voting common stock 44,407
Additional capital 54,695,558
Retained earnings 39,603,771
-------------
94,568,727
-------------
$ 215,394,327
-------------
-------------

Condensed Statement of Income
For the year ended
September 30, 1996
-----------------
Equity in earnings of subsidiaries $ 57,045,490
Interest expense 814,384
Other operating expenses 1,049,770
--------------
Income before income taxes 55,181,336
Provision for income taxes 20,968,908
--------------
Net income $ 34,212,428
--------------
--------------

Condensed Statement of Cash Flow
For the year ended
September 30, 1996
-----------------
Operating Activities
Net income $ 34,212,428
Undistributed earnings in equity of
subsidiaries (57,045,490)
Other operating activities 10,798,084
--------------
Net Cash Used for Operating Activities (12,034,978)

Investing Activities
Capital contributions to subsidiaries (136,480,909)
Net Cash Used by Investing Activities

Financing Activities
Redemptions of preferred stock (2,400,000)
Proceeds of convertible note 100,000,000
Issuance of common stock 51,210,959
Preferred stock dividends (264,842)
--------------
Net Cash Provided by Financing Activities 148,546,117

Increase in cash and cash equivalents 30,230

Cash and cash equivalents at beginning of year 1,121
--------------
Cash and cash equivalents at end of year $ 31,351
--------------
--------------

18. SUBSEQUENT EVENTS

ACQUISITION OF NATIONAL LOANS, INC.

On October 1, 1996, FIRSTPLUS Consumer Finance, Inc., a wholly owned
subsidiary of the Company, acquired National Loans, Inc. ("National") through
an exchange of stock, in a transaction accounted for as a pooling of
interest. However, because of the relative size of the acquisition, the
Company does not plan to restate its historical statements of income to
account for the acquisition. As such, beginning retained earnings will be
restated for the effect of all years prior to the year of acquisition. The
Company issued 501,996 shares of its Common Stock to the former shareholders
of National. National is an originator of small, personal consumer loans and
had a net loan portfolio of $15.3 million at the date of acquisition.

FINANCING FACILITIES

In October 1996, the Company increased the Bank One Facility to $110
million with a one-year maturity by syndicating the line with Guaranty Federal
Bank. The Company also increased its master repurchase facility, which matures

F-16

<PAGE>

RAC FINANCIAL GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

in May 1997, with Bear Stearns to $500 million in October. The Company
executed an agreement with PaineWebber Real Estate Securities, Inc. ("Paine")
whereby Paine will provide a $400 million repurchase facility for funding
loan originations and a $100 million Term facility, secured by certain Excess
Servicing Receivables.

STOCK SPLIT

On October 22, 1996, the Company's Board of Directors approved a
two-for-one common stock split. The split, effectuated as a stock dividend of
one newly issued share of Common Stock for each share of Common Stock
outstanding, was effective for shareholders of record at the close of business
on November 15, 1996, and payable on November 29, 1996. Par value will remain at
$0.01 per share. Financial information contained in these financial statements
has been adjusted to reflect the impact of the common stock split.

F-17

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Dallas, State of Texas, on December 20, 1996.

RAC FINANCIAL GROUP, INC.

/s/ Daniel T. Phillips
------------------------------------------
DANIEL T. PHILLIPS, CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

Signature Capacity Date
--------- -------- ----

/s/ Daniel T. Phillips Chairman of the Board, President December 20, 1996
- ---------------------- and Chief Executive Officer
Daniel T. Phillips (Principal Executive Officer)

/s/ Eric C. Green Executive Vice President and December 20, 1996
- ---------------------- Chief Financial Officer (Principal
Eric C. Green Financial and Accounting officer)

/s/ John Fitzgerald Director December 20, 1996
- ----------------------
John Fitzgerald

/s/ Dan Jessee Director December 20, 1996
- ----------------------
Dan Jessee

/s/ Paul Seegers Director December 20, 1996
- ----------------------
Paul Seegers

/s/ Sheldon I. Stein Director December 20, 1996
- ----------------------
Sheldon I. Stein
<PAGE>

EXHIBIT INDEX

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------

3.1 * Amended and Restated Articles of Incorporation of the Registrant
(Exhibit 3.1)
3.2 * Amended and Restated Bylaws of the Registrant (Exhibit 3.2)
4.1 * Specimen certificate for Common Stock of the Registrant
(Exhibit 4)
4.2 **** Indenture, dated August 20, 1996, between the Registrant and
Bank One, Columbus, N.A., as trustee thereunder
4.3 **** Note Resale Registration Rights Agreement, dated August 20, 1996,
among the Registrant and the Initial Purchasers named therein
4.4 **** Form of Definitive 7.25% Convertible Subordinated Note Due 2003
of the Registrant
4.5 **** Form of Restricted Global 7.25% Convertible Subordinated Note Due
2003 of the Registrant
4.6 **** Form of Regulation S Global 7.25% Convertible Subordinated Note
Due 2003 of the Registrant
10.1 * Form of Home Improvement Buy-Sell Agreement (Exhibit 10.1)
10.2 * Form of Continuous Purchase FHA Title I Loan Correspondent
Agreement (Exhibit 10.2)
10.3 * Form of Continuous Purchase Conventional Direct Loan Broker
Agreement (Exhibit 10.3)
10.4 * 1995 Employee Stock Option Plan for RAC Financial Group, Inc.
(Exhibit 10.4)
10.5 * Non-Employee Director Stock Option Plan for RAC Financial Group,
Inc. (Exhibit 10.5)
10.6 * RAC Financial Group, Inc. Employee Stock Purchase Plan
(Exhibit 10.6)
10.7 * Description of Officer Bonus Program (Exhibit 10.7)
10.8 * Credit Agreement among RAC Financial Group, Inc., Remodelers
National Funding Corporation, and Bank One, Texas, National
Association, dated as of March 17, 1995, as amended by First
Amendment to Credit Agreement dated as of May 12, 1995 and by
Second Amendment to Credit Agreement dated as of June 6, 1995
(Exhibit 10.8)
10.9 * Promissory Note, dated as of June 6, 1995, from Remodelers
National Funding Corporation, as maker, to Bank One, Texas,
National Association (Exhibit 10.9)
10.10* Security Agreement, dated as of March 17, 1995, among Remodelers
National Funding Corporation and Bank One, Texas, National
Association (Exhibit 10.10)
10.11* Guaranty, dated as of March 17, 1995, from RAC Financial Group,
Inc. to Bank One, Texas, National Association (Exhibit 10.11)
10.12* Warehousing Credit, Term Loan and Security Agreement, dated as
of June 15, 1995, among Remodelers National Funding Corporation,
RAC Financial Group, Inc., and Residential Funding Corporation,
as amended by First Amendment to The Warehouse Credit, Term Loan
and Security Agreement, dated August 25, 1995 (Exhibit 10.12)
10.13* Promissory Note, dated as of June 15, 1995, from Remodelers
National Funding Corporation, as maker, to Residential Funding
Corporation (Exhibit 10.13)
10.14* Promissory Note, dated as of June 29, 1995, from Remodelers
National Funding Corporation, as maker, to Residential Funding
Corporation (Exhibit 10.14)
10.15* Guaranty, dated as of June 15, 1995, from RAC Financial Group,
Inc. to Residential Funding Corporation (Exhibit 10.15)
10.16* Custodian Agreement, dated as of June 15, 1995, among Remodelers
National Funding Corporation, RAC Financial Group, Inc.,
Residential Funding Corporation and First Trust National
Association (Exhibit 10.16)
10.17* Senior Subordinated Note and Warrant Purchase Agreement, dated
as of March 31, 1995, among RAC Financial Group, Inc., Remodelers
National Funding Corporation, SFA: State Financial Acceptance
Corporation, Banc One Capital Partners II, Limited Partnership
and Farm Bureau Life Insurance Company (Exhibit 10.17)
<PAGE>
10.18* Senior Subordinated Note, dated as of March 31, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and SFA: State Financial Acceptance Corporation, as makers, to
Farm Bureau Life Insurance Company (Exhibit 10.18)
10.19* Senior Subordinated Note, dated as of March 31, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and SFA: State Financial Acceptance Corporation, as makers, to
Banc One Capital Partners II, Limited Partnership (Exhibit 10.19)
10.20* RAC Financial Group, Inc. Warrant Certificate, dated as of
April 12, 1995, for Farm Bureau Life Insurance Corporation
(including registration rights agreement) (Exhibit 10.20)
10.21* RAC Financial Group, Inc. Warrant Certificate, dated as of
March 31, 1995, for Banc One Capital Partners II, Limited
Partnership (including registration rights agreement)
(Exhibit 10.21)
10.22* Subordinated Security Agreement, dated as of March 31, 1995,
among RAC Financial Group, Inc., Remodelers National Funding
Corporation, SFA: State Financial Acceptance Corporation,
Banc Once Capital Partners II, Limited Partnership and Farm
Bureau Life Insurance Company (Exhibit 10.22)
10.23* Security Agreement -- Assignment of Servicing Agreements, dated
as of March 31, 1995, among RAC Financial Group, Inc.,
Remodelers National Funding Corporation, SFA: State Financial
Acceptance Corporation and Banc Once Capital Partners II,
Limited Partnership, as agent for Banc One Capital Partners II,
Limited Partnership and Farm Bureau Life Insurance Company
(Exhibit 10.23)
10.24* Security Agreement -- Pledge of Common Stock, dated as of
March 31, 1995, among RAC Financial Group, Inc. and Banc One
Capital Partners II, Limited Partnership, as agent for Banc One
Capital Partners II, Limited Partnership and Farm Bureau Life
Insurance Company (Exhibit 10.24)
10.25* Employment Agreement by and between RAC Financial Group, Inc.
and Ronald M. Mankoff (Exhibit 10.25)
10.26* Employment Agreement by and between RAC Financial Group, Inc.
and Daniel T. Phillips (Exhibit 10.26)
10.27* Employment Agreement by and between RAC Financial Group, Inc.
and Eric C. Green (Exhibit 10.27)
10.28* Employment Agreement by and between RAC Financial Group, Inc.
and James H. Poythress (Exhibit 10.28)
10.29* Loan Commitment from Bank One, Texas, N.A., to RAC Financial
Group, Inc. (Exhibit 10.29)
10.30* Form of Continuous Purchase Home Improvement Broker Agreement
(Exhibit 10.30)
10.31* Form of Pass-Through Home Improvement Financing Agreement
(Exhibit 10.31)
10.32* Form of Dealer/Contractor Application (Exhibit 10.32)
10.33* Form of Broker/Correspondent Application (Exhibit 10.33)
10.34* Promissory Note, dated December 29, 1995, from RAC Financial
Group, Inc., Remodelers National Funding Corporation and State
Financial Acceptance Corporation, as makers, to Farm Bureau
Life Insurance Company (Exhibit 10.34)
10.35* Loan Commitment from Residential Funding Corporation to
Remodelers National Funding Corporation and RAC Financial Group,
Inc. (Exhibit 10.35)
10.36* Stock Purchase and Sale Agreement, dated as of November 30, 1995,
by and among RAC Financial Group, Inc., FIRSTPLUS East Mortgage
Corporation and its shareholders (Exhibit 10.36)
10.37* First Amendment to Credit Agreement and Note, dated as of
June 21, 1995, by and among Remodelers National Funding
Corporation, SFA: State Financial Acceptance Corporation,
RAC Financial Group, Inc. and Banc One Capital Partners V,
Ltd. (Exhibit 10.37)
10.38* Senior Subordinated Note, dated November 1, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and State Financial Acceptance Corporation, as makers, to
Banc One Capital Partners II, Limited Partnership (Exhibit 10.38)
10.39* Senior Subordinated Note, dated November 16, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and State Financial Acceptance Corporation, as makers, to and
Banc One Capital Partners II, Limited Partnership (Exhibit 10.39)
10.40* Senior Subordinated Note, dated September 27, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and State Financial Acceptance Corporation, as makers, to Farm
Bureau Life Insurance Company (Exhibit 10.40)
10.41* Senior Subordinated Note, dated September 27, 1995, from RAC
Financial Group, Inc., Remodelers National Funding Corporation
and State Financial Acceptance Corporation, as makers, to Farm
Bureau Life Insurance Company (Exhibit 10.41)
<PAGE>

10.42* Senior Subordinated Note and Warrant Purchase Agreement, amended
and restated as of July 16, 1995, among RAC Financial Group,
Inc., Remodelers National Funding Corporation and SFA: State
Financial Acceptance Corporation, as sellers, and Banc One
Capital Partners II, Limited Partnership, Farm Bureau Life
Insurance Company and Banc One Capital Partners V, Ltd., as
purchasers (Exhibit 10.42)
10.43* RAC Financial Group, Inc. Warrant Certificate, dated as of
July 16, 1995, for Banc One Capital Partners V, Ltd.
(Exhibit 10.43)
10.44* Second Amended and Restated Subordinated Security Agreement,
amended and restated as of September 27, 1995, made by RAC
Financial Group, Inc., Remodelers National Funding Corporation
and SFA: State Financial Acceptance Corporation for the benefit
of Banc One Capital Partners II, Limited Partnership, Farm Bureau
Life Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.44)
10.45* Second Amended and Restated Security Agreement -- Pledge of
Common Stock, amended and restated as of September 27, 1995,
made by RAC Financial Group, Inc., for the benefit of Banc One
Capital Partners II, Limited Partnership, Farm Bureau Life
Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.45)
10.46* Second Amended and Restated Security Agreement -- Assignment of
Servicing Agreements, amended and restated as of September 27,
1995, made by RAC Financial Group, Inc., for the benefit of
Banc One Capital Partners II, Limited Partnership, Farm Bureau
Life Insurance Company and Banc One Capital Partners V, Ltd.
(Exhibit 10.46)
10.47* Second Amendment to the Warehouse Credit, Term Loan and Security
Agreement, dated as of September 15, 1995, by and among
Remodelers National Funding Corp., RAC Financial Group, Inc. and
Residential Funding Corporation (Exhibit 10.47)
10.48* Form of Letter Agreement, dated January 29, 1996, by and between
RAC Financial Group, Inc. and Residential Funding Corporation,
regarding the Warehouse Credit, Term Loan and Security Agreement,
dated June 15, 1995 (Exhibit 10.48)
10.49* Form of Letter Agreement, dated January 29, 1996, by and between
RAC Financial Group, Inc. and Banc One, Texas, National
Association, regarding the Credit Agreement, dated as of
March 17, 1995 (Exhibit 10.49)
10.50* Form of Letter Agreement, dated January 29, 1996, by and among
RAC Financial Group, Inc., Banc One Capital Partners II, Limited
Partnership, Farm Bureau Life Insurance Company and Banc One
Capital Partners V, Ltd., regarding the Senior Subordinated Note
and Warrant Purchase Agreement, dated as of March 31, 1995
(Exhibit 10.50)
10.51* Third Amendment to the Warehouse Credit, Term Loan and Security
Agreement, dated as of January 22, 1996, by and among Remodelers
National Funding Corp., RAC Financial Group, Inc. and Residential
Funding Corporation (Exhibit 10.51)
10.52* Subordinated Loan Agreement, dated as of September 27, 1995, by
and among RAC Financial Group, Inc., Remodelers National Funding
Corporation and SFA: State Financial Acceptance Corp., as
borrowers, and Banc One Capital Partners II, Limited Partnership
and Farm Bureau Life Insurance Company, as lenders, as amended
by First Amendment to Subordinated Loan Agreement (Exhibit 10.52)
10.53* Letter Agreement, dated June 7, 1995, between Banc One Capital
Corporation and RAC Financial Group, Inc. regarding financial
advisory and consultation services (Exhibit 10.53)
10.54** Registration Rights Agreement, dated as of March 31, 1996, by
and among RAC Financial Group, Inc. and the shareholders of
Mortgage Plus Incorporated (Exhibit 10.2)
10.55** Agreement and Plan of Merger, dated as of May 22, 1996, among
RAC Financial Corporation, Inc., FIRSTPLUS West, Inc. and
Mortgage Plus Incorporated and the shareholders (Exhibit 10.1)
10.56*** Master Repurchase Agreement, dated as of May 10, 1996, by and
between FIRSTPLUS Financial, Inc. and Bear Stearns Home Equity
Trust 1996-1 (Exhibit 10.1)
10.57*** Custody Agreement, dated May 10, 1996, among FIRSTPLUS
Financial, Inc., Bear Stearns Home Equity Trust 1996-1, and
Bank One Texas, N.A. (Exhibit 10.2)
10.58*** Fifth Amendment to Credit Agreement, dated June 20, 1996, by and
among FIRSTPLUS Financial, Inc., RAC Financial Group, Inc. and
Bank One, Texas, National Association (Exhibit 10.3)
10.59*** Promissory Note, dated June 30, 1996, between FIRSTPLUS
Financial, Inc. and Bank One, Texas, National Association
(Exhibit 10.4)
<PAGE>

10.60 Credit Agreement, dated October 17, 1996, between FIRSTPLUS
Financial, Inc. and Bank One Texas, National Association
11 Statement regarding computation of per Share earnings
21**** Subsidiaries of Registrant (Exhibit 21)
23.1 Consent of Ernst & Young LLP

- -----------
* Incorporated by reference from exhibit shown in parenthesis contained in
the Company's Registration Statement on Form S-1 (Registration No.
33-96688), filed by the Company with the Commission.
** Incorporated by reference from exhibit shown in parenthesis contained in
the Company's current report on Form 8-K, filed by the Company with the
Commission on June 14, 1996.
*** Incorporated by reference from exhibit shown in parenthesis contained in
the Company's Form 10-Q for the quarterly period ended June 30, 1996,
filed by the Company with the Commission on August 6, 1996.
**** Incorporated by reference from exhibit shown in parenthesis contained in
the Company's Registration Statement on Form S-1 (Registration No.
333-14171), filed by the Company with the Commission.

<PAGE>

CREDIT AGREEMENT

between

FIRSTPLUS FINANCIAL, INC.,
as BORROWER

BANK ONE, TEXAS, N.A.,
as ADMINISTRATIVE AGENT,

GUARANTY FEDERAL BANK F.S.B.,
as CO-AGENT,

and

CERTAIN LENDERS,
as LENDERS

$110,000,000
(SUBJECT TO CERTAIN INCREASES UP TO $200,000,000)

OCTOBER 17, 1996

[LOGO]

--------------------------------------
PREPARED BY HAYNES AND BOONE, L.L.P.
--------------------------------------

<PAGE>

TABLE OF CONTENTS

<TABLE>
<S> <C>
SECTION 1. DEFINITIONS AND REFERENCES. . . . . . . . . . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Time References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.3 Other References . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.4 Accounting Principles. . . . . . . . . . . . . . . . . . . . . . . . . . 13

SECTION 2. BORROWING PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.1 Commitments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.2 Warehouse Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Swing Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.4 Wet-Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.5 Increases and Terminations . . . . . . . . . . . . . . . . . . . . . . . 15

SECTION 3. PAYMENT TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.1 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.2 Payment Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3.3 Scheduled Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.4 Prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.5 Order of Application . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.6 Sharing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.7 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.8 Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.9 Basis Unavailable or Inadequate for Eurodollar Rate. . . . . . . . . . . 20
3.10 Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.11 Change in Governmental Requirements. . . . . . . . . . . . . . . . . . . 21
3.12 Funding Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.13 Foreign Lenders, Participants, and Purchasers. . . . . . . . . . . . . . 22
3.14 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

SECTION 4. COLLATERAL PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Eligible Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Collateral Delivery. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.4 Bailee and Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.5 Shipment for Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.6 Shipment for Correction. . . . . . . . . . . . . . . . . . . . . . . . . 24
4.7 Release of Collateral. . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 5. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . 24

SECTION 6. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 25
6.1 Purpose of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.2 About the Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.3 Authorization and Contravention. . . . . . . . . . . . . . . . . . . . . 26
6.4 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.5 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

CREDIT AGREEMENT
----------------

<PAGE>
<S> <C>
6.6 Current Financials . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.7 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.8 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.10 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . 26
6.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.12 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.13 Property and Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.14 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.15 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.16 Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.17 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.18 Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.19 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

SECTION 7. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.1 Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.2 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.3 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Inspections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.5 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.6 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.7 Maintenance of Existence, Assets, and Business . . . . . . . . . . . . . 30
7.8 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.9 Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Continuity of Management . . . . . . . . . . . . . . . . . . . . . . . . 30
7.11 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

SECTION 8. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Loans, Advances, and Investments . . . . . . . . . . . . . . . . . . . . 32
8.4 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.5 Merger or Consolidation. . . . . . . . . . . . . . . . . . . . . . . . . 33
8.6 Liquidations and Dispositions of Assets. . . . . . . . . . . . . . . . . 33
8.7 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.8 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . 34
8.9 Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.10 Compliance with Governmental Requirements and Documents. . . . . . . . . 34
8.11 Government Regulations . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.12 Fiscal Year Accounting . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.13 New Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.14 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.15 Strict Compliance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

SECTION 9. FINANCIAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.1 Net Worth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.2 Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
9.3 Title I Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

(ii) CREDIT AGREEMENT
----------------

<PAGE>

SECTION 10. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . 35
10.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
10.2 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.3 Right of Offset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
10.4 Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.5 Performance by Administrative Agent. . . . . . . . . . . . . . . . . . . 37
10.6 No Responsibility. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.7 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.8 Cumulative Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
10.9 Rights of Individual Lenders . . . . . . . . . . . . . . . . . . . . . . 38
10.10 Notice to Administrative Agent. . . . . . . . . . . . . . . . . . . . . 38
10.11 Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

SECTION 11. AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
11.1 Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . 38
11.2 Agent's Reliance, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.3 Agent and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.4 Credit Decision. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.5 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
11.6 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
11.7 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

SECTION 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.1 Nonbusiness Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.2 Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
12.3 Form and Number of Documents . . . . . . . . . . . . . . . . . . . . . . 41
12.4 Exceptions to Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 41
12.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.6 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.7 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
12.8 Conflicts Between Loan Documents . . . . . . . . . . . . . . . . . . . . 41
12.9 Discharge and Certain Reinstatement. . . . . . . . . . . . . . . . . . . 41
12.10 Amendments, Consents, Conflicts, and Waivers. . . . . . . . . . . . . . 41
12.11 Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.12 Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
12.13 Participations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.14 Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
12.15 VENUE, SERVICE OF PROCESS, AND JURY TRIAL . . . . . . . . . . . . . . . 44
12.16 Limitation of Liability . . . . . . . . . . . . . . . . . . . . . . . . 44
12.17 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
</TABLE>

(iii) CREDIT AGREEMENT
----------------

<PAGE>

SCHEDULES AND EXHIBITS

Schedule 2 - Lenders and Commitments
Schedule 4.1 - Eligibility Conditions
Schedule 4.2 - Borrowing-Base Calculations
Schedule 4.3 - Collateral Procedures
Schedule 5 - Closing Conditions
Schedule 6.2 - Companies
Schedule 6.9 - Litigation and Judgments

Exhibit A-1 - Warehouse Note
Exhibit A-2 - Swing Note
Exhibit B-1 - Security Agreement
Exhibit B-2 - Financing Statement
Exhibit B-3 - Shipping Request
Exhibit B-4 - Bailee Letter for Investors
Exhibit B-5 - Bailee Letter for Pool Custodian
Exhibit B-6 - Trust Receipt and Agreement
Exhibit B-7 - Release Request
Exhibit C-1 - Borrowing Request
Exhibit C-2 - Collateral-Delivery Notice
Exhibit C-3 - Borrowing-Base Report
Exhibit C-4 - Management Report
Exhibit C-5 - Compliance Certificate
Exhibit D - Opinion of Counsel
Exhibit E - Assignment and Assumption Agreement

(iv) CREDIT AGREEMENT
----------------

<PAGE>

CREDIT AGREEMENT

THIS AGREEMENT is entered into as of October 17, 1996, between FIRSTPLUS
FINANCIAL, INC., a Texas corporation formerly known as Remodelers National
Funding Corp. ("BORROWER"), the Lenders described below, BANK ONE, TEXAS,
N.A., as Administrative Agent for Lenders, and GUARANTY FEDERAL BANK F.S.B.,
as Co-Agent for Lenders.

(see SECTION 1.1 for defined terms)

Borrower originates, acquires, markets, and sells Equity Loans and
Improvement Loans. Borrower has requested Lenders to commit to provide
Borrowings to (a) finance Borrower's origination and acquisition of those
loans until they are sold through securitization transactions and (b) to
refinance Borrower's indebtedness under the Existing-Bank-One Credit.
Borrower proposes to grant to Administrative Agent for Lenders Liens upon the
Collateral. Lenders have agreed upon the terms of this agreement to provide
those Borrowings up to the lesser of EITHER the total Commitments OR the
Borrowing Base.

ACCORDINGLY, for adequate and sufficient consideration, Borrower,
Lenders, and Agents agree as follows:

SECTION 1. DEFINITIONS AND REFERENCES.

1.1 DEFINITIONS. As used in the Loan Documents:

"ADMINISTRATIVE AGENT" means, at any time, Bank One, Texas, N.A. (or its
successor appointed under SECTION 11.6), acting as administrative, collateral,
managing, and syndication agent for Lenders under the Loan Documents.

"AFFILIATE" of a Person means any other individual or entity who
directly or indirectly controls, is controlled by, or is under common control
with that Person. For purposes of this definition (a) "CONTROL," "CONTROLLED
BY," and "UNDER COMMON CONTROL WITH" mean possession, directly or indirectly,
of power to direct or cause the direction of management or policies (whether
through ownership of voting securities or other interests, by contract, or
otherwise), and (b) the Companies are "AFFILIATES" of each other.

"AGENTS" mean, at any time, Administrative Agent and Co-Agents.

"APPLICABLE MARGIN" means, for any day, the margin of interest over or
under the Base Rate, the Fed-Funds Rate, or the Eurodollar Rate, as the case
may be, as stated in the table below:

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Applicable Margin for Applicable Margin for Applicable Margin for
Base-Rate Borrowings Fed-Funds Borrowings Eurodollar Borrowings
- -------------------------------------------------------------------------------
minus 0.25% plus 1.00% plus 1.00%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

"APPRAISAL" means, for any item of Collateral, a written statement of
the market value of the real property securing it, if any.

CREDIT AGREEMENT
----------------

<PAGE>

"APPRAISAL REQUIREMENT" means any Governmental Requirement that is
applicable to appraisals of mortgaged-residential property in connection with
transactions involving that property, including, without limitation, TITLE XI
of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989,
the Federal Deposit Insurance Corporation Improvement Act of 1991, 12 C.F.R.
CHAPTER I, PART 34, SUBPART C, 12 C.F.R. CHAPTER II, SUBCHAPTER A, PART 225,
SUBPART G, and 12 C.F.R. CHAPTER III, SUBCHAPTER B, PART 323.

"APPROVED INVESTOR" means any Person from time to time named on a list
agreed to by Administrative Agent and Borrower -- which list Administrative
Agent shall furnish to any Lender upon request -- as that list may be amended
from time to time (i) by Borrower and Administrative Agent to remove or add
other names as Administrative Agent and Borrower may agree, (ii) by either
Administrative Agent or Required Lenders to remove any such other Person
after Administrative Agent has or Required Lenders have given to Borrower
notice of -- and an opportunity to discuss -- the proposed removal of that
Person, or (iii) automatically -- without signing by any party -- to remove
any such Person who then (A) is not Solvent, (B) fails to pay its debts
generally as they become due, (C) voluntarily seeks, consents to, or
acquiesces in the benefit of any Debtor Law, or (D) becomes a party to or is
made the subject of any proceeding provided for by any Debtor Law -- OTHER
THAN as a creditor or claimant --that could suspend or otherwise adversely
affect the Rights of any Company, Administrative Agent, or any Lender in
connection with the transactions contemplated in the Loan Documents.

"ASSIGNMENT" is defined in SECTION 12.14(A).

"AVERAGE-ADJUSTED-BASE RATE" means, for any period, an annual interest
rate equal to the QUOTIENT of (a) the SUM of the Base Rate PLUS OR MINUS (as
the case may be) the Applicable Margin for each calendar day during that
period DIVIDED BY (b) the number of days during that period.

"AVERAGE-ADJUSTED-FED-FUNDS RATE" means, for any period, an annual
interest rate equal to the QUOTIENT of (a) the SUM of the Fed-Funds Rate PLUS
OR MINUS (as the case may be) the Applicable Margin for each calendar day
during that period DIVIDED BY (b) the number of days during that period.

"AVERAGE COMMITMENT" means, for any period and any Lender, the QUOTIENT
of the (a) the sum of that Lender's Commitment as of the close of business
for each calendar day during that period DIVIDED BY (b) the number of days
during that period.

"AVERAGE-ELIGIBLE BALANCES" means, for any period and any Lender, an
amount equal to (a) the QUOTIENT of (i) the sum of that Lender's Eligible
Balances as of the close of business for each calendar day (which for any day
that is not a Business Day are deemed for this definition to be those
balances for the preceding Business Day) during that period DIVIDED by (ii)
the number of calendar days during that period MINUS (b) amounts necessary to
satisfy any deposit insurance, reserve, special deposit, Tax (OTHER THAN that
Lender's general corporate income or franchise Taxes), duty, or other
imposition (in each case at the applicable rates) requirements applicable to
that Lender for those accounts, MINUS (c) amounts required to compensate that
Lender for direct processing and transaction costs and other services
rendered in connection with those accounts in accordance with that Lender's
system of charges for similar accounts, MINUS (d) unless otherwise paid
directly to that Lender, any amounts in those accounts utilized as of that
day in the calculation of interest on any other Debt payable by any Company
to that Lender or any other Person.

"AVERAGE-PRINCIPAL DEBT" means, for any period and any Lender, the
QUOTIENT of (a) the sum of the Principal Debt owed to that Lender as of the
close of business for each calendar day (which for any day

2 CREDIT AGREEMENT
----------------

<PAGE>

that is not a Business Day is deemed for this definition to be the Principal
Debt as of the close of business for the preceding Business Day) during that
period DIVIDED BY (b) the number of days during that period.

"BASE RATE" means an annual interest rate equal from day to day to the
floating annual interest rate established by Administrative Agent from time
to time as its base-rate of interest, which may not be the lowest interest
rate charged by Administrative Agent on loans similar to the Borrowings.

"BASE-RATE BORROWING" means any Borrowing bearing interest at the
Average-Adjusted-Base Rate.

"BAILEE LETTER" means, as applicable under the circumstances, one of the
letters executed and delivered by Administrative Agent in substantially the
form of EXHIBIT B-4 or EXHIBIT B-5.

"BORROWER" is defined in the preamble to this agreement.

"BORROWING" means any amount disbursed (a) by any Lender to Borrower
under the Loan Documents as an original disbursement of funds or (b) by
Administrative Agent or any Lender in accordance with, and to satisfy a
Company's obligations under, any Loan Document.

"BORROWING BASE" means, at any time, the amount described on SCHEDULE
4.2 and calculated under SECTION 4.2.

"BORROWING-BASE REPORT" means a report executed by Administrative Agent
and delivered to Borrower and Lenders in substantially the form of EXHIBIT
C-3.

"BORROWING DATE" means, for any Borrowing, the date it is disbursed.

"BORROWING EXCESS" means, at any time, the amount by which any of the
limitations of SECTION 2.1 are exceeded.

"BORROWING REQUEST" means a request executed by Borrower and delivered
under SECTION 2 in substantially the form of EXHIBIT C-1.

"BUSINESS DAY" means (a) for purposes of any Eurodollar Borrowing, a day
when commercial banks are open for international business in London, England,
and (b) for all other purposes, any day OTHER THAN Saturday, Sunday, and any
other day that commercial banks are authorized by Governmental Requirements
to be closed in Texas.

"CALENDAR MONTH" means that portion of a calendar month that occurs at
any time from the date of this agreement to the Termination Date.

"CALENDAR QUARTER" means that portion of a calendar quarter that occurs
at any time from the date of this agreement to the Termination Date.

"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, 42 U.S.C. 9601 ET SEQ.

"CLOSING DATE" means the date agreed to by Borrower and Agents for the
initial Borrowing, which must be a Business Day occurring no later than
October 17, 1996.

3 CREDIT AGREEMENT
----------------

<PAGE>

"CO-AGENT" means, at any time, Guaranty Federal Bank F.S.B. (or any of
its respective successors appointed under SECTION 11.6) acting as CO-AGENT
for Lenders under the Loan Documents.

"COLLATERAL" means all COLLATERAL, as defined in the Security Agreement.

"COLLATERAL-DELIVERY NOTICE" means a notice executed by Borrower and
delivered to Administrative Agent in substantially the form of EXHIBIT C-2.

"COLLATERAL DOCUMENTS" means the documents and other items described on
SCHEDULE 4.3 and required to be delivered to Administrative Agent under
SECTION 4.3.

"COMMITMENT" means, at any time and for any Lender, the amounts stated
beside that Lender's name on the most-recently amended SCHEDULE 2 (which
amount is subject to reduction and cancellation as provided in this
agreement).

"COMMITMENT PERCENTAGE" means, for any Lender, the proportion (stated as
a percentage) that its Commitment bears to the total Commitments of all
Lenders.

"COMPANIES" means (a) at any time, Borrower and each of its
Subsidiaries, and (b) where appropriate in respect of any period unless
otherwise provided, includes all of their operations during that period
whether discontinued or not.

"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT C-5 and signed by a Responsible Officer.

"CORRECTION PERIOD" means 15 calendar days for any Collateral Documents
shipped under SECTION 4.6 for correction.

"COVERED AMOUNT" means, for any period and any Lender, the lesser of
EITHER that Lender's Average-Principal Debt OR that Lender's Average-Eligible
Balances.

"COVERED RATE" means, at any time, the Applicable Margin for Fed-Funds
Borrowings.

"CURRENT FINANCIALS" means EITHER (a) the Companies' Financials for the
year ended September 30, 1995, and for the ten months ended July 31, 1996, OR
(b) at any time after the Companies' annual Financials are first delivered
under SECTION 7.1, the Companies' annual Financials then most recently
delivered to Administrative Agent and subsequent monthly Financials then most
recently delivered to Administrative Agent.

"DEBT," for any Person and without duplication, means (a) all
obligations required by GAAP to be classified upon that Person's balance
sheet as liabilities, (b) liabilities secured (or for which the holder of the
liabilities has an existing Right, contingent or otherwise, to be so secured)
by any Lien existing on property owned or acquired by that Person, (c)
obligations that under GAAP should be capitalized for financial reporting
purposes, and (d) all guaranties, endorsements, and other contingent
obligations with respect to Debt of others or in respect of any Employee Plan.

"DEBTOR LAWS" means the BANKRUPTCY CODE OF THE UNITED STATES OF AMERICA
and all other applicable liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization,
suspension of payments, or similar Governmental Requirements affecting
creditors' Rights.

4 CREDIT AGREEMENT
----------------
<PAGE>

"DEFAULT RATE" means, for any day, an annual interest rate equal from
day to day to the lesser of EITHER (a) the then-existing Fed-Funds Rate PLUS
5% OR (b) the Maximum Rate.

"DISTRIBUTION" means, at any time and with respect to any shares of any
capital stock or other equity securities issued by a Person, (a) the
retirement, redemption, purchase, or other acquisition for value of those
securities, (b) the declaration or payment of any dividend on or with respect
to those securities, (c) any loan or advance by that Person to, or other
investment by that Person in, the holder of any of those securities, and (d)
any other payment by that Person with respect to those securities.

"DRY BORROWING" means a Borrowing for which all of the Collateral
Documents have been delivered to Administrative Agent in accordance with
SECTION 4.3.

"ELIGIBLE BALANCES" means, for any calendar day and any Lender, the SUM
(which for any day that is not a Business Day is deemed for this definition
to be that sum as determined as of the close of business on the preceding
Business Day) of collected balances as of the close of business on that day
in all identified non-interest bearing demand deposit accounts or, at the
discretion of such Lender, money market zero reserve accounts of or
maintained by Borrower with that Lender.

"ELIGIBLE-EQUITY LOAN" means, at any time, an Equity Loan for which the
applicable conditions for eligibility described in SCHEDULE 4.1 are satisfied
and which may under SECTION 4.1 be included in the Borrowing Base.

"ELIGIBLE-IMPROVEMENT LOAN" means, at any time, an Improvement Loan for
which the applicable conditions for eligibility described in SCHEDULE 4.1 are
satisfied and which may under SECTION 4.1 be included in the Borrowing Base.

"ELIGIBLE-PLEDGED LOANS" means, at any time, all Eligible-Equity Loans
and all Eligible-Improvement Loans.

"EMPLOYEE PLAN" means any employee-pension-benefit plan (a) covered by
TITLE IV of ERISA and established or maintained by Borrower or any ERISA
Affiliate (OTHER THAN a Multiemployer Plan) or (b) established or maintained
by Borrower or any ERISA Affiliate, or to which Borrower or any ERISA
Affiliate contributes, under the Governmental Requirements of any foreign
country.

"ENVIRONMENTAL GOVERNMENTAL REQUIREMENT" means any applicable
Governmental Requirement that relates to protection of the environment or to
the regulation of any Hazardous Substances, including, without limitation,
CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. SECTION 1801 ET
SEQ.), the Resource Conservation and Recovery Act (42 U.S.C. SECTION 6901 ET
SEQ.), the Clean Water Act (33 U.S.C. SECTION 1251 ET SEQ.), the Clean Air
Act (42 U.S.C. SECTION 7401 ET SEQ.), the Toxic Substances Control Act (15
U.S.C. SECTION 2601 ET SEQ.), the Federal Insecticide, Fungicide, and
Rodenticide Act (7 U.S.C. SECTION 136 ET SEQ.), the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. SECTION 11001 ET SEQ.), the Safe
Drinking Water Act (42 U.S.C. SECTION 201 AND SECTION 300F ET SEQ.), the
Rivers and Harbors Act (33 U.S.C. SECTION 401 ET SEQ.), the Oil Pollution Act
(33 U.S.C. SECTION 2701 ET SEQ.), analogous state and local Governmental
Requirements, and any analogous future enacted or adopted Governmental
Requirement.

"EQUITY LOAN" means a loan that is (a) not an acquisition, construction,
improvement, non-residential or commercial loan, (b) for the obligor's debt
consolidation or other lawful purposes, (c) based upon the obligor's
creditworthiness, the equity in the obligor's residential-real property, or
both, (d)

5 CREDIT AGREEMENT
----------------

<PAGE>

evidenced by a valid promissory note, and (e) secured by a mortgage, deed of
trust, or trust deed that is valid and perfected and grants either a first-
or second-priority Lien on that residential-real property.

"ERISA" means the Employee Retirement Income Security Act of 1974.

"ERISA AFFILIATE" means any Person that, for purposes of TITLE IV of
ERISA, is a member of Borrower's controlled group or is under common control
with Borrower within the meaning of SECTION 414 of the IRC.

"EURODOLLAR RATE" means, for a Eurodollar Borrowing, the annual interest
rate (rounded upwards, if necessary, to the nearest 0.01%) that is equal to
the SUM of (a) the Applicable Margin PLUS (b) EITHER (i) the rate determined
by Administrative Agent (at approximately 10:00 a.m. on the second Business
Day before the applicable Interest Period) as the rate reported by TELERATE
MORTGAGE SERVICES or KNIGHT-RIDDER for deposits in United States dollars in
the London interbank market that are comparable in amount and maturity of
that Borrowing, or (ii) if Administrative Agent cannot determine that rate,
then the rate that deposits in United States dollars are offered to
Administrative Agent in the amount of that Eurodollar Borrowing in the London
interbank market (at approximately 11:00 a.m., London, England, time on the
third Business Day before the applicable Interest Period) for deposits
comparable in amount and maturity of that Borrowing.

"EURODOLLAR BORROWING" means any Borrowing that bears interest at the
Eurodollar Rate.

"EVENT OF DEFAULT" is defined in SECTION 10.1.

"EXISTING-BANK-ONE CREDIT" means the Credit Agreement dated as of March
17, 1995, between Borrower as BORROWER, RAC as GUARANTOR, and Bank One,
Texas, N.A., as LENDER, as renewed, extended, and amended to the Closing Date.

"EXISTING-RFC CREDIT" means the Amended and Restated Warehousing Credit,
Term Loan and Security Agreement dated as of February 1, 1996, between
Borrower as BORROWER, RAC as GUARANTOR, and Residential Funding Corporation
as LENDER, providing up to $200,000,000 in loans to Borrower, as that
agreement may be renewed, extended, and amended to the Closing Date.

"FED-FUNDS RATE" means, for any day, the annual interest rate (rounded
upwards, if necessary, to the nearest 0.01%) determined by Administrative
Agent to be EITHER (a) the weighted average of the rates on
overnight-federal-funds transactions with member banks of the Federal Reserve
System arranged by federal-funds brokers for that day (or, if not a Business
Day on the preceding Business Day) as published by the Federal Reserve Bank
of New York (as published by KNIGHT-RIDDER, PAGE 73, utilizing the
FED-EFFECTIVE RATE), OR (b) if not so published for any day, the average of
the quotations for that day on those transactions received by Administrative
Agent from three federal-funds brokers of recognized standing it may select.

"FED-FUNDS BORROWING" means any Borrowing bearing interest at the
Average-Adjusted-Fed-Funds Rate.

"FHA" means the Federal Housing Administration within the United States
Department of Housing and Urban Development.

6 CREDIT AGREEMENT
----------------

<PAGE>

"FINANCIALS" of a Person means balance sheets, profit and loss
statements, reconciliations of capital and surplus, and statements of cash
flow prepared (a) according to GAAP (subject to year end audit adjustments
with respect to interim Financials) and (b) except as stated in SECTION 1.4,
in comparative form to prior year-end figures or corresponding periods of the
preceding fiscal year or other relevant period, as applicable.

"FNMA" means the Federal National Mortgage Association.

"FUNDING ACCOUNT" means a non-interest bearing deposit account
established by Borrower with Administrative Agent for the deposit of
Borrowings and that is styled "FIRSTPLUS FINANCIAL, INC., FUNDING ACCOUNT"
and numbered Account No. 1885162949.

"FUNDING LOSS" means any loss, expense, or reduction in yield (but not
any Applicable Margin) that any Lender reasonably incurs because (a) Borrower
fails or refuses (for any reason whatsoever OTHER THAN a default by
Administrative Agent or that Lender claiming that loss, expense, or reduction
in yield) to take any Borrowing that it has requested under this agreement,
or (b) Borrower prepays or pays any Borrowing other than on the last day of
the applicable Interest Period.

"GAAP" means generally accepted accounting principles of the Accounting
Principles Board of the American Institute of Certified Public Accountants
and the Financial Accounting Standards Board that are applicable from time to
time.

"GOVERNMENTAL AUTHORITY" means any (a) local, state, territorial,
federal, or foreign judicial, executive, regulatory, administrative,
legislative, or governmental agency, board, bureau, commission, department,
or other instrumentality, (b) private arbitration board or panel, or (c)
central bank.

"GOVERNMENTAL REQUIREMENTS" means all applicable statutes, laws,
treaties, ordinances, rules, regulations, orders, writs, injunctions,
decrees, judgments, opinions, and interpretations of any Governmental
Authority.

"HAZARDOUS SUBSTANCE" means any substance that is designated, defined,
classified, or regulated as a hazardous waste, hazardous material, pollutant,
contaminant, explosive, corrosive, flammable, infectious, carcinogenic,
mutagenic, radioactive, or toxic or hazardous substance under any
Environmental Governmental Requirement, including, without limitation, any
hazardous substance within the meaning of SECTION 101(14) of CERCLA.

"HEDGE CONTRACT" means, for any Person, any present or future, whether
master or single, agreement, document or instrument providing for -- or
constituting an agreement to enter into (a) commodity hedges in the normal
course of business in accordance with prior practices of that Person before
the date of this agreement for purposes of hedging material purchases, (b)
foreign-currency purchases and swaps, (c) interest-rate swaps, and (d)
interest-rate-hedging products.

"HUD" means the Department of Housing and Urban Development.

"IMPROVEMENT LOAN" means a loan that is (a) not an acquisition,
construction, non-residential or commercial loan, (b) for the improvement of
single- or multi-family-residential-real property, (d) evidenced by a valid
promissory note, (e) either unsecured or secured by a mortgage, deed of
trust, or trust deed that is valid and perfected and grants either a first-
or second-priority Lien on that residential-real property, and (f) either
Title-I Insured or not.

7 CREDIT AGREEMENT
----------------

<PAGE>

"INTEREST PERIOD" is determined in accordance with SECTION 3.8.

"IRC" means the Internal Revenue Code of 1986.

"LENDER LIEN" means any present or future first-priority (or, in the
case only of the Servicing Portfolio, second-priority) Lien securing the
Obligation and assigned, conveyed, and granted to or created in favor of
Administrative Agent for the benefit of Lenders under the Loan Documents.

"LENDERS" means the financial institutions -- including, without
limitation, Agents in respect of their share of Borrowings -- named on
SCHEDULE 2 or on the most-recently-amended SCHEDULE 2, if any, delivered by
Administrative Agent under this agreement, and, subject to this agreement,
their respective successors and permitted assigns (but not any Participant
who is not otherwise a party to this agreement).

"LIEN" means any lien, mortgage, security interest, pledge, assignment,
charge, title retention agreement, or encumbrance of any kind and any other
arrangement for a creditor's claim to be satisfied from assets or proceeds
prior to the claims of other creditors or the owners (OTHER THAN title of the
lessor under an operating lease).

"LITIGATION" means any action by or before any Governmental Authority.

"LOAN DOCUMENTS" means (a) this agreement, certificates and reports
delivered under this agreement, and exhibits and schedules to this agreement,
(b) all agreements, documents, and instruments in favor of Administrative
Agent or Lenders (or Administrative Agent on behalf of Lenders) ever
delivered under this agreement or otherwise delivered in connection with any
of the Obligation (other than Assignments), and (c) all renewals, extensions,
and restatements of, and amendments and supplements to, any of the foregoing.

"MANAGEMENT REPORT" means a report delivered by a Responsible Officer of
Borrower to Administrative Agent in substantially the form of EXHIBIT C-4.

"MARKET VALUE" means, with respect to any Pledged Loan, the market value
determined by Administrative Agent, in its sole discretion, based upon
information then available to it regarding quotes to Banc One Capital
Corporation or other dealers for the purchase of loans that are substantially
similar to that Pledged Loan.

"MATERIAL-ADVERSE EVENT" means any circumstance or event that,
individually or collectively, is reasonably expected to result (at any time
before the Commitments are fully canceled or terminated and the Obligation is
fully paid and performed) in any (a) material impairment of (i) the ability
of Borrower to perform any of its payment or other material obligations under
any Loan Document or (ii) the ability of Administrative Agent or any Lender
to enforce any of those obligations or any of their respective Rights under
the Loan Documents, (b) material and adverse effect on the financial
condition of the Companies as a whole as represented to Lenders in the
Current Financials most recently delivered before the date of this agreement,
(c) material and adverse impact on any Collateral, or (d) Event of Default or
Potential Default.

"MAXIMUM AMOUNT" and "MAXIMUM RATE" respectively mean, for a Lender, the
maximum non-usurious amount and the maximum non-usurious rate of interest
that, under applicable Governmental Requirement, that Lender is permitted to
contract for, charge, take, reserve, or receive on the Obligation.

8 CREDIT AGREEMENT
----------------

<PAGE>

"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in SECTIONS
3(37) OR 4001(A)(3) of ERISA or SECTION 414(F) of the IRC (or any similar
type of plan established or regulated under the Governmental Requirements of
any foreign country) to which Borrower or any ERISA Affiliate is making, or
has made, or is accruing, or has accrued, an obligation to make contributions.

"NET INCOME" of any Person means that Person's profit or loss after
deducting its Tax expense.

"NET WORTH" means, for any Person, its stockholder's equity as
determined under GAAP.

"NOTES" means the Warehouse Notes and the Swing Note.

"OBLIGATION" means all (a) present and future indebtedness, obligations,
and liabilities of Borrower to Administrative Agent or any Lender and related
to any Loan Document, whether principal, interest, fees, costs, attorneys'
fees, or otherwise, (b) all present and future indebtedness, obligations, and
liabilities of Borrower to Administrative Agent or any Lender in respect of
any Hedge Contract, (c) amounts that would become due but for operation of 11
U.S.C. SECTIONS 502 and 503 or any other provision of TITLE 11 of the United
States Code, and all renewals, extensions, and modifications of any of the
foregoing, and (d) pre- and post-maturity interest on any of the foregoing,
including, without limitation, all post-petition interest if any Company
voluntarily or involuntarily files for protection under any Debtor Law.

"ORGANIZATIONAL DOCUMENTS" means, for any Person, the documents for its
formation and organization, which, for example, for a (a) corporation are its
corporate charter and bylaws, (b) for a partnership is its partnership
agreement, (c) for a limited-liability company are its certificate of
organization and regulations, and (d) for a trust is the trust agreement or
indenture under which it is created.

"PARTICIPANT" is defined in SECTION 12.13.

"PBGC" means the Pension Benefit Guaranty Corporation.

"PERMITTED DEBT" is defined in SECTION 8.1.

"PERMITTED LIENS" is defined in SECTION 8.2.

"PERMITTED LOANS/INVESTMENTS" is defined in SECTION 8.3.

"PERSON" means any individual, entity, or Governmental Authority.

"PLEDGED LOAN" means an Equity Loan or an Improvement Loan, the
Collateral Documents for which have been pledged to Administrative Agent for
Lenders under the Loan Documents.

"POTENTIAL DEFAULT" means any event's occurrence or any circumstance's
existence that would -- upon any required notice, time lapse, or both --
become an Event of Default.

"PRINCIPAL DEBT" means, at any time, the outstanding principal balance
of all Borrowings.

"PURCHASER" is defined in SECTION 12.14.

"RAC" means RAC Financial Group, Inc., a Nevada corporation formerly
known as Remodelers Acceptance Corporation, which owns all of the issued and
outstanding capital stock of Borrower.

9 CREDIT AGREEMENT
----------------

<PAGE>

"REGULATION U" means REGULATION U promulgated by the Board of Governors
of the Federal Reserve System, 12 C.F.R. PART 221.

"RELEASE REQUEST" means a Release Request executed and delivered by
Borrower to Administrative Agent in substantially the form of EXHIBIT B-7.

"REPRESENTATIVES" means representatives, officers, directors, employees,
attorneys, and agents.

"REQUIRED LENDERS" means (a) at any time that there are no more than two
Lenders, any combination of Lenders whose (i) Termination Percentages total
at least 100% at any time on or after the Termination Date, or (b) Commitment
Percentages total at least 100% at all other times and (b) at any time that
there are more than two Lenders, any combination of Lenders whose (i)
Termination Percentages total at least 66 2/3% at any time on or after the
Termination Date, or (ii) Commitment Percentages total at least 66 2/3% at all
other times.

"RESPONSIBLE OFFICER" means (a) the chairman, president, chief executive
officer, any vice president, or chief financial officer of Borrower to the
extent that such officer's name, title, and signature have been certified to
Administrative Agent by the secretary or an assistant secretary of Borrower
or (b) any other officer designated as a "RESPONSIBLE OFFICER" in writing to
Administrative Agent by any officer in CLAUSE (a) preceding at any time on or
before the Closing Date.

"RIGHTS" means rights, remedies, powers, privileges, and benefits.

"SECURITY AGREEMENT" means the Security Agreement in substantially the
form of EXHIBIT B-1.

"SERVICING CONTRACT" means at any time, any present or future written
agreement between an investor and Borrower acting as a SERVICER -- or MASTER
SERVICER in the case of a sub-servicing arrangement -- providing for Borrower
to service mortgage loans or mortgage pools, as that agreement may be
supplemented by applicable manuals, guides, and laws.

"SERVICING PORTFOLIO" means, at any time, the total unpaid principal
amount of loans serviced by Borrower for a fee OTHER THAN under a
subservicing agreement or a master servicing agreement.

"SERVICING RIGHTS" means -- for Borrower and at any time -- all present
and future rights as SERVICER or MASTER SERVICER under Servicing Contracts,
including, but not limited to, all rights to receive money in respect of any
claim by Borrower for its unreimbursed advances of principal and interest,
taxes and insurance, or foreclosure payments, and all other compensation,
payments, reimbursements, termination and other fees, and proceeds of any
disposition of those rights.

"SETTLEMENT ACCOUNT" means a non-interest bearing deposit account
established by Borrower with Administrative Agent for the deposit of the
proceeds of securitizations of Pledged Loans and the deposit of payments on
the Obligation and that is styled "FIRSTPLUS FINANCIAL, INC., SETTLEMENT
ACCOUNT" and numbered Account No. 1892349570.

"SHIPPING PERIOD" means 21 calendar days for the Collateral Documents
for any Pledged Loan shipped to or for an investor under SECTION 4.5.

"SHIPPING REQUEST" means a Shipping Request executed and delivered by
Borrower to Administrative Agent in substantially the form of EXHIBIT B-3.

10 CREDIT AGREEMENT
----------------

<PAGE>

"SOLVENT" means, as to any Person, that (a) the aggregate fair market
value of its assets exceeds its liabilities, (b) it has sufficient cash flow
to enable it to pay its Debts as they mature, and (c) it does not have
unreasonably small capital to conduct its businesses.

"STATED-TERMINATION DATE" means October 16, 1997.

"SUBSIDIARY" of any Person means any entity of which more than 50% (in
number of votes) of the stock (or equivalent interests) is owned of record or
beneficially, directly or indirectly, by that Person. Unless otherwise
specified or the context otherwise requires, "SUBSIDIARY" refers to a
Subsidiary of Borrower.

"SUBORDINATED DEBT," at any time, means (a) up to $7,000,050 outstanding
with respect to an issue of senior subordinated notes due March 31, 2000,
issued by Borrower and certain Affiliates of Borrower (with no more than
$1,350,000 constituting Debt on Borrower's balance sheet with respect to such
Subordinated Debt) to Banc One Capital Partners II, Limited Partnership, Banc
One Capital Partners V, Ltd., and Farm Bureau Life Insurance Company (the
"EXISTING-SUBORDINATED DEBT"), (b) Debt, whether to repurchase or redeem any
existing-Subordinated Debt, SO LONG AS that Debt (i) is subject to
subordination, payment blockage, and standstill provisions at least as
favorable to Lenders as applicable to the existing-Subordinated Debt under
this agreement or otherwise, (ii) is subject to representations, covenants,
events of default, and other provision not significantly more onerous to
Borrower than the existing-Subordinated Debt, (iii) does not have any
scheduled or mandatory principal or sinking fund payment due before the
Stated-Termination Date, and (iv) is upon terms and conditions otherwise
reasonably acceptable to Required Lenders and (c) other Debt in which any
Company is the debtor that is acceptable to Administrative Agent in its sole
discretion.

"SWING BORROWING" means a Borrowing that is advanced to Borrower by
Swing Lender under SECTION 2.3.

"SWING LENDER" means Bank One, Texas, N.A., in its individual capacity
and not as Administrative Agent.

"SWING-LENDER'S REQUEST" is defined in SECTION 2.2(b).

"SWING NOTE" means a promissory note executed and delivered by Borrower,
payable to Swing Lender's order, in the stated principal amount of
$50,000,000, and substantially in the form of EXHIBIT A-2.

"SWING SUBLIMIT" means, at any time, $15,000,000.

"TAXES" means, for any Person, taxes, assessments, or other governmental
charges or levies imposed upon it, its income, or any of its properties,
franchises, or assets.

"TERMINATION DATE" means the earlier of EITHER (a) the
Stated-Termination Date, OR (b) the date that Lenders' commitments under this
agreement are fully cancelled or terminated.

"TERMINATION PERCENTAGE" means -- at any time for any Lender -- the
proportion (stated as a percentage) that its Principal Debt bears to the
total Principal Debt.

11 CREDIT AGREEMENT
----------------

<PAGE>

"TITLE-I INSURED" means, in reference to an Improvement Loan, that it is
validly covered by the credit insurance provided by FHA pursuant to the Title
I Program.

"TITLE I PROGRAM" means the credit insurance program authorized pursuant
to TITLE I of the National Housing Act of 1934.

"TRUST RECEIPT" means a Trust Receipt and Agreement executed and
delivered by Borrower to Administrative Agent in substantially the form of
EXHIBIT B-6.

"UCC" means the UNIFORM COMMERCIAL CODE as enacted in Texas or other
applicable jurisdictions.

"UNCOVERED AMOUNT" means, for any period, the SUM of the
Average-Principal Debt MINUS the Covered Amount.

"UNSECURED SUBLIMIT" means, at any time, 5% of the total Commitments.

"WAREHOUSE BORROWING" means a Borrowing that is advanced to Borrower by
Lenders in accordance with their Commitment Percentages under SECTION 2.2.

"WAREHOUSE NOTES" means a promissory note executed and delivered by
Borrower, payable to a Lender's order, in the stated principal amount of its
Commitment, and substantially in the form of EXHIBIT A-1.

"WET BORROWING" means a Borrowing for which all of the Collateral
Documents have not been delivered to Administrative Agent in accordance with
SECTION 4.3.

"WET PERIOD" means seven Business Days for the Collateral Documents for
any Mortgage Loan that supports a Wet Borrowing.

"WET SUBLIMIT" means, at any time, a percentage of the total
Commitments, which percentage is (a) 25% for the first five and last five
Business Days of each Calendar Month, and (b) 20% at all other times.

"WIRE INSTRUCTIONS" mean, for any Person, the information for wire
transfers of funds to that Person, which (until changed by written notice to
all other parties to this agreement) are stated for (a) Borrower beside its
name on the signature page below, and (b) Administrative Agent and each
Lender, beside its name on SCHEDULE 2.

1.2 TIME REFERENCES. Unless otherwise specified, in the Loan Documents
(a) time references (E.G., 10:00 a.m.) are to time in Dallas, Texas, and (b)
in calculating a period from one date to another, the word "FROM" means "FROM
AND INCLUDING" and the word "TO" or "UNTIL" means "TO BUT EXCLUDING."

1.3 OTHER REFERENCES. Unless otherwise specified, in the Loan
Documents (a) where appropriate, the singular includes the plural and VICE
VERSA, and words of any gender include each other gender, (b) heading and
caption references may not be construed in interpreting provisions, (c)
monetary references are to currency of the United States of America, (d)
section, paragraph, annex, schedule, exhibit, and similar references are to
the particular Loan Document in which they are used, (e) references to
"TELECOPY," "TELEFAX," "FACSIMILE," "FAX," or similar terms are to facsimile
or telecopy transmissions, (f) references to "INCLUDING" mean including
without limiting the generality of any description preceding

12 CREDIT AGREEMENT
----------------

<PAGE>

that word, (g) the rule of construction that references to general items that
follow references to specific items as being limited to the same type or
character of those specific items is not applicable in the Loan Documents,
(h) references to any Person include that Person's heirs, personal
representatives, successors, trustees, receivers, and permitted assigns, (i)
references to any Governmental Requirement include every amendment or
supplement to it, rule and regulation adopted under it, and successor or
replacement for it, and (j) references to any Loan Document or other document
include every renewal and extension of it, amendment and supplement to it,
and replacement or substitution for it.

1.4 ACCOUNTING PRINCIPLES. Unless otherwise specified, in the Loan
Documents (a) GAAP in effect on the date of this agreement determines all
accounting and financial terms and compliance with financial covenants, (b)
otherwise, all accounting principles applied in a current period must be
comparable in all material respects to those applied during the preceding
comparable period, and (c) while Borrower has any consolidated Subsidiaries
(i) all accounting and financial terms and compliance with reporting
covenants must be on a consolidating and consolidated basis, as applicable
and (ii) compliance with financial covenants must be on a consolidated basis.

SECTION 2. BORROWING PROVISIONS.

2.1 COMMITMENTS. Subject to the limitations below and other provisions
of the Loan Documents and on Business Days before the Termination Date, each
Lender severally agrees to provide its Commitment Percentage of Warehouse
Borrowings and Swing Lender agrees to provide Swing Borrowings SO LONG AS, in
each case, no Borrowing may be disbursed that would cause any of the
following applicable limitations to be exceeded, which limitations must be
read together and are not mutually exclusive:

- The total Principal Debt may never EXCEED the lesser of EITHER the
Borrowing Base OR the total Commitments.

- No more than the Unsecured Sublimit may be included in the Borrowing
Base for Pledged-Loans that are not secured by valid and perfected
liens on residential-real estate.

- The total Principal Debt of Wet Borrowings may never EXCEED the
Wet Sublimit.

- The Principal Debt of all Swing Borrowings may never EXCEED the
Swing Sublimit.

Each disbursement of a Warehouse Borrowing (other than under a Swing-Lender's
Request, for which there is no minimum) must be at least $2,000,000 and if a
Swing Borrowing must be at least $50,000.

2.2 WAREHOUSE BORROWINGS. The following conditions and procedures
apply to Warehouse Borrowings.

(a) BORROWING REQUEST. Borrower may only request a Warehouse
Borrowing by timely delivering to Administrative Agent a
Collateral-Delivery Notice and required Collateral Documents under SECTION
4.3 and by delivering to Administrative Agent a Borrowing Request for
the Borrowing before 11:00 a.m. on the Borrowing Date for it for a
Fed-Funds Borrowing or Base-Rate Borrowing or on the third Business Day
before the Borrowing Date for a Eurodollar Borrowing. A Borrowing
Request is irrevocable and binding on Borrower when delivered.
Administrative Agent shall use its best efforts to promptly (but at
least by 1:00 p.m. on the day it timely receives a Borrowing Request)
send a copy of it to each Lender by fax and confirm it by telephone.

13 CREDIT AGREEMENT
----------------

<PAGE>

(b) SWING-LENDER'S REQUEST. On any Business Day when there is any
Principal Debt of Swing Borrowings, Swing Lender may -- and on each
Friday (or, if not a Business Day, the immediately preceding Business Day)
when there is any Principal Debt of Swing Borrowings, Swing Lender shall
(without any liability for failing to) -- unilaterally request a
Warehouse Borrowing under this SECTION 2.2, to be made on that day in the
amount of that Principal Debt. Swing Lender shall fax that request (a
"SWING-LENDER'S REQUEST") to Administrative Agent (unless they are the
same party) and to each Lender by at least 1:00 p.m. on the Borrowing Date
for the requested Warehouse Borrowing. When so made, a Swing-Lender's
Request irrevocably binds Borrower without its joinder in it.

(c) REMITTANCE BY LENDERS. Each Lender shall remit to
Administrative Agent that Lender's Commitment Percentage of (i) any
Borrowing requested in any Borrowing Request and (ii) regardless of whether
an Event of Default or Potential Default exists at that time (UNLESS
Swing Lender had actual knowledge of it when the related Swing Borrowing
was made), any Borrowing requested in a Swing-Lender's Request. That
remittance must be made to Administrative Agent's principal office in
Dallas, Texas, by wire transfer according to Administrative Agent's Wire
Instructions, in funds that are available for immediate use by
Administrative Agent by 2:00 p.m. on the applicable Borrowing Date.

(d) FUNDING BY ADMINISTRATIVE AGENT. Subject to receipt of funds
remitted under CLAUSE (c) above, Administrative Agent shall (i) for a
Borrowing under a Swing-Lender's Request, treat (or, if Swing Lender is a
different Lender, remit those funds to Swing Lender for Swing Lender to
treat) those funds as a payment on the Principal Debt of Swing
Borrowings, and (ii) for any other Borrowing (unless to its actual
knowledge any of the applicable conditions precedent have not been
satisfied by Borrower or waived by all Lenders) by 3:00 p.m. on the
Borrowing Date, deposit those funds into the Funding Account for a Dry
Borrowing OR wire transfer those funds in accordance with the Borrowing
Request for a Wet Borrowing.

(e) NON-REMITTANCE. Absent contrary written notice from a Lender
received by Administrative Agent by 2:00 p.m. on the Borrowing Date,
Administrative Agent may assume that each Lender has made its Commitment
Percentage of a Borrowing under a Borrowing Request or a Swing-Lender's
Request available to Administrative Agent on the Borrowing Date and may
(but is not obligated to) make available to Borrower or to Swing-Lender, as
the case may be, a corresponding amount. If a Lender fails to make its
Commitment Percentage of that Borrowing available to Administrative
Agent on the Borrowing Date -- whether because of that Lender's default,
because that Lender is not open for business on that Business Day, or
otherwise -- then Administrative Agent may recover that amount on demand
(i) from that Lender, together with interest at the Fed-Funds Rate during
the period from the Borrowing Date to the date Administrative Agent
recovers that amount from that Lender which (payment is then deemed to be
that Lender's Commitment Percentage of that Borrowing) or (ii) if that
Lender fails to pay that amount upon demand, then EITHER (A) in respect
of a Warehouse Borrowing, from Borrower, together with interest at an
annual interest rate equal to the rate applicable to the requested
Borrowing during the period from the Borrowing Date to the date
Administrative Agent recovers that amount from Borrower, OR (B) in respect
of a Swing Borrowing, from Swing Lender, together with interest at the
Fed-Funds Rate during the period from the Borrowing Date to the date
Administrative Agent recovers that amount from Swing Lender.
Notwithstanding these provisions, each Lender remains obligated to lend
its Commitment Percentage of that Borrowing, assumes the credit risk for
that amount when the Borrowing is made available to or for Borrower, and
(after

14 CREDIT AGREEMENT
----------------

<PAGE>

Administrative Agent has recovered the amount of interest provided for in
CLAUSE (i) above) is entitled to interest on that amount from the
Borrowing Date.

(f) OTHER LENDERS. Although no Lender is responsible for the
failure of any other Lender to make its Commitment Percentage of any
Borrowing, that failure does not excuse any other Lender from making its
Commitment Percentage of that Borrowing.

2.3 SWING BORROWINGS. The conditions and procedures of SECTION 2.2
apply to Swing Borrowings except as follows: The Borrowing Request for a
Swing Borrowing must be delivered to Administrative Agent and, if they are
not the same, Swing Lender by 2:30 p.m. on the Borrowing Date. Unless to its
actual knowledge any of the applicable conditions precedent have not been
satisfied by Borrower or waived by all Lenders or in its sole judgment it is
reasonable to anticipate that each Lender will provide a Borrowing under a
Swing-Lender's Request in respect of that Swing Borrowing, then Swing Lender
shall by 3:00 p.m. on the Borrowing Date EITHER (or, if they are not the same
entity, remit those funds to Administrative Agent who shall upon receipt of
them shall EITHER) deposit those funds into the Funding Account for a Dry
Borrowing OR wire transfer those funds in accordance with the Borrowing
Request for a Wet Borrowing. Immediately upon Swing Lender's demand, Swing
Lender is deemed to have sold and transferred to each other Lender (and each
other Lender is deemed irrevocably and unconditionally to have purchased and
received from Swing Lender) and shall pay Swing Lender for an undivided
interest and participation in each Swing Borrowing to the extent of that
Lender's Commitment Percentage, all without representation or warranty by, or
recourse on, Swing Lender.

2.4 WET-BORROWINGS. The conditions and procedures of SECTIONS 2.2 and
2.3 apply to Wet Borrowings except as follows: A Wet Borrowing may be funded
before delivery to Administrative Agent of all of the required Collateral
Documents for the Pledged Loans supporting that Wet Borrowing. The
Collateral-Delivery Notice delivered to Administrative Agent for a Wet
Borrowing may be sent to Administrative Agent by fax but must identify and
describe each Pledged Loan that supports that Wet Borrowing and the amount of
the Borrowing Base applicable to it. By delivering the Collateral-Delivery
Notice, Borrower confirms the grant and conveyance of Lender Liens (from the
Borrowing Date for each Wet Borrowing) on each Collateral Document offered as
Collateral in that Collateral-Delivery Notice that is perfected subject to
the delivery of the related promissory notes for those Pledged Loans to
Administrative Agent or its bailee.

2.5 INCREASES AND TERMINATIONS.

(a) INCREASES UP TO $200,000,000. Borrower may from time to time
request any one or more Lenders to increase their respective Commitments
(or other financial institutions first approved by Administrative Agent
to agree to a Commitment) so that the total Commitments may be increased
to no more than $200,000,000. That increase must be effected by an
amendment to this agreement under SECTION 12.10 that is executed by
Borrower, Administrative Agent, and the one or more Lenders who have
agreed to increase their Commitments or new Lenders who have agreed to
new Commitments. Borrower shall execute and deliver to each such Lender
a Warehouse Note in the stated amount of its new Commitment. No Lender
is obligated to increase its Commitment under any circumstances, and no
Lender's Commitment may be increased except by its execution of an
amendment to this agreement under SECTION 12.10.

(b) INCREASES OVER $200,000,000. The total Commitments may not be
increased to more than $200,000,000 except by an amendment executed by
Borrower, all Agents, and all Lenders under SECTION 12.10.

15 CREDIT AGREEMENT
----------------

<PAGE>

(c) TERMINATION OF A LENDER. If no Event of Default or Potential
Default exists and if a Lender declines to execute or consent to any waiver
or amendment (other than any amendment that would increase that Lender's
Commitment) requested by Borrower in respect of any Loan Document, then,
after giving written and irrevocable notice to Administrative Agent, that
Lender, and each other Lender at least three Business Days before the
effective date of the termination, Borrower may fully terminate that
Lender's Commitment by executing an amendment under SECTION 12.10. A
termination under this CLAUSE (C) requires (i) no full or partial
termination of any other Lender's Commitment, (ii) a mandatory prepayment
under SECTION 3.4 on the effective date of the termination, (iii) payment
of any related Funding Loss to the terminated Lender, and (iv) no other
premium or penalty.

(d) TERMINATIONS OF ALL LENDERS. After giving written and
irrevocable notice to Administrative Agent and each Lender at least three
Business Days before the effective date of any termination, Borrower may
fully or partially terminate the Commitments. A termination under this
CLAUSE (D) (i) if partial, (A) must be at least $10,000,000 and an integral
of $5,000,000, (B) must be ratable for each Lender according to its
Commitment Percentage, (C) requires a mandatory prepayment under
SECTION 3.4(A)(II) on the effective date of termination and payment of any
related Funding Loss, and (D) requires no other premium or penalty, or
(ii) if full, requires (A) a mandatory prepayment under SECTION 3.4 on the
effective date of the termination, (B) payment of any related Funding Loss,
and (C) no other premium or penalty.

(e) TERMINATION DATE. The total Commitments and Swing-Lender's
agreement to provide Swing Borrowings all automatically terminate on the
Termination Date.

(f) REINSTATEMENT. Once terminated, no part of any commitment or
agreement to extend credit under this agreement may be reinstated except
by an amendment to this agreement under SECTION 12.10.

SECTION 3. PAYMENT TERMS.

3.1 NOTES. The Principal Debt and interest on it are evidenced by the
Notes. Notwithstanding any sale of participating interests under SECTION 12.13
or any contrary notice, Borrower and Administrative Agent may deem and treat
each Lender as the absolute owner of its respective Note for all purposes.

3.2 PAYMENT PROCEDURES.

(a) PAYMENTS. Borrower shall make each payment and prepayment on the
Obligation to Administrative Agent, on behalf of Lenders, in accordance
with Agent's Wire Instructions in funds that are available for immediate
use by Administrative Agent. Payments that are received by 12:00 noon on
a Business Day are deemed received on that Business Day. Payments that
are received after 12:00 noon on a Business Day are deemed received on the
next Business Day. Subject to SECTION 3.7(F), applicable interest
continues to accrue through the calendar day immediately before the
Business Day on which the payment is deemed received. No Lender directly
invoices Borrower for (and only Administrative Agent invoices Borrower
for) interest under the Loan Documents.

(b) DISTRIBUTIONS. When received under CLAUSE (A) above,
Administrative Agent shall distribute each payment to each Lender (in
accordance with SECTION 3.5 and each Lender's Wire Instructions) reasonably
promptly after receipt but by no later than 2:00 p.m. on the Business Day

16 CREDIT AGREEMENT
----------------

<PAGE>

the payment is deemed to be received by Administrative Agent under CLAUSE
(A) above. If Administrative Agent fails to distribute any payment to any
Lender as required by this clause, then Administrative Agent shall pay to
that Lender on demand interest on that payment, from the date due under
this clause until paid, at an annual interest rate equal from day to day
to the Fed-Funds Rate.

3.3 SCHEDULED PAYMENTS. Unless otherwise provided in this agreement,
Borrower shall pay the Obligation in accordance with the following table:

<TABLE>
- -------------------------------------------------------------------------------------------------------------------------
OBLIGATION PAYABLE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest on each Eurodollar Borrowing except at the Default Rate As it accrues on (a) the last day of that Borrowing's
Interest Period and (b) on the Termination Date.
- -------------------------------------------------------------------------------------------------------------------------

Interest on each other Borrowing except at the Default Rate On (a) the 15th day of each Calendar Month as it
accrued on the last day of the preceding Calendar
Month and (b) on the Termination Date.
- -------------------------------------------------------------------------------------------------------------------------

Interest at the Default Rate On demand as it accrues.
- -------------------------------------------------------------------------------------------------------------------------

Principal Debt of Swing Borrowings On demand.
- -------------------------------------------------------------------------------------------------------------------------

Principal Debt of all other Borrowings On the Termination Date.
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>

3.4 PREPAYMENTS.

(a) COMMITMENT TERMINATION. On the effective date of any (i)
termination of a Lender's Commitment under SECTION 2.5(C), Borrower shall
pay to Administrative Agent for that Lender the Obligation (including any
applicable Funding Loss) owed to that Lender, (ii) partial termination of
the Commitments under SECTION 2.5(D), Borrower shall pay to Administrative
Agent for Lenders the amount that the Principal Debt exceeds the reduced
total Commitments (together with any applicable Funding Loss), and (iii)
full termination of the Commitments under SECTION 2.5(D), Borrower shall
prepay the full Obligation (including any applicable Funding Loss).

(b) BORROWING EXCESS. Borrower shall, on demand when any Borrowing
Excess exists, prepay the appropriate Principal Debt (together with any
applicable Funding Loss) or take any other actions in accordance with this
agreement necessary to eliminate the Borrowing Excess.

(c) VOLUNTARY PREPAYMENTS. Borrower may otherwise voluntarily
prepay any of the Obligation at any time without premium or penalty but
with any applicable Funding Loss.

3.5 ORDER OF APPLICATION. All payments and proceeds (whether voluntary,
involuntary, through the exercise of any Right of set-off or other Right,
realization against any Collateral, or otherwise) shall be applied in the
following order:

(a) NO EVENT OF DEFAULT. While no Event of Default exists, in the
order and manner as Borrower directs, payable ratably to Lenders in
accordance with their Commitment Percentages, EXCEPT that any payments and
proceeds must first be applied against Swing Borrowings.

17 CREDIT AGREEMENT
----------------

<PAGE>

(b) EVENT OF DEFAULT OR NO DIRECTION. While an Event of Default
exists or if Borrower fails to give any direction, in the following order
and manner:

(i) All costs and expenses incurred by Administrative Agent in
connection with its duties under the Loan Documents -- including,
without limitation, fees and expenses paid by Administrative Agent to
any servicing companies retained by Administrative Agent to assist it
in servicing any Collateral required to be serviced, to any attorneys,
or to any agents (that have not been reimbursed by Lenders), together
with interest at the Default Rate, payable solely to Administrative
Agent.

(ii) All costs and expenses incurred by any Lender in connection
with the Loan Documents that are reimbursable to it under the Loan
Documents and all amounts paid by that Lender to Administrative Agent
as a reimbursement to it of costs and expenses incurred by
Administrative Agent in connection with its duties under the Loan
Documents, together with interest at the Default Rate, payable ratably
to Lenders in the proportion that each Lender's share of those costs
and expenses bears to the total of those costs and expenses for all
Lenders.

(iii) Accrued and unpaid interest on the Obligation, payable
ratably to Lenders in the proportion that the amount of interest owed
to each Lender bears to the total of all interest owed to all Lenders.

(iv) Principal Debt of Swing Borrowings, payable to Swing
Lender, which Swing Lender shall distribute ratably to those Lenders,
if any, who have purchased and paid for any participations in that
Principal Debt under SECTION 2.3.

(v) Principal Debt of Warehouse Borrowings, payable ratably to
each Lender in accordance with its Termination Percentage.

(vi) All other portions of the Obligation, payable ratably to
Lenders in the proportion that each Lender's share of those amounts
bears to the total of those amounts for all Lenders.

(vii) Either (A) to Borrower or to its successors or assigns on
behalf of Borrower, to be divided between them as they may agree,
or (B) as a court of competent jurisdiction may direct.

3.6 SHARING. If any Lender obtains any amount (whether voluntary,
involuntary, or otherwise, including, without limitation, as a result of
exercising its Rights under SECTION 10.3) that exceeds the portion of that
amount it is otherwise entitled under the Loan Documents to receive, then
that Lender shall purchase from the other Lenders participations that result
in the purchasing Lender's sharing the excess amount ratably with each Lender
in accordance with the portion it is entitled to receive under the Loan
Documents. If all or any of that excess amount is subsequently recovered
from that purchasing Lender, then the purchase of participations in it is
automatically rescinded and the purchase price restored to that purchasing
Lender to the extent of the recovery. Any Lender purchasing a participation
from another Lender under this section may, to the extent lawful, exercise
all of its Rights of payment (including the Right of offset) with respect to
that participation as fully as if that Lender were the direct creditor of
Borrower in the amount of that participation.

18 CREDIT AGREEMENT
----------------

<PAGE>

3.7 INTEREST RATES.

(a) NON-DEFAULT RATE. Subject to CLAUSE (B) below, all Principal
Debt bears an annual interest rate equal to the lesser of EITHER (i) the
Maximum Rate OR (ii) for each Calendar Month (A) the Covered Rate for the
Covered Amount of all Borrowings for that Calendar Month, (B) the
Average-Adjusted-Base Rate for the Uncovered Amount of Base-Rate Borrowings
for that Calendar Month, (C) the Average-Adjusted-Fed-Funds Rate for the
Uncovered Amount of Fed-Funds Borrowings for that Calendar Month, and
(D) the Eurodollar Rate for the Uncovered Amount of all Eurodollar
Borrowings for that Calendar Month.

(b) DEFAULT RATE. All past-due Principal Debt and past-due interest
on it bears interest at the Default Rate from the date due (stated or by
acceleration) until paid, whether or not payment is before or after entry
of a judgment.

(c) RATE CHANGES. Each change in the Base Rate, Fed-Funds Rate,
Eurodollar Rate, and the Maximum Rate is effective upon the effective
date of change without notice to Borrower or any other Person.

(d) CALCULATIONS. Interest is calculated on the basis of actual days
(including the first but excluding the last) over a 360-day year, unless
the calculation would result in an interest rate greater than the Maximum
Rate, in which event interest is calculated on the basis of the actual
days in that year. All interest rate determinations and calculations by
Administrative Agent are conclusive and binding absent manifest error.

(e) RECAPTURE. If the designated interest rate applicable to any
Borrowing exceeds the Maximum Rate, then the interest rate on that
Borrowing is limited to the Maximum Rate. However, any subsequent
reductions in the designated rate shall not become effective until the
total amount of accrued interest equals the amount of interest that would
have accrued if that designated rate had always been in effect. If at
maturity (stated or by acceleration), or at final payment of the Notes,
the total interest paid or accrued is less than the interest that would
have accrued if the designated rates had always been in effect, then, at
that time and to the extent permitted by Governmental Requirements,
Borrower shall pay an amount equal to the DIFFERENCE of (i) the lesser
of EITHER the amount of interest that would have accrued if the designated
rates had always been in effect OR the amount of interest that would have
accrued if the Maximum Rate had always been in effect, MINUS (ii) the
amount of interest actually paid or accrued on the Notes.

(f) MAXIMUM RATE. Regardless of any Loan Document provision, no
Lender is entitled to contract for, charge, take, reserve, receive, or
apply, as interest on all or any of the Obligation any amount in excess of
the Maximum Rate. If a Lender ever does so, then any excess is treated as
a partial prepayment of principal, and any remaining excess shall be
refunded to Borrower, as the case may be. In determining if the interest
paid or payable exceeds the Maximum Rate, Borrower and Lenders shall, to
the extent lawful (i) treat all Borrowings as but a single extension of
credit, (ii) characterize any nonprincipal payment as an expense, fee, or
premium rather than as interest, (iii) exclude voluntary prepayments and
their effects, and (iv) amortize, prorate, allocate, and spread the total
amount of interest throughout the full-contemplated term of the Obligation.
However, if the Obligation is paid in full before the end of that
full-contemplated term and the interest received for the Obligation's
actual period of existence exceeds the Maximum Amount, then Lenders shall
refund any excess without being subject to any penalties provided by any
Governmental Requirements. If Texas laws are applicable for purposes of
determining the

19 CREDIT AGREEMENT
----------------

<PAGE>

"MAXIMUM RATE" or the "MAXIMUM AMOUNT," then those terms mean the
"INDICATED RATE CEILING" from time to time in effect under ARTICLE 1.04,
TITLE 79, Texas Revised Civil Statutes. CHAPTER 15, SUBTITLE 79, Texas
Revised Civil Statutes, (which regulates certain revolving credit loan
accounts and revolving triparty accounts) does not apply to the Obligation.

3.8 INTEREST PERIODS. When Borrower request any Eurodollar Borrowing,
it may elect the applicable interest period (each an "INTEREST PERIOD"), which
may be either 30, 60 or 90 days, at its option, subject to the following
conditions: (a) The initial Interest Period commences on the applicable
Borrowing Date and each subsequent applicable Interest Period commences on
the day when the next preceding applicable Interest Period expires; (b) if
any Interest Period begins on a day for which no numerically corresponding
Business Day in the Calendar Month at the end of the Interest Period exists,
then the Interest Period ends on the last Business Day of that Calendar Month;
(c) if an Interest Period would otherwise not end on a Business Day, it shall
end on the immediately preceding Business Day; (d) no Interest Period for any
portion of the Obligation may extend beyond the scheduled repayment date for
that portion of the Obligation; and (e) no more than seven Interest Periods
may be in effect at any time.

3.9 BASIS UNAVAILABLE OR INADEQUATE FOR EURODOLLAR RATE. If, on or
before any date when a Eurodollar Rate is to be determined for a Borrowing,
Administrative Agent or any Lender (upon notice to Administrative Agent)
determines that the basis for determining the applicable rate is not available
or that the resulting rate does not accurately reflect the cost to Lenders of
making or converting Borrowings at that rate for the applicable Interest Period,
then Administrative Agent shall promptly notify Borrower of that determination
(which is conclusive and binding on Borrower, absent manifest error) and that
Borrowing shall be a Fed-Funds Borrowing. Until Administrative Agent notifies
Borrower that it or the notifying Lender (upon notice to Administrative Agent)
has determined that those circumstances no longer exist (which it shall
promptly do), then Lenders' commitments under this agreement to make Eurodollar
Borrowings are suspended.

3.10 ADDITIONAL COSTS. This section survives the full satisfaction of
the Obligation, termination of the Loan Documents, and release of Lender
Liens.

(a) For any Eurodollar Borrowing, if (i) (A) any change after the
date of this agreement in any present Governmental Requirement (and, for
purposes of this SECTION 3.10, Governmental Requirement includes
interpretations and guidelines of any Governmental Authority, whether or
not having the force of law) or any future Governmental Requirement
imposes, modifies, or deems applicable (or if compliance by any Lender with
any requirement of any Governmental Authority results in) any requirement
that any reserves (including, without limitation, any marginal, emergency,
supplemental, or special reserves) be maintained, (B) those reserves reduce
any sums receivable by that Lender under this agreement or increase the
costs incurred by that Lender in advancing or maintaining any portion of
any Eurodollar Borrowing, and (C) that Lender determines that the
reduction or increase is material (and it may, in determining the material
nature of the reduction or increase, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method), then (ii) that Lender (through Administrative Agent)
shall deliver to Borrower a certificate stating in reasonable detail the
calculation of the amount necessary to compensate it for its reduction
or increase (which certificate is conclusive and binding absent manifest
error), and Borrower shall pay that amount to that Lender within ten days
after demand.

(b) For any Borrowing, if (i) (A) any change after the date of this
agreement in any present or future Governmental Requirement regarding
capital adequacy or compliance by any

20 CREDIT AGREEMENT
----------------

<PAGE>

Lender with any request, directive, or requirement now or in the future
imposed by any Governmental Authority regarding capital adequacy or any
change in the risk category of this transaction reduces the rate of
return on its capital as a consequence of its obligations under this
agreement to a level below that which it otherwise could have achieved
(taking into consideration its policies with respect to capital adequacy)
by an amount deemed by it to be material (and it may, in determining the
material nature of the reduction, utilize reasonable assumptions and
allocations of costs and expenses and use any reasonable averaging or
attribution method), then (ii) that Lender (through Administrative Agent)
shall deliver to Borrower a certificate stating in reasonable detail the
calculation of the amount necessary to compensate it for its reduction
(which certificate is conclusive and binding absent manifest error), and
Borrower shall pay that amount to Lender within ten days after demand.

(c) Any Taxes payable by Administrative Agent or any Lender or
ruled (by a Governmental Authority) payable by Administrative Agent or
any Lender in respect of any Loan Document shall -- if permitted by
Governmental Requirement and if deemed material by Administrative Agent
or that Lender (who may, in determining the material nature of the
amount payable, utilize reasonable assumptions and allocations of costs
and expenses and use any reasonable averaging or attribution method) --
be paid by Borrower, together with interest and penalties, if any (except
for Taxes payable on the overall Net Income of Administrative Agent or
that Lender and except for interest and penalties incurred as a result of
the gross negligence or willful misconduct of Administrative Agent or any
Lender). Administrative Agent or that Lender (through Administrative
Agent) shall notify Borrower and deliver to Borrower a certificate stating
in reasonable detail the calculation of the amount of payable Taxes,
which certificate is conclusive and binding (absent manifest error), and
Borrower shall pay that amount to Administrative Agent for the account of
Administrative Agent or that Lender, as the case may be, within ten days
after demand. If Administrative Agent or that Lender subsequently receives
a refund of the Taxes paid to it by Borrower, then the recipient shall
promptly pay the refund to Borrower.

3.11 CHANGE IN GOVERNMENTAL REQUIREMENTS. If any change, after the date
of this agreement, in any present or future Governmental Requirement makes it
unlawful for any Lender to make or maintain Eurodollar Borrowings, then that
Lender shall promptly notify Administrative Agent, who shall promptly notify
Borrower and (a) as to undisbursed funds, any requested Borrowing shall be
made as a Fed-Funds Borrowing, (b) as to any outstanding Borrowing (i) if
maintaining the Borrowing until the last day of the applicable Interest Period
is unlawful, the Borrowing shall be converted to a Fed-Funds Borrowing as of
the date of notice, or (ii) if not prohibited by Governmental Requirements,
the Borrowing shall be converted to an Fed-Funds Borrowing as of the last day
of the applicable Interest Period, or (iii) if any conversion will not resolve
the unlawfulness, Borrower shall promptly prepay the Borrowing TOGETHER WITH
any Funding Loss.

3.12 FUNDING LOSS. BORROWER SHALL INDEMNIFY EACH LENDER AGAINST AND PAY
TO IT UPON DEMAND ANY FUNDING LOSS OF THAT LENDER. When any Lender demands
that Borrower pay any Funding Loss, that Lender shall deliver to Administrative
Agent who shall promptly deliver to Borrower a certificate stating in
reasonable detail the basis for imposing Funding Loss and the calculation of
the amount, which calculation shall be presumed correct. This SECTION 3.12
survives the satisfaction and payment of the Obligation, termination of the
Loan Documents, and release of Lender Liens.

3.13 FOREIGN LENDERS, PARTICIPANTS, AND PURCHASERS. Each Lender,
Participant (by accepting a participation interest under this agreement), and
Purchaser (by executing an Assignment) that is not organized under the laws
of the United States of America or one of its states (a) represents to

21 CREDIT AGREEMENT
----------------

<PAGE>

Administrative Agent and Borrower that (i) no Taxes are required to be
withheld by Administrative Agent or Borrower with respect to any payments to
be made to it in respect of the Obligation and (ii) it has furnished to
Administrative Agent and Borrower two duly completed copies of either U.S.
Internal Revenue Service FORM 4224, FORM 1001, FORM W-8, or any other form
acceptable to Administrative Agent that entitles it to exemption from U.S.
federal withholding Tax on all interest payments under the Loan Documents,
and (b) covenants to (i) provide Administrative Agent and Borrower a new FORM
4224, FORM 1001, FORM W-8, or other form acceptable to Administrative Agent
upon the expiration or obsolescence of any previously delivered form, duly
executed and completed by it, and (ii) comply from time to time with all
Governmental Requirements with regard to the withholding Tax exemption. If
any of the foregoing is not true or the applicable forms are not provided,
then Borrower and Administrative Agent (without duplication) may deduct and
withhold from interest payments under the Loan Documents United States
federal income Tax at the full rate applicable under the IRC.

3.14 FEES. The following are not compensation for the use, detention,
or forbearance of money, are in addition to and not in lieu of interest and
expenses otherwise described in the Loan Documents, are non-refundable, bear
interest if not paid when due at the Default Rate, and are calculated on the
basis of actual days (including the first but excluding the last) elapsed
over a year of 360 days (or actual days during that year, if the calculation
would otherwise result in exceeding the Maximum Amount and the payment were
deemed to be interest notwithstanding the above provisions to the contrary):

(a) ADMINISTRATIVE AGENT'S FEES. Borrower shall pay to
Administrative Agent (for its sole account) arrangement, syndication,
placement, structure, management, documentation, and custodial fees in
amounts and upon such payment terms as may be separately agreed upon
by Borrower and Administrative Agent in writing.

(b) COMMITMENT FEE. On the Closing Date, Borrower shall pay to
Administrative Agent for the account of each initial Lender to this
agreement a commitment fee equal to a percentage of the Lender's Commitment
on the Closing Date, determined as follows:

-----------------------------------------------------------
COMMITMENT PERCENTAGE
-----------------------------------------------------------
Greater than or equal to $40,000,000 0.15%
-----------------------------------------------------------
Less than $40,000,000 0.10%
-----------------------------------------------------------

Borrower shall also pay to Administrative Agent for the account of each
Lender that becomes a Lender after the Closing Date, a commitment fee
equal to (i) the percentage of that Lender's Commitment on the date it
becomes a Lender MULTIPLIED BY the applicable percentage set forth in the
table above, MULTIPLIED BY (ii) a percentage determined by dividing the
number of days remaining until the Stated-Termination Date (calculated
from the date the Lender becomes a Lender) by 364.

(c) NON-USE FEE. On the first day of each ensuing Calendar Quarter
until the Commitments have been fully terminated, Borrower shall pay to
Administrative Agent a non-use fee for the account of all Lenders. When
received, Administrative Agent shall pay to each Lender that Lender's
Commitment Percentage of that fee less the applicable portion of that fee
accruing for any period before that Lender became a Lender. Each payment
of that fee is calculated for the period from the first day of the
preceding Calendar Quarter (or, in the case of the first such payment, the
Closing Date) to and including the last day of that Calendar Quarter. The
amount of that fee for that period is the PRODUCT of (i) 0.125% (divided
by four) TIMES (ii) the REMAINDER

22 CREDIT AGREEMENT
----------------

<PAGE>

of (A) 66 2/3% of the Average Commitments for all Lenders for that period
MINUS (B) the Average-Principal Debt for all Lenders for that period.

SECTION 4. COLLATERAL PROCEDURES.

4.1 ELIGIBLE COLLATERAL. The requirements for Collateral to constitute
Eligible-Equity Loans or Eligible-Improvement Loans and be included in the
Borrowing Base are listed on SCHEDULE 4.1. If at any time any item of
Collateral ceases to meet those requirements, then that item is automatically
excluded from all calculations of the applicable Borrowing Base.

4.2 BORROWING BASE. The elements for calculating the Borrowing Base
are listed on SCHEDULE 4.2. By 1:00 p.m. on the date of any Borrowing, any
payment of Principal Debt, or removal of any Collateral, Administrative Agent
shall deliver to Borrower and Lenders a Borrowing-Base Report prepared on the
basis of information then available to Administrative Agent as provided in
this agreement.

4.3 COLLATERAL DELIVERY. Borrower must comply with all the required
procedures in SCHEDULE 4.3 for Collateral offered in connection with this
agreement by no later than 11:00 a.m. on the Borrowing Date for Collateral
supporting any new Borrowing.

4.4 BAILEE AND AGENT. Administrative Agent and Lenders appoint
Borrower (and Borrower shall act) as their (a) special agent for the sole and
limited purpose of obtaining and maintaining Appraisals for secured Pledged
Loans as required by the Loan Documents and (b) bailee to (i) hold in trust
for Administrative Agent (A) the original recorded copy of the mortgage, deed
of trust, or trust deed securing each secured Pledged Loan, (B) a mortgagee
policy of title insurance (or binding unexpired and unconditional commitment
to issue such insurance if the policy has not yet been delivered to Borrower)
insuring Borrower's perfected Lien created by that mortgage, deed of trust,
or trust deed, (C) the original insurance policies referred to on SCHEDULE
4.1, and (D) all other original documents, (ii) specifically identify those
items in the appropriate Collateral-Delivery Notice, and (iii) deliver to
Administrative Agent any of the foregoing items as soon as reasonably
practicable upon Administrative Agent's request.

4.5 SHIPMENT FOR SALE.

(a) SHIPMENT OF COLLATERAL. If no Event of Default, Potential
Default, or Borrowing Excess exists and if shipment would not result in
any Approved Investor or its servicers and custodians (other than Bank
One, Texas, N.A. in connection with securitization transactions) holding
Collateral Documents for Pledged Loans with more than a total $10,000,000
face amount, then Borrower may, by a Shipping Request delivered to Agent
by 11:00 a.m. on the Business Day of shipment, request Administrative
Agent to ship Collateral Documents to an Approved Investor or its servicer
or custodian for purchase or pooling of the related Pledged Loans. If
Administrative Agent has no actual knowledge that any of the above
conditions have not been satisfied, then Administrative Agent shall ship
the Collateral Documents it holds for those Pledged Loans to that Approved
Investor or its servicer or custodian under the appropriate Bailee Letter.

(b) INELIGIBLE COLLATERAL. Collateral shipped under CLAUSE (A)
above, unless returned to Administrative Agent, ceases to be
Eligible-Pledged Loans (i) to the extent that Collateral Documents for
Pledged Loans with more than a total face amount of $10,000,000 are held
by any Approved Investor or its servicer or custodian (other than Bank
One, Texas, N.A. in connection with securitization transactions) and
(ii) upon the earlier of EITHER the release of the Lender Liens

23 CREDIT AGREEMENT
----------------

<PAGE>

in that Collateral under CLAUSE (C) below OR the expiration of the Shipping
Period for that Collateral.

(c) RELEASE OF LIENS. The Lender Liens on any Collateral shipped
under CLAUSE (A) above continues on that Collateral until Administrative
Agent receives payment in the Settlement Account in an amount at least
equal to the GREATER of (i) the price paid by the purchaser for each
Eligible-Pledged Loan so sold OR (ii) the full amount of Borrowings made
by Lenders in respect or the Eligible-Pledged Loan so sold.

(d) CERTAIN CREDITS. Neither Administrative Agent nor any Lender
is obligated at any time to credit Borrower for any amounts due from any
purchase of any Pledged Loan contemplated under this agreement until
Administrative Agent has actually received immediately available funds for
that Pledged Loan in the amount required under this agreement. Neither
Administrative Agent nor any Lender is obligated at any time to collect
any amounts or otherwise enforce any obligations due from any purchaser
in respect of any such purchase.

4.6 SHIPMENT FOR CORRECTION. If no Event of Default, Potential
Default, or Borrowing Excess exists or occurs as a result of the shipment and
if shipment would not result in any Collateral Documents for Pledged Loans
with more than a total face amount of $500,000 being outstanding for
correction, then Borrower may, by a Trust Receipt delivered to Administrative
Agent, request that Administrative Agent ship to Borrower the entire mortgage
loan file of Collateral Documents for any Pledged Loan so that certain of
those Collateral Documents may be corrected or replaced for clerical or other
non-substantive mistakes. If Administrative Agent has no actual knowledge
that any of the above conditions have not been satisfied and subject to the
limitations below, then Administrative Agent shall ship to Borrower the
entire mortgage loan file of Collateral Documents to be corrected or replaced.
Borrower shall re-deliver to Administrative Agent the corrected Collateral
Documents (meeting the requirements of SCHEDULE 4.3) before the expiration of
the Correction Period for that Collateral. Collateral shipped under this
section, unless returned to Administrative Agent, ceases to be Eligible-Pledged
Loans (a) to the extent that Collateral Documents for Pledged Loans with more
than a total face amount of $500,000 are outstanding for correction at any
time and (b) upon the expiration of the Correction Period for that Collateral.
The Lender Liens on any Collateral shipped under this section continue in full
force and effect.

4.7 RELEASE OF COLLATERAL.

(a) EXCESS COLLATERAL. If no Event of Default or Potential Default
exists and no Borrowing Excess exists or would occur (after taking into
account any corresponding payment on the Obligation) as a result of the
release, Borrower may, by a Release Request delivered to Administrative
Agent by 11:00 a.m. on the Business Day of the release, request that
Administrative Agent release the Lender Liens on any Collateral.

(b) SATISFACTION OF OBLIGATION. If the Obligation is fully paid
and performed and all commitments by each Lender to extend credit under
the Loan Documents are terminated or canceled, Borrower may, by written
request to Administrative Agent, request that Administrative Agent
release the Lender Liens on all of the Collateral, return to Borrower or
its designee all Collateral Documents then held by Administrative Agent,
and execute a release of any financing statements or other documents
filed or recorded to perfect the Lender Liens.

24 CREDIT AGREEMENT
----------------

<PAGE>

(c) RELEASES. If Administrative Agent has no actual knowledge
that any of the above conditions for a release have not been satisfied,
then Administrative Agent shall effect those releases.

SECTION 5. CONDITIONS PRECEDENT.

(a) INITIAL BORROWING. No Lender is obligated to fund its part of
any Borrowing unless Administrative Agent has received all of the
documents and items described on SCHEDULE 5.

(b) EACH BORROWING. In addition, no Lender is obligated to fund
its part of any Borrowing (other than one requested by a Swing-Lender's
Request, to which these conditions do not apply) unless on the
applicable Borrowing Date (and after giving effect to the requested
Borrowing): (a) Administrative Agent has timely received a Borrowing
Request; (b) all of the representations and warranties of Borrower in
the Loan Documents are true and correct in all material respects (unless
they speak to a specific date or are based on facts which have changed
by transactions contemplated or permitted by this agreement); (c) no
Event of Default or Potential Default exists; (d) the funding of the
Borrowing is permitted by Governmental Requirements and does not cause a
Borrowing Excess; and (e) if reasonably requested by Administrative
Agent, it has received evidence substantiating any of the matters in the
Loan Documents that are necessary to enable Borrower, as the case may
be, to qualify for the Borrowing.

(c) GENERAL. Each condition precedent in this agreement
(including, without limitation, those on SCHEDULE 5) is material to the
transactions contemplated by this agreement, and time is of the essence
with respect to each. Subject to first obtaining the approval of all
Lenders, Administrative Agent or any Lenders may fund any Borrowing
without all conditions being satisfied. However, to the extent lawful,
that funding is not a waiver of the requirement that each condition
precedent be satisfied as a prerequisite for any subsequent funding,
unless all Lenders specifically waive an item in writing.

SECTION 6. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Agents and Lenders as follows:

6.1 PURPOSE OF CREDIT. Borrowings are to be used as stated in the
recitals of this agreement. Borrower is not engaged principally (or as one
of its important activities) in the business of extending credit for the
purpose of purchasing or carrying any "MARGIN STOCK" within the meaning of
Regulation U. No part of the proceeds of any Borrowing is to be used,
directly or indirectly, for a purpose that violates any Governmental
Requirement, including, without limitation, the provisions of Regulation U.

6.2 ABOUT THE COMPANIES.

(a) SUBSIDIARIES AND TRADE NAMES. Except as described on SCHEDULE
6.2 (i) Borrower has no Subsidiaries and (ii) no Company has used or
transacted business under any other corporate or trade name in the
six-month period preceding the date of this agreement.

(b) EXISTENCE, QUALIFICATION, AND COMPLIANCE. Each Company is
duly organized, validly existing, and in good standing under the
Governmental Requirements of the jurisdiction in which it is
incorporated as stated on SCHEDULE 6.2. Except where failure is not a
Material-Adverse Event, each Company (i) is duly qualified to transact
business and is in good standing as a foreign corporation or other
entity in each jurisdiction where the nature and extent of its business
and

CREDIT AGREEMENT

<PAGE>

properties require due qualification and good standing (as described on
SCHEDULE 6.2), (ii) possesses all requisite authority, permits, and
power to conduct its business as is now being (or is contemplated by
this agreement to be) conducted, and (iii) is in compliance with all
applicable Governmental Requirements.

(c) OFFICES. Each Company's chief executive office and other
principal offices are described on SCHEDULE 6.2. The present and
foreseeable location of each Company's books and records concerning
accounts and accounts receivable is at its chief executive office, and
all of its books, and records are in its possession.

6.3 AUTHORIZATION AND CONTRAVENTION. The execution and delivery by
each Company of each Loan Document to which it is a party and the performance
by it of its related obligations (a) are within its corporate power, (b) have
been duly authorized by all necessary corporate action, (c) except for any
action or filing that has been taken or made on or before the date of this
agreement, require no action by or filing with any Governmental Authority,
(d) do not violate any provision of its Organizational Documents, (e) except
where not a Material-Adverse Event, do not violate any provision of any
Governmental Requirement applicable to it or any material agreements to which
it is a party, and (f) except for Lender Liens, do not result in the creation
or imposition of any Lien on any asset of any Company.

6.4 BINDING EFFECT. Upon execution and delivery by all parties to it,
each Loan Document will constitute a legal and binding obligation of each
Company party to it, enforceable against it in accordance with its terms,
except as enforceability may be limited by applicable Debtor Laws and general
principles of equity.

6.5 FISCAL YEAR. The Companies' fiscal year ends each September 30.

6.6 CURRENT FINANCIALS. The Current Financials were prepared in
accordance with GAAP and present fairly, in all material respects, the
financial condition, results of operations, and cash flows of the Companies
as of, and for the portion of the fiscal year ending on their date or dates
(subject only to normal year-end adjustments). All material liabilities of
the Companies as of the date or dates of the Current Financials are reflected
in them or notes to them. Except for transactions directly related to, or
specifically contemplated by, the Loan Documents, no subsequent material
adverse changes have occurred in the financial condition of the Companies
from that shown in the Current Financials, nor has any Company incurred any
subsequent material liability.

6.7 DEBT. No Company has any Debt except (a) under the
Existing-Bank-One Credit which will be paid in full and terminated upon the
funding of the initial Borrowing, and (b) Permitted Debt.

6.8 SOLVENCY. On the date of each Borrowing, each Company is, and
after giving effect to the requested Borrowing will be, Solvent.

6.9 LITIGATION. Except as disclosed on SCHEDULE 6.9 (a) no Company is
subject to, or aware of the threat of, any Litigation that is reasonably
likely to be determined adversely to it or, if so adversely determined, would
be a Material-Adverse Event, and (b) no outstanding or unpaid judgments
against any Company exists.

6.10 TRANSACTIONS WITH AFFILIATES. No Company is a party to a material
transaction with any of its Affiliates except in transactions in the ordinary
course of business and upon fair and reasonable terms

CREDIT AGREEMENT

<PAGE>

not materially less favorable than it could obtain or could become entitled
to in an arm's-length transaction with a Person that was not its Affiliate.

6.11 TAXES. All Tax returns of each Company required to be filed have
been filed (or extensions have been granted) before delinquency, except for
returns for which the failure to file is not a Material-Adverse Event, and
all Taxes imposed upon each Company that are due and payable have been paid
before delinquency.

6.12 EMPLOYEE PLANS. Except where occurrence or existence is not a
Material-Adverse Event, (a) no Employee Plan has incurred an "ACCUMULATED
FUNDING DEFICIENCY" (as defined in SECTION 302 of ERISA or SECTION 412 of the
IRC), (b) no Company has incurred liability under ERISA to the PBGC in
connection with any Employee Plan, (c) no Company has withdrawn in whole or
in part from participation in a Multiemployer Plan, (d) no Company has
engaged in any "PROHIBITED TRANSACTION" (as defined in SECTION 406 of ERISA
or SECTION 4975 of the IRC), and (e) no "REPORTABLE EVENT" (as defined in
SECTION 4043 of ERISA) has occurred in respect of any Employee Plan,
excluding events for which the notice requirement is waived under applicable
PBGC regulations.

6.13 PROPERTY AND LIENS. Each Company has good and marketable title to
all its property reflected on the Current Financials except for property that
is obsolete or that has been disposed of in the ordinary course of business
or, after the date of this agreement, as otherwise permitted by this
agreement. All Collateral is free and clear of any Liens and adverse claims
of any nature except Permitted Liens.

6.14 INTELLECTUAL PROPERTY. Borrower owns all material licenses,
patents, patent applications, copyrights, service marks, trademarks,
trademark applications, and trade names necessary to continue to conduct its
businesses as presently conducted by it and proposed to be conducted by it
immediately after the date of this agreement. Borrower is conducting its
business without infringement or claim of infringement of any license,
patent, copyright, service mark, trademark, trade name, trade secret, or
other intellectual property right of others, other than any infringements or
claims that, if successfully asserted against or determined adversely to
Borrower, are not a Material-Adverse Event. To Borrower's knowledge, no
infringement or claim of infringement by others of any material license,
patent, copyright, service mark, trademark, trade name, trade secret, or
other intellectual property of Borrower exists.

6.15 ENVIRONMENTAL MATTERS. Except where not a Material-Adverse Event,
no Company (a) knows of any environmental condition or circumstance adversely
affecting any Company's properties or operations or any material portion of
the properties subject to Pledged Loans, (b) has received any report of any
Company's violation of any Environmental Governmental Requirement, or (c)
knows that any Company is under any obligation to remedy any violation of any
Environmental Governmental Requirement. Each Company has taken prudent steps
to determine that its properties and operations and that substantially all of
the properties subject to Pledged Loans do not violate any Environmental
Governmental Requirement except violations that are not a Material-Adverse
Event.

6.16 GOVERNMENT REGULATIONS.

(a) INAPPLICABLE REGULATIONS. No Company is subject to regulation
under the INVESTMENT COMPANY ACT OF 1940 or the PUBLIC UTILITY HOLDING
COMPANY ACT OF 1935.

(b) BORROWER'S ELIGIBILITY. Borrower is qualified, approved, and
in good standing (i) by FHA and HUD as a lender under the Title I
Program, (ii) by FHA as an approved mortgagee, eligible to originate,
purchase, hold, sell, and service FHA-insured mortgage loans,

CREDIT AGREEMENT

<PAGE>

and (iii) by FNMA as an approved seller/servicer of mortgage loans,
eligible to originate, purchase, hold, sell and service FNMA qualified
mortgage loans.

6.17 INSURANCE. Each Company maintains with financially sound,
responsible, and reputable insurance companies or associations (or, as to
workers' compensation or similar insurance, with an insurance fund or by
self-insurance authorized by the jurisdictions in which it operates)
insurance concerning its properties and businesses against casualties and
contingencies and of types and in amounts (and with co-insurance and
deductibles) as is customary in the case of similar businesses.

6.18 APPRAISALS. With respect to the property the subject of any
secured Pledged Loan, Borrower has obtained Appraisals in material compliance
with all Appraisal Requirements.

6.19 FULL DISCLOSURE. Each material fact or condition relating to the
Loan Documents or the financial condition, business, or property of the
Companies that is a Material-Adverse Event has been disclosed in writing to
Administrative Agent and Lenders. All information previously furnished by
any Company to Administrative Agent or any Lender in connection with the Loan
Documents was (and all information furnished in the future by any Company to
Administrative Agent or any Lender will be) true and accurate in all material
respects or based on reasonable estimates on the date the information is
stated or certified.

SECTION 7. AFFIRMATIVE COVENANTS. Until all commitments by Lenders to
extend credit under this agreement have been canceled or terminated and the
Obligation is fully paid and performed, Borrower covenants and agrees with
Agents and Lenders as follows:

7.1 REPORTING REQUIREMENTS. Borrower shall cause to be furnished to
Administrative Agent the following, all in form and detail reasonably
satisfactory to Administrative Agent:

(a) ANNUAL FINANCIALS OF RAC. Promptly when available but at
least within 120 days after the last day of each fiscal-year end of RAC,
consolidated and consolidating Financials of RAC and its Subsidiaries as
of that year end, each reflecting the corresponding figures for the
preceding fiscal year in comparative form, accompanied by (i) an
unqualified opinion of Ernst & Young (or another firm of independent
certified public accountants acceptable to Administrative Agent) stating
that those Financials were prepared in accordance with GAAP applied on a
basis consistent with prior periods except for such changes in GAAP
concurred in by RAC's independent public accountants and the
consolidated portion of those Financials present fairly the consolidated
and consolidating financial condition and results of operations of RAC
and its Subsidiaries as of (and for the fiscal year ending on) that last
day, and (ii) a certificate of RAC's chief financial officer stating
that those Financials were prepared in accordance with GAAP applied on a
basis consistent with prior periods except for such changes in GAAP
concurred in by RAC's independent public accountants and present fairly
the consolidated and consolidating financial condition and results of
operations of RAC and its Subsidiaries as of (and for the fiscal year
ending on) that last day.

(b) ANNUAL FINANCIALS OF THE COMPANIES. Promptly when available
but at least within 120 days after the last day of each fiscal-year end
of Borrower, Financials of the Companies as of that year end, each
reflecting the corresponding figures for the preceding fiscal year in
comparative form, accompanied by (i) an unqualified opinion of Ernst &
Young (or another firm of independent certified public accountants
acceptable to Administrative Agent) stating that those Financials were
prepared in accordance with GAAP applied on a basis consistent with
prior periods except for such

CREDIT AGREEMENT

<PAGE>

changes in GAAP concurred in by Borrower's independent public
accountants and the consolidated portion of those Financials present
fairly the consolidated and consolidating financial condition and
results of operations of the Companies as of (and for the fiscal year
ending on) that last day, and (ii) a Compliance Certificate.

(c) MONTHLY FINANCIALS. Promptly when available but at least
within 45 days after each Calendar Month, Borrower-prepared Financials
of the Companies as of the end of that month, accompanied by a
Compliance Certificate.

(d) MANAGEMENT REPORT. Promptly when available but at least
within 45 days after each Calendar Month, a Management Report.

(e) NOTICES. Notice, promptly after any Company knows or has
reason to know, of (i) the existence and status of any Litigation that,
if determined adversely to any Company, would be a Material-Adverse
Event, (ii) any change in any material fact or circumstance represented
or warranted by any Company in any Loan Document that constitutes a
Material-Adverse Event, (iii) the receipt by any Company of notice of
any violation or alleged violation of ERISA or any Environmental
Governmental Requirement or other Governmental Requirement if that
violation is a Material-Adverse Event, or (iv) an Event of Default or
Potential Default, specifying the nature of it and what action the
Companies have taken, are taking, or propose to take with respect to it.

(f) OTHER INFORMATION. Promptly upon reasonable request by
Administrative Agent or Required Lenders (through Administrative Agent),
information (not otherwise required to be furnished under the Loan
Documents) with respect to the business affairs, assets, and liabilities
of any Company and opinions, certifications, and documents in addition
to those mentioned in this agreement.

7.2 USE OF PROCEEDS. Borrower shall use the proceeds of Borrowings
only for the purposes represented in this agreement.

7.3 BOOKS AND RECORDS. Each Company shall maintain books, records, and
accounts necessary to prepare Financials in accordance with GAAP.

7.4 INSPECTIONS. Upon reasonable request, each Company shall allow
Administrative Agent, any Lender, or their respective Representatives to
inspect any of its properties, to review reports, files, and other records
and to make and take away copies, to conduct tests or investigations, and to
discuss any of its affairs, conditions, and finances with its directors,
officers, employees, or Representatives from time to time during reasonable
business hours.

7.5 TAXES. Each Company shall promptly pay when due any and all Taxes
other than Taxes of which the failure to pay is not a Material-Adverse Event
or which are being contested in good faith by lawful proceedings diligently
conducted, against which reserve or other provision required by GAAP has been
made, and in respect of which levy and execution of any Lien have been and
continue to be stayed.

7.6 EXPENSES. Borrower shall pay (a) all reasonable legal fees and
expenses incurred by Administrative Agent in connection with the preparation,
negotiation, and execution of the Loan Documents, (b) reasonable legal fees
and expenses incurred up to $1,500 for each Lender in connection with the
preparation, negotiation, and execution of the Loan Documents, (c) all
reasonable legal fees and expenses incurred by Administrative Agent in
connection with each separate future amendment, consent,

CREDIT AGREEMENT

<PAGE>

waiver, or approval executed in connection with any Loan Document, (d) all
fees, charges, or Taxes for the recording or filing of any Loan Document to
create or perfect Lender Liens, (e) all other reasonable out-of-pocket
expenses of Administrative Agent in connection with the preparation,
negotiation, execution, or administration of the Loan Documents (including,
without limitation, courier expenses incurred in connection with the
Collateral), (f) all amounts expended, advanced, or incurred by
Administrative Agent or any Lender to satisfy any obligation of any Company
under any Loan Document, to collect the Obligation, or to enforce the Rights
of Administrative Agent or any Lender under any Loan Document, including,
without limitation, all court costs, attorneys' fees (whether for trial,
appeal, other proceedings, or otherwise), fees of auditors and accountants,
and investigation expenses reasonably incurred by Administrative Agent or any
Lender in connection with any such matters, (g) interest at an annual
interest rate equal to the Default Rate on each item specified in CLAUSES (a)
through (f) above from 30 days after the date of written demand or request
for reimbursement to the date of reimbursement, and (h) any and all stamp and
other Taxes payable or determined to be payable in connection with the
execution, delivery, or recordation of any Loan Document, IN CONNECTION WITH
WHICH BORROWER SHALL INDEMNIFY AND SAVE ADMINISTRATIVE AGENT AND EACH LENDER
HARMLESS FROM AND AGAINST ANY AND ALL LIABILITIES WITH RESPECT TO OR
RESULTING FROM ANY DELAY IN PAYING OR OMISSION TO PAY THOSE TAXES TO THE
EXTENT THOSE LIABILITIES ARISE SOLELY BECAUSE BORROWER FAILED TO PAY THE
TAXES UPON DEMAND BY ADMINISTRATIVE AGENT OR ANY LENDER, WHICH INDEMNITY
SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE
LOAN DOCUMENTS.

7.7 MAINTENANCE OF EXISTENCE, ASSETS, AND BUSINESS. Each Company shall
(a) except as permitted by SECTION 8.5, maintain its corporate existence and
good standing in its state of incorporation and its authority to transact
business in all other states where failure to maintain its authority to
transact business is a Material-Adverse Event, and (b) maintain all licenses,
permits, and franchises necessary for its business where failure to do so is
a Material-Adverse Event, including, without limitation, Borrower's approval
status as described in SECTION 6.16(b).

7.8 INSURANCE. Borrower shall (a) maintain with financially sound and
reputable insurers, insurance with respect to its assets and business against
such liabilities, casualties, risks, and contingencies and in such types and
amounts (including, without limitation, a fidelity bond or bonds in form and
with coverage, with a company, and with respect to such individuals or groups
of individuals) as satisfy FHA and HUD requirements applicable to approved
participants in the Title I Program and otherwise as is customary in the case
of Persons engaged in the same or similar businesses and similarly situated,
and (b) upon Administrative Agent's request, furnish to Administrative Agent
from time to time (i) a summary of its insurance coverage, in form and
substance satisfactory to Administrative Agent, and (ii) originals or copies
of the applicable policies.

7.9 APPRAISALS. Borrower shall promptly (a) permit Administrative
Agent's and any Lender's authorized Representatives to discuss with
Borrower's officers or with the appraisers furnishing Appraisals the
procedures for preparation, review, and retention of (and to review and
obtain copies of) all Appraisals pertaining to any Collateral, and (b) upon
Administrative Agent's or any Lender's request, cooperate with it to
ascertain that the Appraisals comply with all Appraisal Requirements.

7.10 CONTINUITY OF MANAGEMENT. Both Daniel Phillips and Eric Green must
remain actively involved in the management of Borrower.

7.11 INDEMNIFICATION. IN CONSIDERATION OF THE COMMITMENTS BY AGENTS AND
LENDERS UNDER THE LOAN DOCUMENTS, BORROWER SHALL INDEMNIFY AND DEFEND EACH
AGENT, EACH LENDER, AND THEIR RESPECTIVE AFFILIATES AND REPRESENTATIVES
(COLLECTIVELY, THE "INDEMNIFIED

CREDIT AGREEMENT

<PAGE>

PARTIES"), AND DEFEND THEM AND HOLD EACH OF THEM HARMLESS, AGAINST ANY AND
ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, DEFICIENCIES, INTEREST, JUDGMENTS,
COSTS, OR EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS'
FEES) INCURRED BY ANY OF THEM ARISING FROM OR BECAUSE OF (A) ANY
INVESTIGATION, LITIGATION, OR OTHER PROCEEDING BROUGHT OR THREATENED IN
CONNECTION WITH ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED BY THE
LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, ANY USE BY ANY COMPANY OF THE
PROCEEDS OF BORROWINGS, (B) ANY IMPOUNDMENT, ATTACHMENT, OR RETENTION OF ANY
COLLATERAL OR ANY FAILURE OF ANY INVESTOR TO PAY THE ENTIRE PURCHASE PRICE OF
ANY COLLATERAL, (C) ANY ALLEGED VIOLATION OF ANY FEDERAL OR STATE LAW
RELATING TO USURY IN CONNECTION WITH ANY COLLATERAL, AND (D) ANY
REPRESENTATION MADE BY ANY COMPANY UNDER ANY LOAN DOCUMENT. ALTHOUGH EACH
INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR ANY INDEMNIFIED PARTY'S
ORDINARY NEGLIGENCE, NO INDEMNIFIED PARTY IS ENTITLED TO INDEMNIFICATION FOR
ITS OWN GROSS NEGLIGENCE, WILLFUL MISCONDUCT, OR FRAUD. THIS INDEMNITY
SURVIVES THE PAYMENT AND PERFORMANCE OF THE OBLIGATION AND TERMINATION OF THE
LOAN DOCUMENTS.

SECTION 8. NEGATIVE COVENANTS. Until all commitments by Lenders to extend
credit under this agreement have been canceled or terminated and the
Obligation is fully paid and performed, Borrower covenants and agrees with
Agents and Lenders as follows:

8.1 DEBT. No Company may create, incur, permit to exist, or commit to
create or incur any Wet Borrowings in respect of Equity Loans or Improvement
Loans except under this agreement or any Debt except the following
(collectively, the "PERMITTED DEBT"):

(a) The Obligation;

(b) Obligations to pay Taxes;

(c) Liabilities for accounts payable, non-capitalized equipment or
operating leases, and similar liabilities if in each case incurred in
the ordinary course of business;

(d) Accrued expenses, deferred credits, and loss contingencies
that are properly classified as liabilities under GAAP;

(e) Subordinated Debt;

(f) Debt under the Existing-RFC Credit (so long as Bank One,
Texas, N.A. is the collateral custodian for this facility); and

(g) Debt outstanding under a line of credit with Prudential
Securities Credit Corporation (or an Affiliate of Prudential Securities
Credit Corporation that is acceptable to Administrative Agent) in an
aggregate amount not to exceed $150,000,000 (so long as Bank One, Texas,
N.A. is the collateral custodian for this facility); and

(h) Debt outstanding under a repurchase facility with Bear Stearns
Home Equity Trust 1996-1 (or an Affiliate of Bear Stearns Home Equity
Trust 1996-1 that is acceptable to Administrative Agent) in an aggregate
amount not to exceed $500,000,000 at any time from the Closing Date
through December 31, 1996, and $300,000,000 at any time thereafter (so
long as Bank One, Texas, N.A. is the collateral custodian for this
facility).

CREDIT AGREEMENT

<PAGE>

8.2 LIENS. No Company may (a) enter into, permit to exist, or commit
to enter into any arrangement or agreement (except the Loan Documents) that
directly or indirectly prohibits any Company from creating or incurring any
Lien on any of its assets, or (b) create, incur, permit to exist, or commit
to create or incur any Lien on any of its assets except the following
(collectively, the "PERMITTED LIENS"):

(a) Any interest or title of a lessor in assets being leased under
any non-capitalized equipment or operating lease;

(b) Pledges or deposits that (i) do not encumber any Collateral
and (ii) are made to secure payment of workers' compensation,
unemployment insurance, or other forms of governmental insurance or
benefits or to participate in any fund in connection with workers'
compensation, unemployment insurance, pensions, or other social security
programs;

(c) Good-faith pledges or deposits that (i) do not cover any
Collateral and (ii) are EITHER (A) not in excess of 10% of the amounts
due under, and made to secure, either Company's performance of bids,
tenders, contracts (except for the repayment of borrowed money), or
leases, OR (B) made to secure statutory obligations, surety or appeal
bonds, or indemnity, performance, or other similar bonds benefitting any
Company in the ordinary course of its business;

(d) Zoning and similar restrictions on the use of real property
that do not materially impair the use of the real property and that are
not violated by existing or proposed structures or land use;

(e) The following if no Lien has been filed in any jurisdiction or
agreed to: (i) Liens for Taxes not yet due and payable and (ii) if, to
the extent they cover any Collateral, they are subordinate to the Lender
Liens in form and substance reasonably acceptable to Administrative
Agent (iii) mechanic's Liens and materialman's Liens for services or
materials for which payment is not yet due and payable and (iv)
landlord's Liens for rent not yet due and payable;

(f) The following if the validity or amount thereof is being
contested in good faith and by appropriate and lawful proceedings
diligently conducted, reserve or other appropriate provision (if any)
required by GAAP has been made, levy and execution continue to be
stayed, any of which covering any Collateral must be subordinate to the
Lender Liens in form and substance reasonably acceptable to
Administrative Agent, and any of which do not in the aggregate
materially detract from the value of the property of the Company in
question, or materially impair the use of that property in the operation
of its business: (i) Claims and Liens for Taxes due and payable; (ii)
claims and Liens upon, and defects of title to, real or personal
property (OTHER THAN any Collateral), including any attachment of
personal or real property or other legal process before adjudication of
a dispute on the merits; (iii) claims and Liens of mechanics,
materialmen, warehousemen, carriers, landlords, or other like Liens; and
(iv) adverse judgments or orders on appeal for the payment of money;

(g) Lender Liens; and

(h) Liens disclosed in the UCC Search Reports as described on
SCHEDULE 5 that are not by the terms of SCHEDULE 5 to be terminated,
partially released, or amended.

8.3 LOANS, ADVANCES, AND INVESTMENTS. No Company may make or commit to
make any loan, advance, extension of credit, or capital contribution to, make
or commit to make any investment in,

CREDIT AGREEMENT

<PAGE>

or purchase or commit to purchase any stock or other securities or evidences
of Debt of, or interests in, any other Person except the following
(collectively, the "PERMITTED LOANS/INVESTMENTS"):

(a) Extensions of trade credit and other payables in the ordinary
course of business;

(b) Loans and advances to officers, directors, or employees of any
Company that are (i) in the ordinary course of business for travel,
entertainment, or relocation or (ii) not in the ordinary course and are
never more than a total outstanding of (A) $100,000 for any one officer,
director, or employee or (B) $500,000 for all of the Companies;

(d) Acquisition of securities or evidences of Debt of others when
acquired by any Company in settlement of accounts receivable or other
Debts arising in the ordinary course of business SO LONG AS the total of
all of those securities or evidences of Debt is not material to
Borrower's financial condition;

(e) Investments in obligations, with maturities of one year or
less, issued or unconditionally guaranteed by -- or issued by any of its
agencies and backed by the full faith and credit of -- the United States
of America;

(f) Demand deposit accounts maintained in the ordinary course of
business;

(g) Certificates of deposit, bankers acceptances, and repurchase
agreements issued by (i) any Lender or (ii) any other commercial bank
organized under the Governmental Requirements of the United States of
America or one of its states that has combined capital, surplus, and
undivided profits of at least $250,000,000 and a rating of C or better
by Thompson Bank Watch, Inc.;

(h) Eurodollar investments with (i) any Lender or (ii) any other
financial institution that has (A) combined capital, surplus, and
undivided profits of at least $100,000,000 and (B) a commercial-paper
rating of at least P-1 or A-1 or (if it does not have a commercial-paper
rating) a bond rating of at least A-1 or A- by Moody's Investors
Service, Inc., or Standard & Poor's Corporation, respectively;

(i) Investments in commercial paper (i) having a maturity of one
year or less and (ii) given the highest rating by a
nationally-recognized-credit-rating agency; and

(j) Advances to Affiliates of up to $5,000,000 at any one time
outstanding.

(k) Other loans, advances, or investments, SO LONG AS the
aggregate amount outstanding (defined as the amount of any such loans or
advances PLUS the cost of any such investments) is never more than
$50,000 at any one time.

8.4 DISTRIBUTIONS. Borrower may not pay or declare any Distribution
except (a) dividends payable solely in the form of capital stock, (b)
Distributions to RAC to the extent of Borrower's portion of the consolidated
federal income Tax liability of RAC and its Subsidiaries, (c) Distributions
to RAC to the extent of interest on the Subordinated Debt owed by RAC that
has been approved in writing by

CREDIT AGREEMENT

<PAGE>

Required Lenders, (d) other Distributions to RAC that do not in any fiscal
year of Borrower when added to the Distributions during that year under
CLAUSES (b) and (c) preceding exceed 25% of Borrower's Net Income for that
fiscal year, or (e) Distributions otherwise approved in writing by Required
Lenders. Notwithstanding the above, Borrower may not pay or declare any
Distributions at any time while an Event of Default or Potential Default
exists and is continuing or would be created by such Distribution.

8.5 MERGER OR CONSOLIDATION. No Company may merge or consolidate with
or into any other Person except that any Company may merge into or be
consolidated with any other Company or RAC so long as Borrower is the
surviving corporation if it is involved.

8.6 LIQUIDATIONS AND DISPOSITIONS OF ASSETS. No Company may dissolve
or liquidate or sell, transfer, lease, or otherwise dispose of any material
portion of its assets or business except for sales or other dispositions by
Borrower, in the ordinary course of business, of (a) subject to SECTION 4,
Pledged Loans that are Collateral or (b) loans that are not Collateral.

8.7 USE OF PROCEEDS. Borrower may not use the proceeds of Borrowings
(a) for any purpose other than as represented in this agreement, (b) for the
funding or acquisition of construction or commercial loans, (c) for wages of
employees, unless a timely payment to or deposit with the United States of
America of all amounts of Tax required to be deducted and withheld with
respect to such wages is also made, or (d) in violation of Regulation U or
SECTION 7 of the SECURITIES EXCHANGE ACT OF 1934.

8.8 TRANSACTIONS WITH AFFILIATES. No Company may enter into any
transaction with any of its Affiliates other than transactions in the
ordinary course of business or upon fair and reasonable terms not materially
less favorable than it could obtain or could become entitled to in an
arm's-length transaction with a Person that was not its Affiliate.

8.9 EMPLOYEE PLANS. Except where a Material-Adverse Event would not
result, no Company may permit any of the events or circumstances described in
SECTION 6.12 to exist or occur.

8.10 COMPLIANCE WITH GOVERNMENTAL REQUIREMENTS AND DOCUMENTS. No
Company may (a) violate the provisions of any Governmental Requirements
applicable to it or of any Material Agreement to which it is a party if that
violation alone or with all other violations is a Material-Adverse Event or
(b) violate the provisions of its charter or bylaws or repeal, replace or
amend any provision of its Organizational Documents if any such action is a
Material-Adverse Event.

8.11 GOVERNMENT REGULATIONS. No Company may conduct its business in a
way that it becomes regulated under the INVESTMENT COMPANY ACT OF 1940.

8.12 FISCAL YEAR ACCOUNTING. No Company may change its fiscal year nor
use any accounting method other than GAAP.

8.13 NEW BUSINESSES. No Company may engage in any business except the
businesses in which it or any of its Affiliates is presently engaged and any
other reasonably-related business.

8.14 ASSIGNMENT. No Company may assign or transfer any of its Rights,
duties, or obligations under any of the Loan Documents.

8.15 STRICT COMPLIANCE. No Company may indirectly do anything that it
may not directly do under any covenant in any Loan Document.

CREDIT AGREEMENT

<PAGE>

SECTION 9. FINANCIAL COVENANTS. Until all commitments by Lenders to
extend credit under this agreement have been canceled or terminated and the
Obligation is fully paid and performed, Borrower covenants and agrees with
Agents and Lenders as follows:

9.1 NET WORTH. Borrower's Net Worth may never be less than the SUM of
(a) $50,000,000 (after accounting for a contribution to Borrower's
stockholders' equity by RAC of at least $50,000,000 to be transferred by way
of an intercompany transfer on or before September 30, 1996), PLUS (b) 75% of
Borrower's cumulative Net Income (without deduction for losses) after July
31, 1996, PLUS (c) 100% of all contributions to Borrower's stockholders'
equity after July 31, 1996 (except not including up to $50,000,000 of the
contribution to Borrower's stockholders' equity referred to in CLAUSE (a)
above).

9.2 LEVERAGE RATIO. The ratio of (a) the SUM of Borrower's total Debt
MINUS Borrower's Subordinated Debt to (b) Borrower's Net Worth may never
EXCEED 6.0 to 1.0.

9.3 TITLE I RESERVES. Borrower shall maintain at all times a reserve
against losses on its Title-I Insured assets in an amount equal to at least
5.0% of the aggregate unpaid principal amount of Borrower's portfolio of
Title-I Insured assets.

SECTION 10. EVENTS OF DEFAULT AND REMEDIES.

10.1 EVENTS OF DEFAULT. The term "EVENT OF DEFAULT" means the existence
or occurrence of any one or more of the following:

(a) OBLIGATION. Borrower fails to pay (i) any interest on
the Obligation when due under the Loan Documents and that failure
continues for five days or (ii) any other part of the Obligation when
due under the Loan Documents.

(b) COVENANTS. Any Company fails to punctually and properly
perform, observe, and comply with any (i) any covenant, agreement, or
condition under SECTIONS 8 or 9 or (ii) any covenant, agreement, or
condition contained in any of the Loan Documents -- other than covenants
to pay the Obligation and the covenants listed in CLAUSE (i) above -- and
that failure continues for a period of ten days after any Company has,
or, with the exercise of reasonable investigation, should have, notice
of it.

(c) MISREPRESENTATION. Any material statement, warranty, or
representation by or on behalf of any Company in any Loan Document or
other writing authored by any Company and furnished in connection with
the Loan Documents, proves to have been incorrect or misleading in any
material respect as of the date made or deemed made.

(d) DEBTOR LAW. Any Company (i) is not Solvent, (ii) fails
to pay its Debts generally as they become due, (iii) voluntarily seeks,
consents to, or acquiesces in the benefit of any Debtor Law, or (iv)
becomes a party to or is made the subject of any proceeding provided for
by any Debtor Law (other than as a creditor or claimant) that could
suspend or otherwise adversely affect the Rights of Administrative Agent
or any Lender granted in the Loan Documents unless, if the proceeding is
involuntary, the applicable petition is dismissed within 60 days after
its filing.

35 CREDIT AGREEMENT

<PAGE>

(e) OTHER DEBT. Any Company fails to make any payment due on
any Debt or security (with respect to which any Company has redemption,
sinking fund, or other purchase obligations) or any event occurs or any
condition exists in respect of any Debt or security of any Company, the
effect of which is (i) to cause or to permit any holder of that Debt or
security or a trustee to cause (whether or not it elects to cause) any
of that Debt or security to become due before its stated maturity or its
regularly scheduled payment dates, or (ii) to permit a trustee or the
holder of any security (other than common stock of any Company) to elect
(whether or not it does elect) a majority of the directors on the board
of directors of that Company.

(f) JUDGMENTS. Any Company fails to pay any money judgment
against it at least ten days prior to the date on which any of the
assets of that Company may be lawfully sold to satisfy that judgment.

(g) ATTACHMENTS. The failure to have discharged within a
period of 30 days after the commencement of any attachment,
sequestration, or similar proceeding against any of the assets of any
Company.

(h) UNENFORCEABILITY. Any material provision of any Loan
Document for any reason ceases to be in full force and effect or is
fully or partially declared null and void or unenforceable or the
validity or enforceability of any Loan Document is challenged or denied
by any Company.

(i) CHANGE OF CONTROL. Any change in the ownership of Borrower
from that ownership as it exists on the date of this agreement.

(j) CHANGE OR PREPAYMENT OF SUBORDINATED DEBT. Either (i) the
documents evidencing the Subordinated Debt are amended without the
consent of the Administrative Agent or (ii) any Company makes any
prepayment on the Subordinated Debt.

(k) AGENCY QUALIFICATIONS. Either (i) Borrower fails to meet any
FHA, HUD or FNMA standard or requirement that is a Material-Adverse
Event or (ii) FHA or HUD withdraws its approval of Borrower as a
participating lender in the Title I Program.

10.2 REMEDIES.

(a) DEBTOR LAW. Upon the occurrence of an Event of Default under
SECTION 10.1(d), the commitments of Lenders to extend credit under this
agreement automatically terminate and the full Obligation is
automatically due and payable, without presentment, demand, notice of
default, notice of the intent to accelerate, notice of acceleration, or
other requirements of any kind, all of which are expressly waived by
Borrower.

(b) OTHER DEFAULTS. While an Event of Default exists -- other
than those described in CLAUSE (a) above -- Administrative Agent may
and, upon the direction of Required Lenders, shall declare the
Obligation to be immediately due and payable, whereupon it shall be due
and payable, whereupon the commitments of Lenders to extend credit under
this agreement are then automatically terminated.

(c) OTHER REMEDIES. Following the termination of the commitments
of Lenders to extend credit under this agreement and the acceleration of
the Obligation, Administrative Agent may (and, at the direction of
Required Lenders, shall) do any one or more of the following:

36 CREDIT AGREEMENT

<PAGE>

Reduce any claim to judgment; foreclose upon or otherwise enforce any
Lender Liens; and exercise any other Rights in the Loan Documents, at
law, in equity, or otherwise that Required Lenders may direct. Should
any Event of Default continue that, in Administrative Agent's opinion,
materially and adversely affects the Collateral or the interests of the
Lenders under this agreement, Administrative Agent may, in a notice to
the Lenders of that Event of Default set forth one or more actions that
Administrative Agent, in its opinion, believes should be taken. Unless
otherwise directed by Required Lenders (excluding the Lender serving as
Administrative Agent) within ten days following the date of the notice
setting forth the proposed action or actions, Administrative Agent may,
but shall not be obligated to, take the action or actions set forth in
that notice.

10.3 RIGHT OF OFFSET. Borrower hereby grants to Administrative Agent
and to each Lender a right of offset, to secure the repayment of the
Obligation, upon any and all monies, securities, or other property of
Borrower, and the proceeds therefrom now or hereafter held or received by or
in transit to Administrative Agent or such Lender from or for the account of
Borrower, whether for safekeeping, custody, pledge, transmission, collection,
or otherwise, and also upon any and all deposits (general or special, time or
demand, provisional or final) and credits of Borrower, and any and all claims
of Borrower against Administrative Agent or such Lender, at any time
existing. Upon the occurrence of any Event of Default, Administrative Agent
and each Lender are authorized at any time and from time to time, without
notice to any Company, to offset, appropriate, and apply any and all of those
items against the Obligation, subject to SECTION 3.6. Notwithstanding
anything in this section or elsewhere in this agreement to the contrary,
neither Administrative Agent nor any other Lender shall have any right to
offset, appropriate, or apply any accounts of Borrower which consist of
escrowed funds (except and to the extent of any beneficial interest which
Borrower have in such escrowed funds) which have been so identified by any
Company in writing at the time of deposit thereof.

10.4 WAIVERS. Borrower waives any right to require Administrative Agent
to (a) proceed against any Person, (b) proceed against or exhaust any of the
Collateral or pursue its Rights and remedies as against the Collateral in any
particular order, or (c) pursue any other remedy in its power.
Administrative Agent shall not be required to take any steps necessary to
preserve any Rights of any Company against any Person from which any Company
purchased any Pledged Loans or to preserve Rights against prior parties.
Borrower and each surety, endorser, guarantor, pledgor, and other party ever
liable or whose property is ever liable for payment of any of the Obligation
jointly and severally waive presentment and demand for payment, protest,
notice of intention to accelerate, notice of acceleration, and notice of
protest and nonpayment, and agree that their or their property's liability
with respect to the Obligation, or any part thereof, shall not be affected by
any renewal or extension in the time of payment of the Obligation, by any
indulgence, or by any release or change in any security for the payment of
the Obligation, and hereby consent to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number thereof.

10.5 PERFORMANCE BY ADMINISTRATIVE AGENT. Should any covenant, duty, or
agreement of any Company fail to be performed in accordance with the terms of
this agreement or of any document delivered under this agreement,
Administrative Agent may, at its option, after notice to Borrower, perform,
or attempt to perform, such covenant, duty, or agreement on behalf of that
Company and shall notify each Lender that it has done so. In such event,
Borrower shall jointly and severally, at the request of Administrative Agent,
promptly pay any amount expended by Administrative Agent in such performance
or attempted performance to Administrative Agent at its principal place of
business, together with interest thereon at the Maximum Rate from the date of
such expenditure by Administrative Agent until paid. Notwithstanding the
foregoing, it is expressly understood that Administrative Agent does not
assume and shall never have, except by express written consent of
Administrative Agent, any liability or responsibility

37 CREDIT AGREEMENT

<PAGE>

for the performance of any duties of any Company under this agreement or
under any other document delivered under this agreement.

10.6 NO RESPONSIBILITY. Except in the case of fraud, gross negligence,
or willful misconduct, neither Administrative Agent nor any of its
Representatives shall assume (or ever have any liability or responsibility
for) any diminution in the value of the Collateral or any part of the
Collateral.

10.7 NO WAIVER. The acceptance by Administrative Agent or any Lender at
any time and from time to time of partial payment or performance by any
Company of any of their respective obligations under this agreement or under
any Loan Document shall not be deemed to be a waiver of any Event of Default
then existing. No waiver by Administrative Agent or any Lender shall be
deemed to be a waiver of any other then existing or subsequent Event of
Default. No delay or omission by Administrative Agent or any Lender in
exercising any right under this agreement or under any other document
required to be executed under or in connection with this agreement shall
impair such right or be construed as a waiver thereof or any acquiescence
therein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof, or the exercise of any other right under
this agreement or otherwise.

10.8 CUMULATIVE RIGHTS. All Rights available to Administrative Agent
and the Lenders under this agreement or under any other document delivered
under this agreement shall be cumulative of and in addition to all other
Rights granted to Administrative Agent and the Lenders at law or in equity,
whether or not the Notes be due and payable and whether or not Administrative
Agent shall have instituted any suit for collection, foreclosure, or other
action in connection with this agreement or any other document delivered
under this agreement.

10.9 RIGHTS OF INDIVIDUAL LENDERS. No Lender shall have any right by
virtue of, or by availing itself of, any provision of this agreement to
institute any actions or proceedings at law, in equity, or otherwise
(excluding any actions in bankruptcy), upon or under or with respect to this
agreement, or for the appointment of a receiver, or for any other remedy
under this agreement, unless (a) the Required Lenders previously shall have
given to Administrative Agent written notice of an Event of Default and the
continuance thereof, including a written request upon Administrative Agent to
institute such action or proceedings in its own name and offering to
indemnify Administrative Agent against the costs, expenses and liabilities to
be incurred therein or thereby, (b) Administrative Agent, for ten Business
Days after its receipt of such notice, shall have failed to institute any
such action or proceeding, and (c) no direction inconsistent with such
written request shall have been given to Administrative Agent by Required
Lenders. It is understood and intended, and expressly covenanted by the
taker and holder of every Note with every other taker and holder and
Administrative Agent, that no one or more holders of Notes shall have any
right in any manner whatever by virtue, or by availing itself, of any
provision of this agreement to affect, disturb or prejudice the Rights of any
other Lenders, or to obtain or seek to obtain priority over or preference to
any other such Lender, or to enforce any right under this agreement, except
in the manner herein provided and for the equal, ratable and common benefit
of all Lenders. For the protection and enforcement of the provisions of this
SECTION 10.9, each and every Lender and Administrative Agent shall be
entitled to such relief as can be given either at law or in equity.

10.10 NOTICE TO ADMINISTRATIVE AGENT. If an Event of Default or
Potential Default occurs and is continuing, any Lender having actual
knowledge of it shall notify Administrative Agent and Borrower of the
existence thereof, but the failure of any Lender to provide that notice shall
not prejudice that Lender's Rights under this agreement.

38 CREDIT AGREEMENT

<PAGE>

10.11 COSTS. All court costs, reasonable attorneys' fees, other
costs of collection, and other sums spent by Administrative Agent or any
Lender in the exercise of any Right provided in any Loan Document are payable
to Administrative Agent or that Lender, as the case may be, on demand, are
part of the Obligation, and bear interest at the Default Rate from the date
paid by Administrative Agent or any Lender to the date repaid by Borrower.

SECTION 11 AGENTS.

11.1 AUTHORIZATION AND ACTION. Each Lender hereby appoints each Agent
initially-named in this agreement as Administrative Agent or Co-Agent, as the
case may be, under the Loan Documents and authorizes Administrative Agent to
take such action on its behalf and to exercise such powers and perform such
duties as are expressly delegated to Administrative Agent by the terms of the
Loan Documents, TOGETHER WITH such powers as are reasonably incidental
thereto. As to any matter not expressly provided for by this Agreement
(including, without limitation, enforcement or collection of the Notes),
Administrative Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall
be fully protected in so acting or refraining from acting) upon the
instructions of Lenders, and those instructions shall be binding upon all
Lenders and all holders of the Notes. However, that Administrative Agent
shall not be required to take any action that exposes Administrative Agent to
personal liability or that is contrary to this agreement or applicable
Governmental Requirement. Administrative Agent agrees to give to each Lender
prompt notice of each notice given to it by Borrower pursuant to the terms of
the Loan Documents.

11.2 AGENT'S RELIANCE, ETC. Notwithstanding anything to the contrary in
any Loan Document, neither any Agent nor any of its Representatives shall be
liable for any action taken or omitted to be taken by it or them under or in
connection with the Loan Documents, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of
the foregoing, Administrative Agent: (a) May treat the payee of any Note as
the holder thereof; (b) may consult with legal counsel (including counsel for
Borrower), independent public accountants and other experts selected by it or
Borrower and shall not be liable for any action taken or omitted to be taken
in good faith by it in accordance with the advice of such counsel,
accountants or experts; (c) makes no warranty or representation to any Lender
and shall not be responsible to any Lender for any statements, warranties, or
representations made in or in connection with the Loan Documents; (d) shall
not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this agreement on
the part of Borrower or to inspect the property (including the books and
records) of Borrower, except receipt of delivery of the items required under
SECTIONS 3.2, 4.1, 4.3, and 7.1; (e) shall not be responsible to any Lender
for the due execution, legality, validity, enforceability, genuineness,
sufficiency or value of this agreement or any other instrument or document
furnished pursuant hereto; and (f) shall incur no liability under or in
respect of this agreement by acting upon any notice, consent, certificate or
other instrument or writing (which may be by telecopy) believed by it to be
genuine and signed or sent by the proper party or parties.

11.3 AGENT AND AFFILIATES. With respect to Borrowings made by it, and
the one or more Notes issued to it, each Agent shall have the same rights and
powers under this agreement and the other Loan Documents as any other Lender
and may exercise the same as though it were not an Agent; and the term
"LENDER" or "LENDERS" shall, unless otherwise expressly indicated, include
each Agent in its individual capacity. Agents and the Affiliates of Agents
may accept deposits from, lend money to, act as trustee under indentures of,
and generally engage in any kind of business with, Borrower, any of its
Affiliates and any Person who may do business with or own securities of
Borrower or any of its Affiliates, all as if Agents were not Agents and
without any duty to account therefor to Lenders.

39 CREDIT AGREEMENT

<PAGE>

11.4 CREDIT DECISION. Each Lender acknowledges that it has,
independently and without reliance upon any Agent or any other Lender, and
based on the financial statements referred to in SECTIONS 6.6 and 7.1 of this
agreement and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter this
agreement. Each Lender also acknowledges that it will, independently and
without reliance upon any Agent or any Lender, and based on such documents
and information as it shall deem appropriate at the time, make its own credit
decisions in taking or not taking action under this agreement.

11.5 INDEMNIFICATION. LENDERS SHALL INDEMNIFY EACH AGENT (TO THE EXTENT
NOT REIMBURSED BY BORROWER), RATABLY ACCORDING TO THEIR RESPECTIVE COMMITMENT
PERCENTAGES, FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS OF
ANY KIND OR NATURE WHATSOEVER WHICH MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST THAT AGENT IN ANY WAY RELATING TO OR ARISING OUT OF THIS
AGREEMENT OR ANY ACTION TAKEN OR OMITTED BY THAT AGENT UNDER THIS AGREEMENT
(INCLUDING ANY OF SAME WHICH MAY RESULT FROM THE NEGLIGENCE, BUT NOT GROSS
NEGLIGENCE, OF AGENT). HOWEVER, NO LENDER SHALL BE LIABLE FOR ANY PORTION OF
THOSE LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES, OR DISBURSEMENTS RESULTING FROM THAT
AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE
FOREGOING, EACH LENDER SHALL REIMBURSE ADMINISTRATIVE AGENT PROMPTLY UPON
DEMAND FOR ITS RATABLE SHARE OF ANY OUT-OF-POCKET EXPENSES (INCLUDING COUNSEL
FEES) INCURRED BY ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION,
EXECUTION, DELIVERY, ADMINISTRATION, MODIFICATION, AMENDMENT, OR ENFORCEMENT
(WHETHER THROUGH NEGOTIATIONS, LEGAL PROCEEDINGS, OR OTHERWISE) OF, OR LEGAL
ADVICE IN RESPECT OF RIGHTS OR RESPONSIBILITIES UNDER, THIS AGREEMENT, TO THE
EXTENT THAT ADMINISTRATIVE AGENT IS NOT REIMBURSED FOR SUCH EXPENSES BY
BORROWER.

11.6 SUCCESSOR AGENT. Any Agent may resign at any time by giving
written notice thereof to Lenders and Borrower and may be removed at any time
with or without cause by 100% of Lenders. Upon any such resignation or
removal, 100% of Lenders shall have the right to appoint a successor Agent in
the capacity of that Agent. If no successor Agent shall have been so
appointed by 100% of Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent's giving of notice of resignation or
the Lenders' removal of the retiring Agent, then the retiring Agent may, on
behalf of Lenders, appoint a successor Agent, which shall be a commercial
bank or savings bank organized under the laws of the United States of America
or of any state thereof which has a combined capital and surplus of at least
$200,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges, and duties of the retiring
Agent, and the retiring Agent shall be discharged from any further duties,
and obligations under this agreement. After any retiring Agent's resignation
or removal hereunder as Agent, the provisions of this article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
Agent under this agreement. The appointment of a successor Agent shall not
release the retiring Agent from any liability it may have for any actions
taken or omitted to be taken by it while it was Agent under this agreement.

11.7 INSPECTION. Administrative Agent shall permit any officer,
employee, agent of Borrower or any Lender which may so request to visit and
inspect the premises on which the custodial duties of Administrative Agent
hereunder are performed, examine the books and records of Administrative
Agent which pertain to such custodial duties, take copies and extracts
therefrom, and discuss the performance of such custodial duties with the
officers, accountants and auditors of Administrative Agent that are
responsible therefor, all at such reasonable times and as often as Borrower
or any Lender may desire.

40 CREDIT AGREEMENT

<PAGE>

SECTION 12. MISCELLANEOUS.

12.1 NONBUSINESS DAYS. Any action that is due under any Loan Document
on a non-Business Day may be delayed until the next Business Day. However,
interest accrues on any payment until it is made.

12.2 COMMUNICATIONS. Unless otherwise stated, a communication under any
Loan Document to a party to this agreement must be written to be effective
and is deemed given:

- For Borrowing Requests, Collateral Delivery-Notices, Shipping
Requests, and Release Requests, only when actually received
by Administrative Agent.

- Otherwise, if by fax, when transmitted to the appropriate fax
number, but, without affecting the date deemed given, the fax
must be promptly confirmed by telephone.

- Otherwise, if by mail, on the third Business Day after enclosed in
a properly addressed, stamped, and sealed envelope deposited in the
appropriate official postal service.

- Otherwise, when actually delivered.

Until changed by written notice to each other party to this agreement, the
address and fax number are stated for (a) Borrower and Administrative Agent,
beside their names on the signature pages below, and (b) each Lender, beside
its name on SCHEDULE 2.

12.3 FORM AND NUMBER OF DOCUMENTS. The form, substance, and number of
counterparts of each writing to be furnished under the Loan Documents must be
satisfactory to Administrative Agent and its counsel.

12.4 EXCEPTIONS TO COVENANTS. An exception to any Loan Document
covenant does not permit violation of any other Loan Document covenant.

12.5 SURVIVAL. All Loan Document provisions survive all closings and
are not affected by any investigation made by any party.

12.6 GOVERNING LAW. Unless otherwise stated, each Loan Document must be
construed and its performance enforced under the Governmental Requirements of
the State of Texas and the United States of America.

12.7 INVALID PROVISIONS. If any provision of a Loan Document is
judicially determined to be unenforceable, all other provisions of it remain
enforceable. If the provision determined to be unenforceable is a material
part of that Loan Document, then, to the extent lawful, it shall be replaced
by a judicially-construed provision that is enforceable but otherwise as
similar in substance and content to the original provision as the context of
it reasonably allows.

12.8 CONFLICTS BETWEEN LOAN DOCUMENTS. The provisions of this agreement
control if in conflict (I.E., the provisions contradict each other as opposed
to a Loan Document containing additional provisions not in conflict) with the
provisions of any other Loan Document.

41 CREDIT AGREEMENT

<PAGE>

12.9 DISCHARGE AND CERTAIN REINSTATEMENT. Borrower's obligations under
the Loan Documents remain in full force and effect until no Lender has any
commitment to extend credit under the Loan Documents and the Obligation is
fully paid (EXCEPT for provisions under the Loan Documents which by their
terms expressly survive payment of the Obligation and termination of the Loan
Documents). If any payment under any Loan Document is ever rescinded or must
be restored or returned for any reason, then all Rights and obligations under
the Loan Documents in respect of that payment are automatically reinstated as
though the payment had not been made when due.

12.10 AMENDMENTS, CONSENTS, CONFLICTS, AND WAIVERS. An amendment of
- -- or an approval, consent, or waiver by Agent or by one or more Lenders
under -- any Loan Document must be in writing and must be:

(a) Executed by Borrower and Administrative Agent if it purports
to reduce or increase any fees payable to Administrative Agent by
Borrower.

(b) Executed by Borrower and Administrative Agent and executed or
approved in writing by all Lenders if action of all Lenders is
specifically provided in any Loan Document or if it purports to (i)
except as otherwise stated in this SECTION 12.10, extend the due date or
decrease the scheduled amount of any payment under any Loan Document or
reduce the rate or amount of interest, fees, or other amounts payable to
Administrative Agent or any Lender under any Loan Document, (ii) alter
or amend each Lender's obligation to severally provide its Commitment
Percentage of Warehouse Borrowings as set forth in SECTION 2.1, (iii)
amend any portion of SECTION 3.3, SECTION 3.6, SECTIONS 3.9 through
3.12, SECTION 4.7, or SECTION 12.10, (iv) change the definition of (or
any component of the definition of) Borrowing Base, Commitments,
Commitment Percentage, Required Lenders, Eligible Collateral, Market
Value, Stated-Termination Date, or Termination Percentage, (v) partially
or fully release any Collateral except releases of Collateral
contemplated in this agreement, or (vi) waive an Event of Default under
SECTION 10.1(d).

(c) Otherwise (i) for this agreement, executed by Borrower,
Administrative Agent, and Required Lenders, or (ii) for other Loan
Documents, approved in writing by Required Lenders and executed by
Borrower, Administrative Agent, and any other party to that Loan
Document.

No course of dealing or any failure or delay by Administrative Agent, any
Lender, or any of their respective Representatives with respect to exercising
any Right of Administrative Agent or any Lender under the Loan Documents
operates as a waiver of that Right. An approval, consent, or waiver is only
effective for the specific instance and purpose for which it is given. The
Loan Documents may only be supplemented by agreements, documents, and
instruments delivered according to their respective express terms.

12.11 MULTIPLE COUNTERPARTS. Any Loan Document may be executed in
any number of counterparts with the same effect as if all signatories had
signed the same document, and all of those counterparts must be construed
together to constitute the same document. This agreement is effective when
counterparts of it have been executed and delivered to Administrative Agent
by each Lender, each Agent, and Borrower, or, in the case only of those
Lenders, when Administrative Agent has received faxed or other evidence
satisfactory to it that each Lender has executed and is delivering to
Administrative Agent a counterpart of it.

42 CREDIT AGREEMENT

<PAGE>

12.12 PARTIES. This agreement binds and inures to Borrower, each
Lender, each Agent, and their respective successors and permitted assigns.
Only those Persons may rely upon or raise any defense about this agreement.

(a) ASSIGNMENT BY COMPANIES. No Company may assign any Rights or
obligations under any Loan Document without first obtaining the written
consent of Administrative Agent and all Lenders.

(b) ASSIGNMENT BY LENDER. Any Lender may assign, pledge, and
otherwise transfer all or any of its Rights and obligations under the
Loan Documents EITHER (i) to a Federal Reserve Bank without the consent
of any party to this agreement so long as that Lender is not released
from its obligations under the Loan Documents, OR (ii) otherwise in the
ordinary course of its lending business and in accordance with all
Governmental Requirements, and with SECTION 12.13 or 12.14 SO LONG AS
(A) except for assignments, pledges, and other transfers by a Lender to
its Affiliates, the written consent of Borrower and Administrative
Agent, which may not be unreasonably withheld, must be first obtained,
(B) the assignment or transfer (other than a pledge) does not involve a
purchase price that directly or indirectly reflects a discount from face
value unless that Lender first offered that assignment or transfer to
the other Lenders on ratable basis according to their Commitment
Percentages, (C) neither Borrower nor Administrative Agent are required
to incur any cost or expense incident to any assignment, pledge, or
other transfer by any Lender, all of which are for the account of the
assigning, pledging, or transferring Lender and its assignee, pledgee,
or transferee as they may agree, (D) if the Participant or Purchaser is
organized under the loans of any jurisdiction other than the United
States of America or any of its states, it complies with SECTION 3.9,
and (E) the assignment is in a minimum amount of $2,500,000.

(c) OTHERWISE VOID. Any purported assignment, pledge, or other
transfer in violation of this section is void from beginning and not
effective.

12.13 PARTICIPATIONS. Subject to SECTION 12.12(b) and this section
and only if no Event of Default exists, a Lender may at any time sell to one
or more Persons (each a "PARTICIPANT") participating interests in its
Commitment and its share of the Obligation.

(a) ADDITIONAL CONDITIONS. For each participation (i) the selling
Lender must remain (and the Participant may not become) a "LENDER"
under this agreement, (ii) the selling Lender's obligations under the
Loan Documents must remain unchanged, (iii) the selling Lender must
remain solely responsible for the performance of those obligations, (iv)
the selling Lender must remain the holder of its one or more Notes and
its share of the Obligation for all purposes under the Loan Documents,
and (v) Borrower and Administrative Agent may continue to deal solely
and directly with the selling Lender in connection with those Rights and
obligations.

(b) PARTICIPANT RIGHTS. The selling Lender may obtain for each of
its Participants the benefits of the Loan Documents related to
participations in its share of the Obligation, but Borrower is never
obligated to pay any greater amount that would be due to the selling
Lender under the Loan Documents calculated as though no participation
had been made. Otherwise, Participants have no Rights under the Loan
Documents except certain permitted voting Rights described below.

(c) PARTICIPATION AGREEMENTS. An agreement for a participating
interest (i) may only provide to a Participant voting Rights in respect
of any amendment of or approval, consent, or

43 CREDIT AGREEMENT

<PAGE>

waiver under any Loan Document related to the matters in SECTION
12.10(b) if it also provides for a voting mechanism that a majority of
that selling Lender's Commitment Percentage or Termination Percentage,
as the case may be (whether directly held by that selling Lender or
participated) controls the vote for that selling Lender, and (ii) may
not permit a Participant to assign, pledge, or otherwise transfer its
participating interest in the Obligation to any Person except any Lender
or its Affiliates.

12.14 TRANSFERS. Subject to SECTION 12.12(b) and this section and
only if no Event of Default exists, a Lender may at any time sell to one or
more financial institutions (each a "PURCHASER") all or part of its Rights
and obligations under the Loan Documents.

(a) ADDITIONAL CONDITIONS. The sale (i) must be accomplished by
the selling Lender and Purchaser executing and delivering to
Administrative Agent and Borrower an Assignment and Assumption Agreement
(an "ASSIGNMENT") in substantially the form of EXHIBIT E, and (ii) may
not occur until the selling Lender pays to Administrative Agent an
administrative-transfer fee of $2,500 (Borrower shall not be charged a
fee for an assignment by a Lender OTHER THAN up to $1,500 per Assignment
to be paid by Borrower to a Purchaser as a reimbursement of that
Purchaser's legal fees) in reviewing the Loan Documents.

(b) PROCEDURES. Upon satisfaction of the foregoing conditions and
as of the EFFECTIVE DATE in that Assignment, which may not be before
delivery of that document to Administrative Agent and Borrower, then (i)
a Purchaser is for all purposes a Lender party to (with all the Rights
and obligations of a Lender under) this agreement, with a Commitment as
stated in the Assignment, (ii) the selling Lender is released from its
obligations under the Loan Documents to a corresponding extent, (iii)
SCHEDULE 2 is automatically deemed to reflect the name, address, and
Commitment of the Purchaser and the reduced Commitment of the selling
Lender, and Administrative Agent shall deliver to Borrower and Lenders
an amended SCHEDULE 2 reflecting those changes, (iv) Borrower shall
execute and deliver to each of the selling Lender and the Purchaser a
Warehouse Note, each based upon their respective Commitments following
the transfer, (v) upon delivery of the one or more Warehouse Notes under
CLAUSE (iv) above, the selling Lender shall return to the appropriate
Company all Notes previously delivered to it under this agreement, and
(vi) the Purchaser is subject to all the provisions in the Loan
Documents, the same as if it were a Lender that executed this agreement
on its original date.

12.15 VENUE, SERVICE OF PROCESS, AND JURY TRIAL. BORROWER, FOR
ITSELF AND ITS SUCCESSORS AND ASSIGNS, IRREVOCABLY (A) SUBMITS TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS IN TEXAS, (B)
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION THAT IT MAY NOW
OR IN THE FUTURE HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF
OR IN CONNECTION WITH ANY LOAN DOCUMENT AND THE OBLIGATION BROUGHT IN THE
DISTRICT COURTS OF DALLAS COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT
COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION, (C) WAIVES ANY
CLAIMS THAT ANY LITIGATION BROUGHT IN ANY OF THE FOREGOING COURTS HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM, (D) CONSENTS TO THE SERVICE OF PROCESS OUR
OF ANY OF THOSE COURTS IN ANY LITIGATION BY THE MAILING OF COPIES OF THAT
PROCESS BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, BY HAND
DELIVERY, OR BY DELIVERY BY A NATIONALLY-RECOGNIZED COURIER SERVICE, AND
SERVICE SHALL BE DEEMED COMPLETE UPON DELIVERY OF THE LEGAL PROCESS AT ITS
ADDRESS FOR PURPOSES OF THIS AGREEMENT, (E) AGREES THAT ANY LEGAL PROCEEDING
AGAINST ANY PARTY TO ANY LOAN DOCUMENT ARISING OUT OF OR IN CONNECTION WITH
THE LOAN DOCUMENTS OR THE OBLIGATION MAY BE BROUGHT IN ONE OF THE FOREGOING
COURTS, AND (F) WAIVES TO THE FULLEST EXTENT

44 CREDIT AGREEMENT

<PAGE>

PERMITTED BY LAW, ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE
OF ACTION BASED UPON OR ARISING OUR OF ANY LOAN DOCUMENT. The scope of each
of the foregoing waivers is intended to be all encompassing of any and all
disputes that may be filed in any court and that relate to the subject matter
of this transaction, including, without limitation, contract claims, tort
claims, breach of duty claims, and all other common law and statutory claims.
BORROWER ACKNOWLEDGES THAT THESE WAIVERS ARE A MATERIAL INDUCEMENT TO EACH
AGENT'S AND EACH LENDER'S AGREEMENT TO ENTER INTO A BUSINESS RELATIONSHIP,
THAT EACH AGENT AND EACH LENDER HAS ALREADY RELIED ON THESE WAIVERS IN
ENTERING INTO THIS AGREEMENT, AND THAT EACH AGENT AND EACH LENDER WILL
CONTINUE TO RELY ON EACH OF THESE WAIVERS IN RELATED FUTURE DEALINGS.
BORROWER FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THESE WAIVERS
WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY AND VOLUNTARILY AGREES TO EACH
WAIVER FOLLOWING CONSULTATION WITH LEGAL COUNSEL. The waivers in this
section are irrevocable, meaning that they may not be modified either orally
or in writing, and these waivers apply to any future renewals, extensions,
amendments, modifications, or replacements in respect of the applicable Loan
Document. In connection with any Litigation, this agreement may be filed as
a written consent to a trial by the court.

12.16 LIMITATION OF LIABILITY. Neither Agents nor any Lender shall
be liable to any Company for any amounts representing indirect, special, or
consequential damages suffered by any Company, EXCEPT where such amounts are
based substantially on willful misconduct by Agents or any Lender, but then
only to the extent any damages resulting from such willful misconduct are
covered by Agents' and the other Lenders' fidelity bond or other insurance.

12.17 ENTIRE AGREEMENT. THE LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE
ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

REMAINDER OF PAGE INTENTIONALLY BLANK
SIGNATURE PAGE FOLLOWS

45 CREDIT AGREEMENT

<PAGE>

EXECUTED as of the date first stated in this agreement.

(ADDRESS) FIRSTPLUS FINANCIAL, INC., as BORROWER

FIRSTPLUS Financial, Inc.
1250 W. Mockingbird Lane By: /BARRY TENENHOLTZ/
Suite 600 --------------------------------
Dallas, TX 75247-4902 Name: BARRY TENENHOLTZ
------------------------------
Attn: Eric Green, Title: SENIOR VICE-PRESIDENT
Chief Financial Officer -----------------------------
Tel (214) 583-4503
Fax (214) 583-4907

(WIRE TRANSFER)

Account #1885162949
Bank: Bank One, Dallas
ABA #1110000614
Attn: Gloria Sadler
Ref: FirstPlus Financial, Inc.
Funding Account

(ADDRESS) BANK ONE, TEXAS, N.A., as
ADMINISTRATIVE AGENT and a LENDER
Bank One, Texas, N.A.,
Administrative Agent
1717 Main Street
Dallas, TX 75201 By: /MARK FREEMAN/
Attn: Mark L. Freeman, Vice President --------------------------------
Tel (214) 290-2780 Name: MARK FREEMAN
Fax (214) 290-2054 ------------------------------
Title: VICE PRESIDENT
-----------------------------

(ADDRESS) GUARANTY FEDERAL BANK F.S.B.,
as CO-AGENT and a LENDER
Guaranty Federal Bank F.S.B.
8333 Douglas Avenue
Dallas, TX 75225 By: /W. JAMES MEINTJES/
Attn: James Meintjes, --------------------------------
Assistant Vice President Name: W. JAMES MEINTJES
Tel (214) 360-2845 ------------------------------
Fax (214) 360-1660 Title: ASSISTANT VICE PRESIDENT
-----------------------------

SIGNATURE PAGE CREDIT AGREEMENT
----------------

<PAGE>

SCHEDULE 2
----------

LENDERS AND COMMITMENTS
-----------------------

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

Commitment
Name and Address of Lender Commitment Percentage
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

BANK ONE, TEXAS, N.A.
1717 Main Street, 4th Floor
Dallas, TX 75201
Attention: Mark L. Freeman, Vice President
Tel 214/290-2780
Fax 214/290-2054

(WIRE TRANSFER) $60,000,000 54.545%

Account # 1885162949
Bank: Bank One, Dallas
ABA # 1110000614
Attn: Gloria Sadler
Ref: FirstPlus Financial, Inc. Funding Account

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

GUARANTY FEDERAL BANK F.S.B.
8333 Douglas Avenue
Dallas, TX 75228
Attention: James Meintjes, Assistant Vice President
Tel 214/360-2845
Fax 214/360-1660

(WIRE TRANSFER) $50,000,000 45.455%

Account # 19406514043
Bank: Guaranty Federal Bank
ABA # 314970664
Attn: James Meintjes
Ref: FirstPlus Financial, Inc.

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

TOTAL $110,000,000 100%
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

<PAGE>

SCHEDULE 4.1

ELIGIBILITY CONDITIONS

A. ELIGIBLE-EQUITY LOAN. An Equity Loan:

1. Which, if it supports a Wet Borrowing, the applicable Wet Period has
not expired.

2. Which is a conventional loan or FHA loan.

3. Which complies with all applicable requirements for securitization
under Borrower's current contracts with Banc One Capital
Corporation, Bear Stearns & Co. Inc., Prudential Securities, Inc.,
and any other underwriters acceptable to Administrative Agent.

4. The promissory note evidencing which (a) is the standard form
approved by VA, FHA, FNMA, or FHLMC or a form otherwise acceptable
to Administrative Agent, (b) has a maturity within 30 years of its
origination, (c) is payable or endorsed (without restriction or
limitation) to Borrower's order, (d) is endorsed in blank by
Borrower, (e) is fully funded, and (f) is valid and enforceable
without offset, counterclaim, defense, or right of recision or
avoidance of any kind OTHER THAN for valid payments made on it and
any exceptions to enforceability under Debtor Laws.

5. For which no default in the payment of principal or interest or any
other default has continued uncured for 60 days, no foreclosure or
other similar proceedings have commenced, and no claim for any
credit, allowance, or adjustment exists.

6. Which is secured by a mortgage, deed of trust, or trust deed that
(a) is the standard form approved by VA, FHA, FNMA, or FHLMC or a
form otherwise acceptable to Administrative Agent and (b) grants a
first- or second-priority Lien on residential-real property
described below that will be perfected upon recording.

7. For which the underlying residential-real property (a) consists of
land and (i) a one- to four-family dwelling, or (ii) a condominium
unit that is ready for occupancy, (iii) a manufactured home unit,
but not (iv) a mobile home, a co-op, or a multi-family dwelling for
more than four families, (b) is, if required by Appraisal Laws,
covered by an Appraisal, and (c) is insured against loss or damage
by fire and all other hazards normally included in
standard-extended-coverage insurance (including, without limitation,
flood insurance if the property is in a federally-designated-flood
plain) in accordance with the Collateral Documents for it and
Borrower is named as a loss-payee for that insurance.

8. The Collateral Documents for which (a) are delivered to
Administrative Agent within 90 days after the date of the related
promissory note, (b) are in compliance with all Governmental
Requirements, (c) are otherwise in compliance with the requirements
of the Loan Documents and otherwise in form and substance acceptable
to Administrative Agent, and (d) are subject to no Liens other than
Lender Liens and other Permitted Liens.

9. Which has been held by Administrative Agent for 120 days or less,
EXCEPT THAT this period may be extended to 180 days for any Equity
Loan SO LONG AS any such extension is

SCHEDULE 4.1
------------
<PAGE>

approved in writing by Administrative Agent. At any time, the total
unpaid principal balance of Equity Loans subject to such extension
(when added to Improvement Loans also subject to such extension) may
never exceed 50% of the total Principal Debt outstanding.

10. Which has not -- and no Collateral Document for which has -- been
(a) sold to an investor and repurchased by Borrower, (b) rejected by
an investor, (c) delivered to an investor or any Person for it for
more than the Shipping Period, or (d) delivered to Borrower for
correction for more than the Correction Period.

11. Which has been underwritten in accordance with Borrower's
established underwriting policies as disclosed to Administrative
Agent, and as those policies are amended or updated from time to
time SO LONG AS any such updates or amendments are reasonably
acceptable to Administrative Agent.

B. ELIGIBLE-IMPROVEMENT LOAN. An Improvement Loan:

1. Which, if it supports a Wet Borrowing, the applicable Wet Period has
not expired.

2. Which is a conventional loan or FHA loan.

6. Which, unless the Improvement Loan is funded subject to the
Unsecured Sublimit, is secured by a mortgage, deed of trust, or
trust deed that (a) is the standard form approved by VA, FHA, FNMA,
or FHLMC or a form otherwise acceptable to Administrative Agent and
(b) grants a first- or second-priority Lien on residential-real
property described below that will be perfected upon recording.

2 SCHEDULE 4.1
------------

<PAGE>

insurance if the property is in a federally-designated-flood plain)
in accordance with the Collateral Documents for it and Borrower is
named as a loss-payee for that insurance.

9. Which has been held by Administrative Agent for 120 days or less,
EXCEPT THAT this period may be extended to 180 days for any
Improvement Loan SO LONG AS any such extension is approved in
writing by Administrative Agent. At any time, the total unpaid
principal balance of Improvement Loans subject to such extension
(when added to Equity Loans also subject to such extension) may
never exceed 50% of the total Principal Debt outstanding.

11. Which has been underwritten in accordance with Borrower's
established underwriting policies as disclosed to Administrative
Agent, and as those policies are amended or updated from time to
time so long as any such updates or amendments are reasonably
acceptable to Administrative Agent.

3 SCHEDULE 4.1
------------

<PAGE>

SCHEDULE 4.2

BORROWING-BASE CALCULATIONS

A. BORROWING BASE. The amount equal to:

1. For all Eligible-Pledged Loans, the lesser of (a) 100% of par (I.E.
face amount of the related promissory notes) or (b) 97% of the LEAST
of their:

(i) Acquisition price;

(ii) At the sole discretion of Administrative Agent, Market Value;

as reduced by the following matters:

2. No more than the Wet Sublimit may be included for Pledged Loans
supporting Wet Borrowings, and nothing may be included for any Pledged
Loan supporting a Wet Borrowing upon the expiration of its applicable
Wet Period; and

3. No more than the Unsecured Sublimit may be included for Pledged Loans
that are not secured by valid and perfected liens on residential-real
estate.

SCHEDULE 4.2
------------

<PAGE>

SCHEDULE 4.3

COLLATERAL PROCEDURES

A. MORTGAGE LOAN FOR DRY BORROWING. Delivery of a Pledged Loan to support a
Dry Borrowing requires delivery to Administrative Agent of the following
Collateral Documents -- each of which must be in form and substance
satisfactory to Administrative Agent -- in the following manner:

1. A Collateral-Delivery Notice that, among other things, identifies the
documents being delivered to Lender for that Dry Borrowing.

2. The original promissory note evidencing the Pledged Loan, properly
payable or endorsed to Borrower, and endorsed in blank by Borrower.

3. Unless the Borrowing is made subject to the Unsecured Sublimit, an
assignment from Borrower of the mortgage, deed of trust, or trust
deed securing the Pledged Loan, executed in blank by Borrower, and
in recordable form.

4. Unless the Borrowing is made subject to the Unsecured Sublimit, a
certified copy of each intervening assignment to Borrower of that
mortgage, deed of trust, or trust deed sent for recording and copies
of all previous-intervening assignments.

5. Unless the Borrowing is made subject to the Unsecured Sublimit, a
certified copy of that original mortgage, deed of trust, or trust
deed sent for recording in the jurisdiction where the property is
located.

6. Unless Administrative Agent has initiated the wire transfer for
originating the Pledged Pledged Loan, a copy of the check or wire
verification evidencing that origination.

7. A data-processing print-out reflecting that Pledged Loan's loan number,
mortgagor, origination date, original amount, outstanding-principal
balance, interest rate, type of loan, and requested advance amount.

8. Any and all other files, documents, instruments, certificates,
correspondence, or other records that are (a) requested by
Administrative Agent and (b) deemed by Administrative Agent in its
sole judgment to be necessary, appropriate, or desirable.

B. MORTGAGE LOAN FOR WET BORROWING. Delivery of a Pledged Loan to support
a Wet Borrowing requires delivery to Administrative Agent of the following
Collateral Documents -- each of which must be in form and substance
satisfactory to Administrative Agent -- in the following manner:

1. A Collateral-Delivery Notice that, among other things, identifies the
documents that must be delivered to Administrative Agent before the
expiration of the Wet Period for that Wet Borrowing.

2. Unless Administrative Agent has approved a wire transfer initiated by
Borrower for originating the Pledged Loan, EITHER (a) a copy of the
check evidencing that origination OR

SCHEDULE 4.3
------------

<PAGE>

(b) evidence that the check for that origination is held by a title
company pending disbursement.

3. A data-processing print-out reflecting that Pledged Loan's loan number,
mortgagor, origination date, original amount, outstanding-principal
balance, interest rate, type of loan, and requested advance amount.

2 SCHEDULE 4.3
------------

<PAGE>

EXHIBIT A-1

WAREHOUSE NOTE

$__________________ October 17, 1996

FOR VALUE RECEIVED, FIRSTPLUS FINANCIAL, INC., a Texas corporation
("MAKER"), promises to pay to the order of________________________ ("PAYEE")
that portion of the principal amount of $____________ that may from time to time
be disbursed and outstanding under this note TOGETHER WITH interest.

This note is a "WAREHOUSE NOTE" under the Credit Agreement (as renewed,
extended, amended, or restated, the "CREDIT AGREEMENT") dated as of October
17, 1996, between Maker, Payee, certain other Lenders, Co-Agents, and Bank
One, Texas, N.A., as Administrative Agent for Lenders. All of the defined
terms in the Credit Agreement have the same meanings when used -- unless
otherwise defined -- in this note.

This note incorporates by reference the principal and interest payment
terms in the Credit Agreement for this note, including, without limitation,
the final maturity, which is the stated Termination Date. Principal and
interest are payable to the holder of this note through Administrative Agent
at EITHER (a) its offices at 1717 Main Street, Dallas, Texas 75201, OR (b)
at any other address so designated by Administrative Agent in written notice
to Maker.

This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after an Event of Default,
voluntary and mandatory prepayments, acceleration of maturity, exercise of
Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and other obligors, assurances and
security, choice of the Governmental Requirements of the State of Texas and
the United States of America, usury savings, and other matters applicable to
Loan Documents under the Credit Agreement.

FIRSTPLUS FINANCIAL, INC., as MAKER

By
----------------------------------------------
(Name)
------------------------------------------
(Title)
-----------------------------------------

EXHIBIT A-1
<PAGE>

EXHIBIT A-2

SWING NOTE

$________________ October 17, 1996

FOR VALUE RECEIVED, FIRSTPLUS FINANCIAL, INC., a Texas corporation
("MAKER"), promises to pay to the order of BANK ONE, TEXAS, N.A. ("PAYEE")
that portion of the principal amount of $50,000,000 that may from time to
time be disbursed and outstanding under this note TOGETHER WITH interest.

This note is a "SWING NOTE" under the Credit Agreement (as renewed,
extended, amended, or restated, the "CREDIT AGREEMENT") dated as of October
17, 1996, between Maker, Payee, certain other Lenders, Co-Agents, and Bank
One, Texas, N.A., as Administrative Agent for Lenders. All of the defined
terms in the Credit Agreement have the same meanings when used -- unless
otherwise defined -- in this note.

This note incorporates by reference all other provisions in the Credit
Agreement applicable to this note -- such as provisions for disbursements of
principal, applicable-interest rates before and after Event of Default,
voluntary and mandatory prepayments, acceleration of maturity, exercise of
Rights, payment of attorneys' fees, court costs, and other costs of
collection, certain waivers by Maker and other obligors, assurances and
security, choice of the Governmental Requirements of the State of Texas and
the United States of America, usury savings, and other matters applicable to
Loan Documents under the Credit Agreement.

FIRSTPLUS FINANCIAL, INC., as MAKER

By
----------------------------------------------
(Name)
------------------------------------------
(Title)
-----------------------------------------

EXHIBIT A-2
<PAGE>

EXHIBIT B-1

SECURITY AGREEMENT

THIS AGREEMENT is entered into as of October 17, 1996, between FIRSTPLUS
FINANCIAL, INC., a Texas corporation ("DEBTOR"), certain Lenders, and BANK
ONE, TEXAS, N.A., as Administrative Agent (in that capacity, "SECURED PARTY")
for Lenders.

Debtor, Lenders, Co-Agents, and Administrative Agent have entered into
the Credit Agreement (as renewed, extended, amended, or restated, the "CREDIT
AGREEMENT") dated as of October 17, 1996. As a continuing inducement to the
Lenders to extend credit to Debtor under the Credit Agreement -- and as a
condition precedent to that credit -- Debtor is executing and delivering this
agreement to Secured Party for the benefit of Lenders.

ACCORDINGLY, for adequate and sufficient consideration, Debtor agrees
with Secured Party for the benefit of Lenders as follows:

SECTION 1. DEFINITIONS AND REFERENCES. Unless stated otherwise, (a) terms
defined in the Credit Agreement or the UCC have the same meanings when used
in this agreement, and (b) to the extent permitted by a Governmental
Requirement, if in conflict (i) the definition of a term in the Credit
Agreement controls over the definition of that term in the UCC, and (ii) the
definition of a term in ARTICLE 9 of the UCC controls over the definition of
that term elsewhere in the UCC.

COLLATERAL is defined in SECTION 2.2 of this agreement.

DEBTOR is defined in the preamble to this agreement and includes,
without limitation, Debtor, Debtor as a debtor-in-possession, and any
receiver, trustee, liquidator, conservator, custodian, or similar party
appointed for Debtor or for substantially all of Debtor's assets under any
Debtor Law.

OBLIGOR means any Person obligated with respect to any Collateral
(whether as an account debtor, obligor on an instrument, issuer of
securities, or otherwise).

SECURED PARTY is defined in the preamble to this agreement and includes
its successor appointed and acting as ADMINISTRATIVE AGENT for Lenders under
the Loan Documents.

SECURITY INTEREST means the security interest granted and the pledge and
assignment made under SECTION 2.1 of this agreement, which is a Lender Lien
under the Credit Agreement.

SECTION 2. SECURITY INTEREST AND COLLATERAL.

2.1 SECURITY INTEREST. To secure the prompt, unconditional, and
complete payment and performance of the Obligation when due, Debtor grants to
Secured Party a security interest in the Collateral and pledges and
collaterally assigns that Collateral to Secured Party, all upon and subject
to the terms and conditions of this agreement. The grant of the Security
Interest does not subject the Secured Party or any Lender to the terms of any
Collateral Document or in any way transfer, modify, or otherwise affect (a)
any of Debtor's obligations with respect to any Collateral or (b) the Lender
Liens under the Credit Agreement.

EXHIBIT B-1
<PAGE>

2.2 COLLATERAL. As used in this agreement, the term "COLLATERAL"
means the present and future items and types of property described below,
whether now owned or acquired in the future by Debtor. This description of
Collateral does not permit any action prohibited by any Loan Document.

- Equity Loans and Improvement Loans from time to time identified to
Secured Party as Collateral.

- All Collateral Documents in any way related to any Equity Loans and
Improvement Loans identified as Collateral -- including, without
limitation, all promissory notes evidencing, and all mortgages,
deeds of trust, or trust deeds securing, those Equity Loans and
Improvement Loans -- whether deposited with or held by or for
Secured Party under this agreement, identified by Debtor as
Collateral for a Wet Borrowing, or otherwise.

- Private-mortgage insurance (including, without limitation, all
commitments to issue any such insurance) covering -- and all
commitments issued by FHA to insure -- any Equity Loans and
Improvement Loans identified as Collateral.

- Security of any kind pledged by a mortgagor for any Equity Loan or
Improvement Loan identified as Collateral.

- Casualty insurance assigned to Debtor in connection with any Equity
Loan or Improvement Loan identified as Collateral.

- Any Collateral otherwise described in this agreement that may from
time to time be delivered (a) to an investor under SECTION 4.5 of
the Credit Agreement until purchased and paid for by that investor
or (b) for correction under SECTION 4.6 of the Credit Agreement.

- The Funding Account and Settlement Account and all amounts deposited
in them or represented by them.

- All present and future Hedge Contracts and other investments related
to any other Collateral.

- Personal property, contract rights, accounts, and general intangibles
of any kind whatsoever relating to any Collateral.

- All files, surveys, certificates, correspondence, appraisals, tapes,
discs, cards, accounting records, and other information and data of
Debtor relating to any Collateral -- including, without limitation,
all information, data, tapes, discs, and cards necessary to
administer and service any Equity Loan or Improvement Loan identified
as Collateral.

- Cash and noncash proceeds of any Collateral, including, without
limitation, all proceeds and payments due from FHA with respect to
Title I Insured loans.

2 EXHIBIT B-1
<PAGE>

SECTION 3. REPRESENTATIONS AND WARRANTIES. By entering into this agreement,
and by each subsequent delivery of additional Collateral under this
agreement, Debtor reaffirms the representations and warranties contained in
the Credit Agreement. Debtor further represents and warrants to Secured
Party as follows:

3.1 CONCERNING THE COLLATERAL. All Collateral (a) is genuine and in
all respects what it purports to be, (b) is the legal, valid, and binding
obligation of each Obligor (EXCEPT as enforceability may be limited by Debtor
Laws), (c) is free from any claim for credit, deduction, or allowance of any
Obligor and free from any defense, dispute, setoff, or counterclaim (other
than for payments made in respect of it), (d) if an Equity Loan or Improvement
Loan, was originated and is in compliance with all Governmental Requirements,
and (e) conforms to the applicable requirements of eligibility under SCHEDULE
4.1 to the Credit Agreement.

3.2 OWNERSHIP AND PRIORITY. Debtor has full legal and beneficial
ownership of all Collateral, free and clear of all Liens EXCEPT Permitted
Liens.

3.3 CREATION AND PERFECTION. The Security Interest is created and
perfected on (a) each promissory note that evidences an Equity Loan or
Improvement Loan identified as Collateral and that is delivered to Secured
Party, (b) each promissory note that evidences an Equity Loan or Improvement
Loan identified by Debtor to Secured Party as supporting a Wet Borrowing for
21 days after the Borrowing Date for that Borrowing, (c) all Collateral
shipped to an investor under SECTION 4.5 of the Credit Agreement (and the
Security Interest continues to be perfected until Secured Party receives
payment for such Collateral), (d) all Collateral shipped to Debtor for
correction under SECTION 4.6 of the Credit Agreement (and the Security
Interest continues to be perfected for 21 days after that shipment), and (e)
all other Collateral upon the filing of the financing statements contemplated
by the Credit Agreement.

SECTION 4. COVENANTS. Until all commitments by Lenders to extend credit under
the Credit Agreement have been canceled or terminated and the Obligation is
fully paid and performed, Debtor covenants and agrees with Secured Party as
follows:

4.1 CONCERNING THE COLLATERAL. Debtor (a) shall fully perform all of
its duties under and in connection with each transaction to which any
Collateral relates, (b) shall promptly notify Secured Party about any change
in any fact or circumstances represented or warranted by Debtor about any
Collateral, (c) shall promptly notify Secured Party of any claim, action, or
proceeding affecting title to any Collateral or the Security Interest and, at
Secured Party's request and Debtor's expense, appear in and defend that
action or proceeding, (d) shall hold in trust for Secured Party all
Collateral not delivered to Secured Party (without excusing any failure to
deliver Collateral Documents to Secured Party as required by this agreement)
and mark that Collateral on Debtor's records that it is subject to the
Security Interest (but the failure to do so does not impair the Security
Interest or its priority), (e) other than collections under SECTION 4.3
below, Debtor shall pay and deliver to Secured Party all items and types of
property into which any Collateral may be converted (all of which is subject
to the Security Interest) and properly endorse, assign, or take such other
action as Secured Party may request in order to maintain and continue the
Security Interest in that property, and (f) may not compromise, extend,
release, or adjust payments on any Collateral, accept a conveyance of
mortgaged property in full or partial satisfaction of any Collateral, or
release any mortgage, deed of trust, or trust deed securing or underlying any
Collateral.

4.2 INSURANCE. Debtor shall keep the Collateral fully insured in the
amounts, against the risks, and with insurers as may be approved by Secured
Party, with loss payable to Secured Party as its interest (on behalf of
Lenders) may appear.

3 EXHIBIT B-1
<PAGE>

4.3 COLLECTIONS. Debtor shall, at its sole cost and expense, whether
requested to by Secured Party or in the absence of such a request, take all
actions reasonably necessary, to obtain payment, when due and payable, of all
amounts due or to become due from Obligors with respect to any Collateral.
Debtor may not agree to any rebate, refund, compromise, or extension with
respect to any Collateral or accept any prepayment on account of any Collateral.

(a) NO EVENT OF DEFAULT. While no Event of Default exists, Debtor
shall make all of those collections, shall maintain such escrow accounts
and otherwise comply with the servicing agreements to which it is a party
or subject, and may otherwise retain and use the proceeds of those
collections in the ordinary course of its business.

(b) EVENT OF DEFAULT. While an Event of Default exists, and upon
the request of Secured Party, Debtor shall (i) notify and direct each
Obligor to make payments on the Collateral to Secured Party for deposit
into such accounts as it may designate so as to be held as Collateral under
this agreement and (ii) otherwise turn over to Secured Party, in the form
received and with any necessary endorsements, all payments it receives in
respect of any Collateral for deposit into such accounts as Secured Party
may designate to be held as Collateral under this agreement. Secured Party
may at any time apply any amounts in those accounts as a payment of the
Obligation, OTHER THAN mortgage escrow payments that are deposited into
escrow accounts in accordance with the applicable servicing contract.

4.4 CONCERNING DEBTOR. Without first giving Secured Party 30 days
notice (or fewer if agreed to in writing by Secured Party) of the intention
to do any of the following and performing such acts and executing and
delivering to Secured Party such additional documents as Secured Party
requests in order to continue or maintain the existence and priority of the
Security Interest, Debtor may not (a) use or transact business under any
corporate, assumed, or trade name, EXCEPT as represented in the Credit
Agreement, (b) relocate its chief executive offices or principal place of
business, or (c) move or surrender possession of its books and records
regarding the Collateral.

SECTION 5. EVENT OF DEFAULT AND REMEDIES. If an Event of Default exists,
then Secured Party may, at its election (but subject to the terms and
conditions of the Credit Agreement), exercise any and all Rights available to
a secured party under the UCC, in addition to any and all other Rights
afforded by the Loan Documents, at law, in equity, or otherwise, including,
without limitation (a) requiring Debtor to assemble all or part of the
Collateral and make it available to Secured Party at a place to be designated
by Secured Party which is reasonably convenient to Debtor and Secured Party,
(b) surrendering any policies of insurance on all or part of the Collateral
and receiving and applying the unearned premiums as a credit on the
Obligation, (c) applying by appropriate judicial proceedings for appointment
of a receiver for all or part of the Collateral (and Debtor hereby consents
to any such appointment), and (d) applying to the Obligation any cash held by
Secured Party or any Lender under the Loan Documents.

5.1 NOTICE. Reasonable notification of the time and place of any
public sale of the Collateral, or reasonable notification of the time after
which any private sale or other intended disposition of the Collateral is to
be made, shall be sent to Debtor and to any other Person entitled to notice
under the UCC. If any Collateral threatens to decline speedily in value or is
of the type customarily sold on a recognized market, Secured Party may sell
or otherwise dispose of the Collateral without notification, advertisement,
or other notice of any kind. Notice sent or given not less than five calendar
days before the taking of the action to which the notice relates is reasonable
notification and notice for the purposes of this section.

4 EXHIBIT B-1
<PAGE>

5.2 APPLICATION OF PROCEEDS. Secured Party shall apply the proceeds of
any sale or other disposition of the Collateral under this SECTION 5 in the
order and manner specified in SECTION 3.5 of the Credit Agreement. Any
surplus remaining shall be delivered to Debtor or as a court of competent
jurisdiction may direct. If the proceeds are insufficient to pay the
Obligation in full, Debtor remains liable for any deficiency.

SECTION 6. OTHER RIGHTS.

6.1 PERFORMANCE. If Debtor fails to pay when due all Taxes on any of
the Collateral, or to preserve the priority of the Security Interest in any
of the Collateral, or to keep the Collateral insured as required by this
agreement, or otherwise fail to perform any of its obligations under any Loan
Documents or Collateral Documents with respect to the Collateral, then
Secured Party may, at its option, but without being required to do so, pay
such Taxes, prosecute or defend any suits in relation to the Collateral, or
insure and keep insured the Collateral in any amount deemed appropriate by
Secured Party, or take all other action which Debtor is required, but has
failed or refused, to take under the Loan Documents or Collateral Documents.
Any sum which may be expended or paid by Secured Party under this section
(including, without limitation, court costs and attorneys' fees) shall bear
interest from the dates of expenditure or payment at the Default Rate until
paid and, together with such interest, shall be payable by Debtor to Secured
Party upon demand and is part of the Obligation.

6.2 COLLECTION.

(a) ACTIONS. When Secured Party is entitled under SECTION 4.3 above
to make collection on any Collateral, it may in its own name or in the name
of Debtor (i) compromise or extend the time of payment with respect to any
Collateral for such amounts and upon such terms as Secured Party may
determine, (ii) demand, collect, receive, receipt for, sue for, compound,
and give acquittance for any and all amounts due or to become due with
respect to Collateral, (iii) take control of cash and other proceeds of
any Collateral, (iv) endorse Debtor's name on any notes, acceptances,
checks, drafts, money orders, or other evidences of payment on Collateral
that may come into Secured Party's possession, (v) sign Debtor's name on
any invoice or bill of lading relating to any Collateral, on any drafts
against Obligors or other Persons making payment with respect to
Collateral, on assignments and verifications of accounts or other
Collateral and on notices to Obligors making payment with respect to
Collateral, (vi) send requests for verification of obligations to any
Obligor, (vii) do all other acts and things necessary to carry out the
intent of this agreement, and (viii) authorize any servicer in respect
of any Collateral to do any one or more of the foregoing on Secured
Party's behalf.

(b) OTHER MATTERS. If any Obligor fails or refuses to make payment
on any Collateral when due, Secured Party is authorized, in its sole
discretion, either in its name or in Debtor's name, to take such action
as Secured Party deems appropriate for the collection of any amounts owed
with respect to Collateral or upon which a delinquency exists. Regardless
of any other provision, however, Secured Party is never liable for its
failure to collect, or for its failure to exercise diligence in the
collection of, any amounts owed with respect to Collateral and is not
under any duty whatever to anyone except Debtor to account for funds that
it actually receives. Without limiting the generality of the foregoing,
Secured Party has no responsibility for ascertaining any maturities,
calls, conversions, exchanges, offers, tenders, or similar matters
relating to any Collateral, or for informing Debtor with respect to any
of such matters (irrespective of whether Secured Party actually has, or
may be deemed to have, knowledge thereof). Secured

5 EXHIBIT B-1
<PAGE>

Party's receipt to any Obligor is a full and complete release, discharge,
and acquittance to that Obligor, to the extent of any amount so paid to
Secured Party.

6.5 POWER OF ATTORNEY. Debtor irrevocably appoints Secured Party
- -- acting on behalf of Lenders -- as its attorney-in-fact (with full power of
substitution) for, on behalf, and in the name of Debtor to (a) endorse and
deliver to any Person any check, instrument, or other document received by
Secured Party or any Lender that represents payment in respect of any
Collateral, (b) prepare, complete, execute, deliver, and record any
assignment of any mortgage, deed of trust, or trust deed securing any
Collateral, (c) endorse and deliver or otherwise transfer any promissory note
evidencing any Collateral and do every other thing necessary or desirable to
effect transfer of all or any Collateral, (d) take all necessary and
appropriate action with respect to any Obligation or any Collateral, (e)
commence, prosecute, settle, discontinue, defend, or otherwise dispose of any
claim relating to any Collateral, and (f) sign that Debtor's name wherever
appropriate to effect the performance of this agreement and the Credit
Agreement. This section shall be liberally, not restrictively, construed to
give the greatest latitude to Secured Party's power as the Debtor's
attorney-in-fact to collect, sell, and deliver any Collateral and all other
documents relating to it. The powers and authorities conferred on Secured
Party in this section (w) are discretionary and not obligatory on the part of
Secured Party, (x) may be exercised by Secured Party through any Person who,
at the time of the execution of a particular document, is an officer of
Secured Party, (y) may not be exercised by Secured Party unless an Event of
Default exists, and (z) is granted for a valuable consideration, coupled with
an interest, and irrevocable until -- and all Persons dealing with Secured
Party, any of its officers acting under this section, or any substitute are
fully protected in treating the powers and authorities conferred by this
section as existing and continuing in full force and effect until advised by
Secured Party that -- all commitments under the Credit Agreement to extend
credit under this agreement have been terminated or canceled and the
Obligation is fully paid and performed.

SECTION 7. MISCELLANEOUS.

7.1 MISCELLANEOUS. Because this agreement is a "LOAN DOCUMENT"
referred to in the Credit Agreement, the provisions relating to Loan
Documents in SECTIONS 1 AND 12 of the Credit Agreement are incorporated into
this agreement by reference the same as if included in this agreement
verbatim.

7.2 TERM. This agreement terminates upon full payment and performance
of the Obligation. No Obligor is ever obligated to make inquiry of the
termination of this agreement but is fully protected in making any payments
on the Collateral directly to Secured Party.

7.3 MATTERS NOT RELEVANT. The Security Interest, Debtor's obligations,
and Secured Party's and Lenders' Rights under this agreement are not
released, diminished, impaired, or adversely affected by any one or more of
the following: (a) Secured Party's or any Lender taking or accepting any
additional -- or any release, surrender, exchange, subordination, or loss of
any other -- guaranty, assurance, or security for any of the Obligation; (b)
any full or partial release of any other Person obligated on any of the
Obligation; (c) the modification or assignment of -- or waiver of compliance
with -- any other Loan Document; (d) any present or future insolvency,
bankruptcy, or lack of corporate, partnership, or trust power of any other
Person obligated on any of the Obligation; (e) any renewal, extension, or
rearrangement of any of the Obligation, or any adjustment, indulgence,
forbearance, or compromise granted to any Person obligated on any of the
Obligation; (f) any Person's neglect, delay, omission, failure, or refusal to
take or prosecute any action in connection with any of the Obligation; (g)
any existing or future affect, claim, or defense (OTHER THAN the defense of
full and final payment of the Obligation) of Debtor or any other Person
against Secured Party or any Lender; (h) the unenforceability of any of the
Obligation against any Person obligated or any of the Obligation because it
exceeds the amount permitted

6 EXHIBIT B-1
<PAGE>

by any Governmental Requirement, the act of creating it is ULTRA VIRES, or
the officers, partners, or trustees creating it exceeded their authority or
violated their fiduciary duties, or otherwise; (i) any payment of the
Obligation is held to constitute a preference under any Debtor Law or for any
other reason Secured Party or any Lender is required to refund any payment or
make payment to another Person; or (j) any Person's failure to notify Debtor,
Secured Party, or any Lender of their acceptance of this agreement or any
Person's failure to notify Debtor about the foregoing events or occurrences,
and Debtor waives any notice of any kind under any circumstances whatsoever
with respect to this agreement or any of the Obligation OTHER THAN as
specifically provided in this agreement.

7.4 WAIVERS. Except to the extent expressly otherwise provided in the
Loan Documents, Debtor waives (a) any Right to require Secured Party or any
Lender to proceed against any other Person, to exhaust its Rights in the
Collateral, or to pursue any other Right which Secured Party or any Lender
may have, and (b) all Rights of marshaling in respect of the Collateral.

7.5 FINANCING STATEMENT. Secured Party may, at any time, file this
agreement or a carbon, photographic, or other reproduction of this agreement
as a financing statement, but Secured Party's failure to do so does not
impair the validity or enforceability of this agreement.

7.6 PARTIES. This agreement binds and inures to Debtor, Secured Party,
and each Lender, and their respective successors and permitted assigns. Only
those Persons may rely or raise any defense about this agreement.

(a) ASSIGNMENTS. Debtor may not assign any Rights or obligations
under this agreement without first obtaining the written consent of
Secured Party and all Lenders. Secured Party's Rights under this
agreement may be assigned to any successor agent appointed under the
Credit Agreement. Any Lender may assign, pledge, and otherwise transfer
all or any of its Rights under this agreement to any participant or
transferee permitted by the Credit Agreement.

(b) SECURED PARTY. Secured Party is the agent for each Lender.
Secured Party may, without the joinder of any Lender, exercise any Rights
in favor of any of them under this agreement. The Rights of Secured
Party and Lenders VIS-A-VIS each other may be subject to other agreements
between them. Neither Debtor nor its successors or permitted assigns need
to inquire about any such agreement or be subject to the terms of it
unless they join in it and, therefore, are not entitled to the benefits
of any such agreement or entitled to rely upon or raise as a defense the
failure of any party to comply with it.

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

7 EXHIBIT B-1
<PAGE>

EXECUTED as of the date first stated above.

FIRSTPLUS FINANCIAL, INC., BANK ONE, TEXAS, N.A.,
as DEBTOR as SECURED PARTY

By _____________________________ By _____________________________
(Name) _________________________ (Name) _________________________
(Title) ________________________ (Title) ________________________

8 EXHIBIT B-1
<PAGE>

THIS DOCUMENT Haynes and Boone, L.L.P.
PREPARED BY AND WHEN 901 Main Street, Suite 3100
FILED RETURN TO: Dallas, Texas 75202
Attention: Brett H. Todd

EXHIBIT B-2

FINANCING STATEMENT

THIS FINANCING STATEMENT IS PRESENTED TO A FILING OFFICER
FOR FILING UNDER THE UNIFORM COMMERCIAL CODE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DEBTOR'S NAME AND MAILING ADDRESS: FIRSTPLUS FINANCIAL, INC.
1250 W. Mockingbird Lane
Dallas, Texas 75247-4902
- --------------------------------------------------------------------------------
SECURED PARTY'S NAME AND MAILING Bank One, Texas, N.A., Agent
ADDRESS: 1717 Main Street - Fourth Floor
Dallas, Texas 75201
- --------------------------------------------------------------------------------
FOR FILING OFFICER:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

THIS FINANCING STATEMENT COVERS THE FOLLOWING PRESENT AND FUTURE TYPES AND
ITEMS OF PROPERTY AND INTERESTS, WHETHER NOW OWNED OR ACQUIRED IN THE
FUTURE BY DEBTOR
(THE "COLLATERAL"):

Terms defined on SCHEDULE 1 attached to this financing statement have the
same meanings when used below:

- Equity Loans and Improvement Loans from time to time identified to
Secured Party as Collateral.

- All Collateral Documents in any way related to any Equity Loans and
Improvement Loans identified as Collateral -- including, without
limitation, all promissory notes evidencing, and all mortgages,
deeds of trust, or trust deeds securing, those Equity Loans and
Improvement Loans -- whether deposited with or held by or for Secured
Party under this agreement, identified by Debtor as Collateral for a
Wet Borrowing, or otherwise.

- Security of any kind pledged by a mortgagor for any Equity Loan or
Improvement Loan identified as Collateral.

- Casualty insurance assigned to Debtor in connection with any Equity
Loan or Improvement Loan identified as Collateral.

- The Funding Account and Settlement Account and all amounts deposited
in them or represented by them.

- All present and future hedge contracts and investments related to any
other Collateral.

EXHIBIT B-2
<PAGE>

- Personal property, contract rights, accounts, and general intangibles
of any kind whatsoever relating to any Collateral.

- Cash and noncash proceeds of any Collateral, including, without
limitation, all proceeds and payments due from FHA with respect to
Title I Insured loans.

DEBTOR: SECURED PARTY:

FIRSTPLUS FINANCIAL, INC. BANK ONE, TEXAS, N.A., as Agent for Lenders

By _____________________________ By _____________________________
(Name) _________________________ (Name) _________________________
(Title) ________________________ (Title) ________________________

2 EXHIBIT B-2

<PAGE>

EXHIBIT 11

RAC FINANCIAL GROUP, INC.

Statement re Computation of per Share Earnings

Income per common and common equivalent share is calculated as follows:

<TABLE>
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net income..................................... $ 5,155,498 $ 5,839,510 $34,212,428
Less: accrual of preferred stock dividends..... (71,000) (198,667) (66,000)
----------- ----------- -----------
Primary net income applicable to common
stock....................................... $ 5,084,498 $ 5,640,843 $34,146,428
----------- ----------- -----------
----------- ----------- -----------
Interest on Convertible Subordinated Notes
less the effect of income taxes............... - - $ 504,918
-----------
Fully diluted net income applicable to
common stock................................ 5,084,498 5,640,843 $34,651,346
----------- ----------- -----------
----------- ----------- -----------

Net income per share of common stock........... $ 0.31 $ 0.28 $ 1.35
----------- ----------- -----------
----------- ----------- -----------
Average common shares outstanding.............. 13,875,862 17,895,862 24,712,194
Common stock equivalents:
Warrants and options........................ 2,401,012 2,401,012 645,968
----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding............... 16,276,874 20,296,874 25,358,162
----------- ----------- -----------
----------- ----------- -----------
Fully diluted net income per share of
common stock................................ $ 0.31 $ 0.28 $ 1.31
----------- ----------- -----------
----------- ----------- -----------
Average common shares outstanding.............. 13,875,862 17,895,862 24,712,194
Common stock equivalents:
Warrants and options........................ 2,401,012 2,401,012 1,641,332
----------- ----------- -----------
Weighted average fully diluted common
and common equivalent shares outstanding.... 16,276,874 20,296,874 26,353,526
----------- ----------- -----------
----------- ----------- -----------
</TABLE>

<PAGE>

Exhibit 23.1

Consent of Independent Auditors

We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the 1995 Employee Stock Option Plan for RAC
Financial Group, Inc., the 1995 Nonemployee Director Stock Option Plan for
RAC Financial Group, Inc., the 1995 Employee Stock Purchase Plan for RAC
Financial Group, Inc., the Stock Option Agreement for Dan Marino, the Stock
Option Agreement for Charles T. Owens, and the Stock Option Agreement for
Ralph Stringer, of our report dated October 25, 1996, with respect to the
consolidated financial statements and schedule of RAC Financial Group, Inc.
and its subsidiaries included in the Annual Report (Form 10-K) for the year
ended September 30, 1996.

/s/ Ernst & Young LLP

Dallas, Texas
December 19, 1996