MEGO MORTGAGE CORP, S-1, 1996-09-20

MEGO MORTGAGE CORP
S-1, 1996-09-20

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 20, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

MEGO MORTGAGE CORPORATION
(Name of Registrant as Specified in its Charter)
---------------------

<TABLE>
<S> <C> <C>
DELAWARE 6162 88-0286042
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

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1000 PARKWOOD CIRCLE, SUITE 500
ATLANTA, GEORGIA 30339
(770) 952-6700

(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JAMES L. BELTER
EXECUTIVE VICE PRESIDENT
MEGO MORTGAGE CORPORATION
1000 PARKWOOD CIRCLE, SUITE 500
ATLANTA, GEORGIA 30339
(770) 952-6700

(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY OF COMMUNICATIONS TO:

<TABLE>
<S> <C>
GARY EPSTEIN, ESQ. STEVEN R. FINLEY, ESQ.
FERN S. WATTS, ESQ. GIBSON, DUNN & CRUTCHER LLP
GREENBERG, TRAURIG, HOFFMAN, 200 PARK AVENUE
LIPOFF, ROSEN & QUENTEL, P.A. NEW YORK, NEW YORK 10166
1221 BRICKELL AVENUE (212) 351-4000
MIAMI, FLORIDA 33131 (FACSIMILE) (212) 351-4035
(305) 579-0500
(FACSIMILE) (305) 579-0717
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
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PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value........................ $32,200,000 $11,104
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</TABLE>

(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
(2) Includes 300,000 shares of Common Stock which may be purchased by the
Underwriters pursuant to an over-allotment option.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

MEGO MORTGAGE CORPORATION

(CROSS REFERENCE SHEET PURSUANT TO ITEM 501 OF REGULATION S-K)

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION HEADING IN PROSPECTUS
- ------------------------------------------------- -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages
3. Summary Information and Risk Factors....... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Cover Page; Underwriting
6. Dilution................................... Dilution
7. Selling Security Holders................... *
8. Plan of Distribution....................... Cover Page; Underwriting
9. Description of Securities to be
Registered............................... Prospectus Summary; Dividend Policy;
Description of Capital Stock
10. Interests of Named Experts and Counsel..... *
11. Information With Respect to the
Registrant............................... Prospectus Summary; Risk Factors;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Stockholders; Certain
Transactions; Description of Note
Offering; Description of Capital Stock;
Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>

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* Omitted because response is negative or inapplicable.
<PAGE> 3

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED SEPTEMBER 20, 1996

2,000,000 SHARES

MEGO MORTGAGE CORPORATION
COMMON STOCK
------------------------
All of the 2,000,000 shares of Common Stock offered hereby (the "Offering")
are being sold by Mego Mortgage Corporation (the "Company"). Mego Financial
Corp. ("Mego Financial") currently owns 100% of the outstanding Common Stock.
Upon completion of the Offering, Mego Financial will own approximately 83.3% of
the Company's outstanding Common Stock (approximately 81.3% if the Underwriters
exercise their over-allotment option in full). The sale of the Common Stock
offered hereby is contingent upon the completion of a concurrent offering by the
Company (the "Note Offering") of an aggregate of $40,000,000 of % Senior
Subordinated Notes due 2001.

Prior to the Offering, there has been no public trading market for the
Common Stock, and there can be no assurance that any active trading market will
develop. It is currently anticipated that the initial public offering price will
be between $ and $ per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.

Application will be made to list the Common Stock for quotation on The
Nasdaq National Market ("Nasdaq") under the symbol "MMGC."

SEE "RISK FACTORS" ON PAGES 8 THROUGH 17 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

<TABLE>
<CAPTION>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share........................... $ $ $
Total(3)............................ $ $ $
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</TABLE>

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other information.
(2) Before deducting expenses of the Offering estimated at $ payable by
the Company.
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to 300,000 additional shares of
Common Stock for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters when, as and if
delivered to and accepted by them, subject to their right to withdraw, cancel or
reject orders in whole or in part and subject to certain other conditions. It is
expected that delivery of certificates representing the shares of Common Stock
will be made against payment on or about , 1996, at the office of
Oppenheimer & Co., Inc., Oppenheimer Tower, World Financial Center, New York,
New York 10281.
------------------------
OPPENHEIMER & CO., INC. FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

The date of this Prospectus is , 1996
<PAGE> 4

[MAP OF LOCATIONS TO BE INSERTED]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety. Unless otherwise indicated, all
information in this Prospectus (i) assumes no exercise of the Underwriters'
over-allotment option to purchase from the Company up to an additional 300,000
shares of Common Stock and (ii) gives effect to a 1,600-for-1 stock split
effected in October 1996.

THE COMPANY

Mego Mortgage Corporation (the "Company") is a specialized consumer finance
company that originates, purchases, sells and services consumer loans consisting
primarily of home improvement loans secured by liens on the improved property.
Through its network of independent correspondent lenders ("Correspondents") and
home improvement construction contractors ("Dealers"), the Company initially
originated only home improvement loans insured under the Title I credit
insurance program ("Title I Loans") of the Federal Housing Administration (the
"FHA"). The Title I program provides for insurance of 90% of the principal
balance of the loan, and certain other costs. The Company began offering
conventional uninsured home improvement loans and debt consolidation loans
("Conventional Loans") through its Correspondents in May 1996 and such loans
have become a significant portion of its current loan originations.

The Company's borrowers are individuals who own their home and have
verifiable income but may have limited access to traditional financing sources
due to insufficient home equity, limited credit history or high ratios of debt
service to income. These borrowers require or seek a high degree of personalized
service and prompt response to their loan applications. As a result, the
Company's borrowers generally are not averse to paying higher interest rates
that the Company charges for its loan programs as compared to the interest rates
charged by banks and other traditional financial institutions. The Company has
developed a proprietary credit index profile that includes as a significant
component the credit evaluation score methodology developed by Fair, Isaac and
Company to classify borrowers on the basis of likely future performance. The
other components of the Company's scoring system include debt to income ratio,
employment history and residence stability. The Company charges varying rates of
interest based upon the borrower's credit profile and income. For the year ended
August 31, 1996, the loans originated by the Company had a weighted average
interest rate of 14.0%.

The Company's loan originations increased to $139.3 million during the year
ended August 31, 1996 from $87.8 million during the year ended August 31, 1995
and $8.1 million during the six months in which it originated loans in the year
ended August 31, 1994. The Company's revenues increased to $13.6 million for the
year ended August 31, 1995 from $751,000 for the year ended August 31, 1994. For
the nine months ended May 31, 1996, the Company had revenues of $17.4 million
compared to $6.8 million for the nine months ended May 31, 1995. For the nine
months ended May 31, 1996, the Company had net income of $4.6 million compared
to $1.2 million for the nine months ended May 31, 1995.

The Company sells substantially all the loans it originates through either
whole loan sales to third party institutional purchasers or securitizations at a
yield below the stated interest rate on the loans, retaining the right to
service the loans and receive any amounts in excess of the yield to the
purchasers. The Company completed its first two securitizations of Title I Loans
in March and August 1996 totalling $133.1 million and expects to sell a
substantial portion of its loan production through securitizations in the
future. At May 31, 1996, the Company serviced $166.3 million of loans it had
sold.

3
<PAGE> 6

and approximately 445 active Dealers. The Company's Correspondents generally
offer a wide variety of loans and its Dealers typically offer home improvement
loans in conjunction with debt consolidation. By offering a more diversified
product line, including Conventional Loans, and maintaining its high level of
service, the Company has increased the loan production from its existing network
of Correspondents. The Company also intends to increase its number of active
Correspondents and Dealers by greater penetration of existing markets, because
of its broader product line, and through expansion into new geographic markets.
The Company anticipates that as it expands its lending operations it will
realize economies of scale, thereby reducing its average loan origination costs
and enhancing its profitability. In addition, the Company intends to continue to
sell its loan production through securitizations as opportunities arise. Through
access to securitization, the Company believes that it has the ability to sell
higher volumes of loans on more favorable terms than through whole loan sales.

The Company was incorporated under the laws of the State of Delaware in
1992. The Company's principal executive offices are located at 1000 Parkwood
Circle, Suite 500, Atlanta, Georgia 30339, and its telephone number is (770)
952-6700.

RELATIONSHIP WITH MEGO FINANCIAL

Mego Financial Corp. ("Mego Financial"), a publicly traded company,
currently owns 100% of the outstanding Common Stock. Upon completion of the
Offering, Mego Financial will own approximately 83.3% of the outstanding Common
Stock (approximately 81.3% if the Underwriters exercise their over-allotment
option in full). As a result of its ownership interest, upon completion of the
Offering, Mego Financial will have voting control on all matters submitted to
stockholders of the Company, including the election of directors and the
approval of extraordinary corporate transactions. See "Principal Stockholders."
In order to fund the Company's past operations and growth, and in conjunction
with filing consolidated tax returns, the Company incurred debt to Mego
Financial ("Intercompany Debt"). The amount of Intercompany Debt was $8.5
million at August 31, 1995 and $12.0 million at May 31, 1996. The Company
intends to use a portion of the aggregate net proceeds from the Offering and the
Note Offering to repay Intercompany Debt. It is not anticipated that Mego
Financial will continue to provide funds to the Company or guarantee the
Company's indebtedness following consummation of the Offering. The Company also
has agreements with its affiliate, Preferred Equities Corporation ("PEC"), for
the provision of management services and loan servicing and an agreement with
Mego Financial and its direct and indirect subsidiaries for tax sharing. See
"Use of Proceeds" and "Certain Transactions."

THE OFFERING

Common Stock offered by the
Company............................. 2,000,000 shares

Common Stock to be outstanding after
the Offering........................ 12,000,000 shares(1)

Use of proceeds..................... The Company intends to use the
aggregate net proceeds of the Offering
and the Note Offering to provide
capital to originate and securitize
loans and to repay Intercompany Debt.
See "Use of Proceeds."

Proposed Nasdaq symbol.............. MMGC
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(1) Does not include 900,000 shares of Common Stock reserved for issuance upon
exercise of stock options to be granted under the Company's 1996 Employee
Stock Option Plan (the "Stock Option Plan"). See "Management -- Stock
Option Plan."

4
<PAGE> 7

CONCURRENT OFFERING OF SUBORDINATED NOTES

Concurrent with the Offering, the Company is offering $40.0 million
aggregate principal amount of % Senior Subordinated Notes due 2001 (the
"Notes") by a separate prospectus. The consummation of the Offering and the Note
Offering are conditioned upon each other. See "Description of Note Offering."

5
<PAGE> 8

SUMMARY FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The summary financial information set forth below should be read in
conjunction with the financial statements, related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF MAY 31, 1996
----------------- ------------------------
1994(1) 1995 ACTUAL AS ADJUSTED(4)
------- ------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans held for sale, net.............................. $1,463 $ 3,676 $ 4,671 $ 4,671
Excess servicing rights............................... 904 14,483 12,796 12,796
Mortgage related securities(2)........................ -- -- 15,144 15,144
Total assets.......................................... 5,122 24,081 40,499
Total liabilities..................................... 983 13,300 25,088
Total stockholder's equity............................ 4,139 10,781 15,411
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED AUGUST NINE MONTHS
31, ENDED MAY 31,
----------------- ------------------
1994(1) 1995 1995 1996
------- ------- ------- --------
<S> <C> <C> <C> <C>
OPERATING DATA:
Loans originated...................................... $8,133 $87,751 $52,521 $ 89,391
Weighted average interest rate on loans originated.... 14.18 % 14.55% 14.47% 14.23%
Servicing portfolio (period end):
Company-owned loans................................. $1,471 $ 3,720 $ 6,250 $ 4,763
Sold loans.......................................... 6,555 88,566 52,400 166,285
------- ------- -------- --------
Total....................................... $8,026 $92,286 $58,650 $171,048
======= ======= ======== ========
Delinquency period(5):
31-60 days past due................................. 2.06 % 2.57% 1.27% 2.41%
61-90 days past due................................. 0.48 0.73 0.39 0.78
91 days and over past due........................... 0.26 0.99 0.68 4.34(6)
91 days and over past due, net of claims filed(7)... 0.26 0.99 0.68 2.38
Claims filed with HUD(8).............................. -- -- -- 1.96
Amount of FHA insurance available (period end)........ $ 831 $ 9,552 $ 6,029 $ 18,084(9)
Amount of FHA insurance available as a percentage of
loans serviced (period end)......................... 10.36 % 10.35% 10.28% 10.57%(9)
Ratio of earnings to fixed charges(10)................ N/A 7.69x 5.27x 10.23x
</TABLE>

6
<PAGE> 9

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(1) The Company commenced originating loans in March 1994.
(2) Mortgage related securities consist of certificates representing interests
retained by the Company in securitization transactions.
(3) The results of operations of the Company are included in the consolidated
Federal income tax returns filed by Mego Financial, the Company's sole
stockholder. Mego Financial allocates income taxes to the Company
calculated on a separate return basis. See "Certain Transactions."
(4) As adjusted to give effect to (i) the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and estimated
expenses of the Offering), (ii) the sale of the Notes pursuant to the Note
Offering (after deducting underwriting discounts and estimated expenses of
the Note Offering) and (iii) the application of the estimated net proceeds
from the Offering and the Note Offering as described under "Use of
Proceeds."
(5) Represents the dollar amount of delinquent loans as a percentage of total
dollar amount of loans serviced by the Company (including loans owned by
the Company) as of the date indicated.
(6) During the nine month period ended May 31, 1996, the processing and payment
of claims filed with HUD was delayed. See "Business -- Loan Servicing."
(7) Represents the dollar amount of delinquent loans net of delinquent Title I
Loans for which claims have been filed with HUD and payment is pending as a
percentage of total dollar amount of loans serviced by the Company
(including loans owned by the Company) as of the date indicated.
(8) Represents the dollar amount of delinquent Title I Loans for which claims
have been filed with HUD and payment is pending as a percentage of total
dollar amount of loans serviced by the Company (including loans owned by
the Company) as of the date indicated.
(9) If all claims filed with HUD had been processed and paid as of period end,
the amount of FHA insurance available would have been reduced to
$15,063,000, which as a percentage of loans serviced would have been 8.98%.
(10) Earnings include pretax income, the portion of rents representative of the
interest factor and interest on debt. Fixed charges include interest on
indebtedness (including the Notes), prepaid commitment fees and the portion
of rents representative of the interest factor.

7
<PAGE> 10

RISK FACTORS

Investment in the Common Stock offered hereby involves a high degree of
risk, including the risks described below. Each prospective investor should
carefully consider the following risk factors inherent in and affecting the
business of the Company and this offering before making an investment decision.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act. Discussions containing such forward-looking
statements may be found in the material set forth under "Prospectus Summary,"
"Risk Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as in the Prospectus generally.
Actual events or results may differ as a result of various factors, including,
without limitation, the risk factors set forth below and the matters set forth
in the Prospectus generally.

INTEREST RATE RISKS

Changes in interest rates affect the Company's business in a variety of
ways, including decreased demand for loans during periods of higher interest
rates, fluctuations in profits derived from the difference between short-term
and long-term interest rates and increases in prepayment rates during periods of
lower interest rates. The profits realized by the Company from home improvement
loans are, in part, a function of the difference between fixed long-term
interest rates, at which the Company originates its home improvement loans, and
adjustable short-term interest rates, at which the Company finances such loans
until the closing of the sale of such loans. Generally, short-term rates are
lower than long-term rates and the Company benefits from the positive interest
rate differentials during the time the loans are held by the Company pending the
closing of the sale of such loans. During the period from 1994 through the
present, the interest rate differential was high and this fact contributed
significantly to the Company's net interest income. The interest rate
differential may not continue at such favorable levels in the future.

Changes in interest rates during the period between the time an interest
rate is established on a loan and the time such loan is sold affect the revenues
realized by the Company from loans. In connection with the origination of loans,
the Company issues loan commitments for periods of up to 45 days in the case of
Correspondents and 90 days in the case of Dealers. Furthermore, the period of
time between the closing on a loan and the sale of such loan generally ranges
from 10 to 90 days. Increases in interest rates during these periods will result
in lower gains (or even losses) on sales of loans than would be recorded if
interest rates had remained stable or had declined. Changes in interest rates
after the sale of loans also affect the profits realized by the Company with
respect to loan sale transactions in which the yield to the purchaser is based
on an adjustable rate. During the year ended August 31, 1995 and the nine months
ended May 31, 1996, the Company sold loans under an agreement which provides for
the yield to the purchaser to be adjusted monthly to a rate equal to 200 basis
points over the one-month London Interbank Offered Rate ("LIBOR"). An increase
in LIBOR would result in a decrease in the Company's future income from such
sold loans resulting in a charge to earnings in the period of adjustment.
Although through May 31, 1996 the Company has not suffered losses in connection
with the sale of Title I Loans or Conventional Loans as a result of interest
rate changes, there can be no assurance that such losses will not occur in the
future. To date, the Company has not hedged its interest rate risk, although it
may do so in the future. To the extent that the Company engages in hedging
transactions, there can be no assurance that it will be successful in mitigating
the adverse impact of changes in interest rates.

Interest rate levels also affect the Company's excess servicing spread. The
Company generally retains the servicing rights to the loans it sells. The yield
to the purchaser is generally lower than the average stated interest rates on
the loans, as a result of which the Company earns an excess servicing spread on
the loans it sells. Increases in interest rates or competitive pressures may
result in reduced servicing spreads, thereby reducing or eliminating the gains
recognized by the Company upon the sale of loans in the future.

CAPITALIZED EXCESS SERVICING RIGHTS AND VALUATION OF MORTGAGE RELATED SECURITIES

At May 31, 1996, the Company's balance sheet reflected excess servicing
rights of $12.8 million, mortgage related securities of $15.1 million and
mortgage servicing rights of $2.7 million. The Company derives a significant
portion of its income by realizing gains upon the sale of loans due to the
excess servicing

8
<PAGE> 11

rights associated with such loans recorded at the time of sale and the
capitalization of mortgage servicing rights recorded at origination. Excess
servicing rights as capitalized on the Company's balance sheet represent the
excess of the interest rate payable by an obligor on a loan over the interest
rate passed through to the purchaser acquiring an interest in such loan, less
the Company's normal servicing fee and other applicable recurring fees.

The Company records gains on sale of loans through securitizations and
whole loan sales based in part on the estimated fair value of the mortgage
related securities (residual and interest only securities) retained by the
Company and on the estimated fair value of retained mortgage servicing rights
related to such loans. When loans are sold, the Company recognizes as current
revenue the present value of the excess servicing rights expected to be realized
over the anticipated average life of loans sold less future estimated credit
losses relating to the loans sold. Mortgage related securities consist of
certificates representing the excess of the interest rate payable by an obligor
on a sold loan over the yield on pass-through certificates sold pursuant to a
securitization transaction, after payment of servicing and other fees. The
capitalized excess servicing rights, and capitalized mortgage servicing rights
and valuation of mortgage related securities are computed using prepayment,
default and interest rate assumptions that the Company believes are reasonable.
The amount of revenue recognized upon the sale of loans will vary depending on
the assumptions utilized. The weighted average discount rate used to determine
the present value of the balance of capitalized excess servicing rights and
capitalized mortgage servicing rights reflected on the Company's balance sheet
at August 31, 1995 and May 31, 1996 was approximately 12%. Capitalized excess
servicing rights are amortized over the lesser of the estimated or actual
remaining life of the underlying loans as an offset against the excess servicing
rights component of servicing income actually received in connection with such
loans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

Although the Company believes that it has made reasonable estimates of the
fair value of the mortgage related securities, the excess servicing rights and
mortgage servicing rights likely to be realized, the rate of prepayment and the
amount of defaults utilized by the Company are estimates and actual experience
may vary from its estimates. The gain recognized by the Company upon the sale of
loans will have been overstated if prepayments or defaults are greater than
anticipated. Higher levels of future prepayments could result in excess
servicing rights and mortgage servicing rights amortization expense exceeding
realized excess servicing rights and mortgage servicing rights, thereby
adversely affecting the Company's servicing income and resulting in a charge to
earnings in the period of adjustment. Similarly, if delinquencies or
liquidations were to be greater than initially assumed, excess servicing rights
and mortgage servicing rights amortization would occur more quickly than
originally anticipated, which would have an adverse effect on servicing income
in the period of such adjustment. The Company periodically reviews its
prepayment assumptions in relation to current rates of prepayment and, if
necessary, reduces the remaining asset to the net present value of the estimated
remaining future excess servicing rights. Rapid increases in interest rates or
competitive pressures may result in a reduction of excess servicing income
recognized by the Company upon the sale of loans in the future, thereby reducing
the gains recognized by the Company upon such sales. Higher levels of
prepayments than initially assumed would result in a charge to earnings in the
period of adjustment.

Increases in interest rates or higher than anticipated rates of loan
prepayments or credit losses on the underlying loans of the Company's mortgage
related securities or similar securities may require the Company to write down
the value of such mortgage related securities and result in a material adverse
impact on the Company's results of operations and financial condition. The
Company is not aware of an active market for the mortgage related securities,
excess servicing rights or mortgage servicing rights. No assurance can be given
that the mortgage related securities, capitalized excess servicing rights or
mortgage servicing rights could in fact be sold at their carrying value, if at
all. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."

In order to provide availability under its warehouse line of credit, during
the year ended August 31, 1995 and the nine months ended May 31, 1996, the
Company sold an aggregate of approximately $138.5 million of loans under an
agreement which provides for the yield to the purchaser to be adjusted monthly
to a rate equal to 200 basis points over LIBOR. The Company is not obligated to
reacquire and the purchaser is not obligated to resell such loans. In March 1996
and August 1996, in order to fix the yield on such loans, the Company reacquired
$77.8 million and $36.2 million, respectively, of such loans and included the
loans in pools of loans

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sold in its first two securitization transactions. As a result of the
reacquisitions and subsequent sales in the securitization transactions, the
gains on sale and excess servicing rights recognized upon the initial sales of
the loans in such periods were recalculated without any material adverse effect
on the Company's earnings. The Company anticipates that in the future it may
sell and then reacquire loans to be resold pursuant to securitizations, which
will result in recalculation of the initial gain on sale and excess servicing
rights. Any such recalculation in such periods could have a material adverse
effect on the Company's earnings in the period of recalculation.

LIQUIDITY -- DEPENDENCE ON SECURITIZATION TRANSACTIONS

The values of and markets for the sale of the Company's loans are dependent
upon a number of factors, including general economic conditions, interest rates
and government regulations. Adverse changes in those factors may affect the
Company's ability to originate or sell loans in the secondary market for
acceptable prices within reasonable time frames. The ability of the Company to
sell loans in the secondary market is essential for continuation of the
Company's loan origination activities. A reduction in the size of the secondary
market for home improvement loans would adversely affect the Company's ability
to sell its loans in the secondary market with a consequent adverse impact on
the Company's profitability and future originations.

The Company entered into its first two securitization transactions, which
involve the pooling and sale of loans, in March 1996 and August 1996 and intends
to continue to sell loans through securitization transactions from time to time
as opportunities arise. There can be no assurance that the Company will be able
to securitize its loan production efficiently. Securitization transactions may
be affected by a number of factors, some of which are beyond the Company's
control, including, among other things, conditions in the securities markets in
general, conditions in the asset-backed securitization market and the conformity
of loan pools to rating agency requirements and, to the extent that monoline
insurance is used, the requirements of such insurers. Adverse changes in the
securitization market could impair the Company's ability to originate and sell
loans through securitizations on a favorable or timely basis. Any such
impairment could have a material adverse effect upon the Company's results of
operations and financial condition. Furthermore, the Company's quarterly
operating results can fluctuate significantly as a result of the timing and
level of securitizations.

LIQUIDITY -- CASH FLOW

As a result of its increased volume of loan originations, the Company has
operated since March 1994, and expects to continue to operate for the
foreseeable future, on a negative cash flow basis. During the nine months ended
May 31, 1996, the Company operated on a negative cash flow basis using $8.0
million in operations that was funded primarily from borrowings, due primarily
to an increase in loans originated and the Company's sale of loans. In
connection with whole loan sales and securitizations, the Company recognizes a
gain on sale of the loans upon the closing of the transaction and the delivery
of the loans, but does not receive the cash representing such gain until it
receives the excess servicing spread, which is payable over the actual life of
the loans sold. The Company incurs significant expenses in connection with
securitizations and incurs tax liabilities as a result of the gain on sale. The
Company must maintain external sources of cash to fund its operations and pay
its taxes and therefore must maintain warehouse lines of credit and other
external funding sources. If the capital sources of the Company were to
decrease, the rate of growth of the Company would be negatively affected. See
"-- Dependence on Mego Financial and PEC."

The documents governing the Company's securitizations require the Company
to build over-collateralization levels through retention within each
securitization trust of excess servicing distributions and application thereof
to reduce the principal balances of the senior interests issued by the related
trust or cover interest shortfalls. This retention causes the aggregate
principal amount of the loans in the related pool to exceed the aggregate
principal balance of the outstanding investor certificates. Such
over-collateralization amounts serve as credit enhancement for the related trust
and therefore are available to absorb losses realized on loans held by such
trust. The Company continues to be subject to the risks of default and
foreclosure following the sale of loans through securitizations to the extent
excess servicing distributions are required to be retained or applied to reduce
principal from time to time. Such retained amounts are predetermined by the
entity issuing the guarantee of the related senior interests and are a condition
to obtaining insurance and an AAA/Aaa rating

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thereon. In addition, such retention delays cash distributions that otherwise
would flow to the Company through its retained interest, thereby adversely
affecting the flow of cash to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

CONTINGENT RISKS

Loan delinquencies and other loan defaults by obligors expose the Company
to risks of loss and reduced net earnings. The loan delinquency and default
risks to which the Company's business is subject become more acute in an
economic slowdown or recession. During such periods, loan delinquencies and
other defaults generally increase. In addition, significant declines in market
values of the properties that secure loans serviced by the Company reduce
homeowners' equity in their homes and their borrowing power, thereby increasing
the likelihood of delinquencies and defaults. Because most of the Company's
borrowers generally lack significant equity in their homes, the likelihood of
default may be further increased. This lack of equity also increases the risk
that, upon the occurrence of a customer default, the Company would be unlikely
to recover more than the amount insured.

Although the Company sells substantially all loans which it originates on a
limited recourse basis, the Company retains some degree of risk on substantially
all loans sold. In connection with whole loan sales, the excess servicing
payable to the Company is subordinated to the payment of scheduled principal and
interest due to the purchasers of such loans. The Company is required under the
loan sale documentation to establish reserves which are typically based on a
percentage of the principal balances of such loans and funded from the excess
servicing spread received by the Company. If a reserve falls below the required
level, the Company is obligated under the loan sale documentation to restore the
reserve from the servicing spread received by the Company, thereby reducing the
stream of revenue from the servicing spread. Although the Company believes it
maintains adequate reserves for potential losses from delinquencies and
defaults, there can be no assurance that such levels of reserves will be
adequate in the future. In addition, documents governing the Company's
securitizations and whole loan sales require the Company to commit to reacquire
or replace loans that do not conform to the representations and warranties made
by the Company at the time of sale. When borrowers are delinquent in making
monthly payments on loans included in a securitization trust, the Company is
required to advance interest payments with respect to such delinquent loans to
the extent that the Company deems such advances ultimately recoverable. These
advances require funding by the Company but have priority of repayment from the
succeeding month's collections.

During the period of time that loans are held pending sale, the Company is
subject to the various business risks associated with the lending business,
including the risk of borrower default, the risk of foreclosure and the risk
that a rapid increase in interest rates would result in a decline in the value
of loans to potential purchasers. To date, a significant portion of the loans
originated by the Company qualify under Title I of the National Housing Act
pursuant to which 90% of the principal balances of such loans are insured by the
FHA; however, the Company bears the risk of delinquencies and defaults with
respect to the uninsured portion of such loans. Moreover, even as to the insured
portion, the amount of reimbursement to which the Company is entitled pursuant
to Title I is limited to the amount of insurance coverage in its reserve account
established by the FHA. The amount of insurance coverage in a lender's reserve
account is equal to 10% of the original principal amount of all Title I Loans
originated and reported for insurance coverage by the lender less the amount of
all insurance claims approved for payment in connection with losses on such
loans and less amounts transferred in connection with sales of loans. The
Company also would sustain a loss on loans if defaults occur that are not cured
and proceeds from FHA insurance or the foreclosure on and disposition of
property securing a defaulted loan are less than the amounts due on the loan
plus carrying and other costs. Furthermore, Title I sets forth requirements to
be satisfied by the lender in connection with the origination of Title I Loans
and the submission of claims for insurance. The exhaustion of the reserves or
the Company's failure to comply with Title I requirements could result in denial
of payment by FHA.

The Company began originating Conventional Loans in May 1996 and expects
that such loans will become a significant portion of its loan portfolio. During
the period of time that such loans are held for sale, the Company bears the risk
of delinquencies and defaults with respect to the entire principal amount of and
interest on such loans and the risk that the realizable value of the property
securing such loans will not be

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<PAGE> 14

sufficient to repay the borrower's obligations to the Company. Significant
defaults under these loans could have a material adverse effect on the Company's
results of operations and financial condition.

In the ordinary course of its business, the Company is subject to claims
made against it by borrowers and private investors arising from, among other
things, losses that are claimed to have been incurred as a result of alleged
breaches of fiduciary obligations, misrepresentations, errors and omissions of
employees, officers and agents of the Company (including its appraisers),
incomplete documentation and failures by the Company to comply with various laws
and regulations applicable to its business. The Company believes that liability
with respect to any currently asserted claims or legal actions is not likely to
be material to the Company's results of operations or financial condition;
however, any claims asserted in the future may result in legal expenses or
liabilities which could have a material adverse effect on the Company's results
of operations and financial condition.

RISKS RELATING TO GROWTH STRATEGY

The Company's strategic plan contemplates the continued expansion of its
mortgage lending operations. The Company's ability to continue implementing its
expansion strategy depends on its ability to increase the volume of loans it
originates while maintaining credit quality and managing its resulting growth.
The Company's ability to increase its volume of loans will depend on, among
other factors, its ability to (i) obtain and maintain increasingly larger lines
of credit, (ii) securitize pools of loans for sale, (iii) offer attractive
products to prospective borrowers, (iv) attract and retain qualified
underwriting, servicing and other personnel, (v) market its loan products
successfully and (vi) establish and maintain relationships with Correspondents
and Dealers in states in which the Company is currently active and in additional
states. The Company's ability to manage growth as it pursues its expansion
strategy will be dependent upon, among other things, its ability to (i) maintain
appropriate procedures, policies and systems to ensure that the Company's loan
portfolio does not have an unacceptable level of credit risk and loss, (ii)
satisfy its need for additional financing on reasonable terms, (iii) manage the
costs associated with expanding its infrastructure and (iv) continue operating
in competitive, economic, regulatory and judicial environments that are
conducive to the Company's business activities. As part of its expansion
strategy, the Company has begun to offer a more diversified product line,
including Conventional Loans which expose the Company to greater risks than
Title I Loans. There can be no assurance that the Company will be able to
continue to grow successfully.

DEPENDENCE ON CREDIT ENHANCEMENT

In order to gain access to the securitization market, the Company has
relied on credit enhancements provided by a monoline insurance carrier to
guarantee outstanding senior interests in the related securitization trusts to
enable it to obtain an AAA/Aaa rating for such interests. The Company has not
attempted to structure a mortgage loan pool for sale through a securitization
based solely on the internal credit characteristics of the pool or the Company's
credit. In the absence of such credit enhancements, the Company would be unable
to market its loans through securitizations at reasonable rates. Any substantial
reductions in the size or availability of the securitization market for the
Company's loans, or the unwillingness of insurance companies to insure the
senior interests in the Company's loan pools, could have a material adverse
effect on the Company's results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

DEPENDENCE ON FINANCING; NEED FOR ADDITIONAL FINANCING

The Company's business operations require continued access to adequate
credit facilities. The Company is dependent on the availability of credit
facilities for the origination of loans prior to their sale. The Company has a
financing arrangement for the financing of Title I and Conventional Loan
originations prior to the sale of such loans, which provides for a warehouse
line of credit of up to $20.0 million which expires in August 1997. At May 31,
1996, an aggregate of $3.0 million was outstanding under such line of credit and
$17.0 million was available for borrowing. In addition, at May 31, 1996, the
Company had a $5.0 million demand note facility, of which $5.0 million was
outstanding on that date. As of June 28, 1996, this facility was replaced by a
$10.0 million facility for the financing of excess servicing rights and mortgage
related securities. In September 1996,

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the Company entered into a repurchase agreement with a financial institution
pursuant to which it pledged the interest only certificates from its two 1996
securitizations in exchange for a $3.0 million advance. The Company also
received a commitment from the same financial institution for the purchase of
$2.0 billion of loans over a five-year period, as well as a commitment for up to
$11.0 million, reduced by any amounts advanced under the repurchase agreement,
for the financing of the interest only and residual certificates from future
securitizations. In the event that the proceeds received by the Company from the
Offering and the Note Offering together with cash flow from operations and its
existing credit facilities prove to be insufficient to meet the Company's
capital requirements, the Company may be required to seek additional financing.
There can be no assurance that such financing will be available on favorable
terms, or at all. To the extent that the Company were not successful in
maintaining or replacing existing financing or obtaining additional financing,
or selling its loans or receivables, it would have to curtail its activities,
which would have a material adverse effect on the Company.

RISKS RELATED TO THE NOTE OFFERING

The ability of the Company to make payments of interest and principal on
the Notes will depend on the cash reserves and other liquid assets held by the
Company and any proceeds from any future financings. If the Company were unable
to make such payments, it would result in a default under the Indenture
governing the Notes (the "Indenture"), as well as a default under certain of the
Company's other agreements, which would have a material adverse effect on the
Company's financial condition. The Indenture also includes certain covenants
that, among other things, restrict: (i) the incurrence of indebtedness; (ii) the
creation of liens, other than certain permitted liens; (iii) consolidations,
mergers and the sale of assets; (iv) certain transactions with affiliates; (v)
the incurrence of indebtedness and issuance of preferred stock by subsidiaries;
(vi) the making of restricted payments (including restrictions on the payment of
dividends on the Common Stock); (vii) the imposition of certain distribution
restrictions on subsidiaries; and (viii) the making of guarantees by
subsidiaries. If the Company does not comply with these covenants, the holders
of the Notes will be entitled, under certain circumstances, to declare the Notes
immediately due and payable, which would have a material adverse effect on the
Company's financial condition. In addition, the Indenture provides that, upon
certain events constituting a change of control of the Company, the holders of
the Notes would be entitled to require the Company to repurchase up to all of
the outstanding Notes, plus accrued and unpaid interest, if any, to the date of
repurchase. The Company's failure to repurchase the Notes would result in a
default under the Indenture, which would have a material adverse effect on the
Company's financial condition.

INCOME TAXES

For Federal income tax purposes the Company reports its income in a
consolidated return filed by Mego Financial. As part of a tax sharing
arrangement, the Company records a liability to Mego Financial for Federal
income taxes calculated at the Federal statutory rate (currently 34%) applied to
the Company's financial statement income before giving consideration to income
tax expense. The Company also provides for state income taxes at the rate of 6%
of income before income taxes.

CONCENTRATION OF OPERATIONS IN CALIFORNIA

Approximately 38.3% of the dollar volume of the Company's servicing
portfolio at, and approximately 27.9% of the dollar volume of loans originated
by the Company during the nine months ended, May 31, 1996 were secured by
properties located in California. Although the Company is expanding its network
nationally, significant portions of the Company's servicing portfolio and loan
originations are likely to remain concentrated in California for the foreseeable
future. Consequently, the Company's results of operations and financial
condition are dependent upon general trends in the California economy and its
residential real estate market. The California economy has experienced a
slowdown or recession over the last several years that has been accompanied by a
sustained decline in the California real estate market. Residential real estate
market declines may adversely affect the value of the properties securing loans
to the extent that the principal balances of such loans, together with any
primary financing on the mortgaged properties, will equal or exceed the value of
the mortgaged properties. In addition, California historically has been
vulnerable to certain

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natural disaster risks, such as earthquakes and erosion-caused mudslides, which
are not typically covered by the standard hazard insurance policies maintained
by borrowers. Uninsured disasters may adversely impact borrowers' ability to
repay loans made by the Company. The existence of adverse economic conditions or
the occurrence of such natural disasters in California could have a material
adverse effect on the Company's results of operations and financial condition.

LEGISLATIVE AND REGULATORY RISKS

Members of Congress and government officials from time to time have
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Company's loans are made to borrowers
for the purpose of consolidating consumer debt or financing other consumer
needs, the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits would have a material adverse effect on the demand for loans of the
kind offered by the Company.

The Company's business is subject to extensive regulation, supervision and
licensing by federal, state and local governmental authorities and is subject to
various laws and judicial and administrative decisions imposing requirements and
restrictions on part or all of its operations. The Company's consumer lending
activities are subject to the Federal Truth-in-Lending Act and Regulation Z
(including the Home Ownership and Equity Protection Act of 1994), the Federal
Equal Credit Opportunity Act and Regulation B, as amended ("ECOA"), the Fair
Credit Reporting Act of 1970, as amended, the Federal Real Estate Settlement
Procedures Act ("RESPA") and Regulation X, the Home Mortgage Disclosure Act and
the Federal Debt Collection Practices Act, as well as other federal and state
statutes and regulations of, and examinations by, the Department of Housing and
Urban Development ("HUD") and state regulatory authorities with respect to
originating, processing, underwriting, selling, securitizing and servicing
loans. These rules and regulations, among other things, impose licensing
obligations on the Company, establish eligibility criteria for mortgage loans,
prohibit discrimination, provide for inspections and appraisals of properties,
require credit reports on loan applicants, regulate assessment, collection,
foreclosure and claims handling, investment and interest payments on escrow
balances and payment features, mandate certain disclosures and notices to
borrowers and, in some cases, fix maximum interest rates, fees and mortgage loan
amounts. Failure to comply with these requirements can lead to loss of approved
status, termination or suspension of servicing contracts without compensation to
the servicer, demands for indemnification or mortgage loan repurchases, certain
rights of rescission for mortgage loans, class action lawsuits and
administrative enforcement actions.

Although the Company believes that it has systems and procedures to
facilitate compliance with these requirements and believes that it is in
compliance in all material respects with applicable local, state and federal
laws, rules and regulations, there can be no assurance that more restrictive
laws, rules and regulations will not be adopted in the future that could make
compliance more difficult or expensive. See "Business -- Government Regulation."

To date, a substantial portion of the loans originated by the Company have
been Title I Loans. Accordingly, a substantial part of the Company's business is
dependent on the continuation of the Title I Loan program, which is federally
funded. In August 1995, bills were introduced in both houses of the United
States Congress that would, among other things, abolish HUD, of which the FHA is
a part, reduce federal spending for housing and community development activities
and eliminate the Title I Loan program. Other changes to HUD have been proposed,
which, if adopted, could affect the operation of the Title I Loan program.
Discontinuation of or a significant reduction in the Title I Loan program or the
Company's authority to originate loans under the Title I Loan program could have
a material adverse effect on the Company's results of operations and financial
condition.

DEPENDENCE ON EXECUTIVE OFFICERS

Certain of the Company's loan agreements and loan sale agreements with
financial institutions contain provisions to the effect that if more than a
specified number of certain of the senior executive officers of the

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Company do not continue to hold such positions or control the Company, whether
due to death, disability or otherwise, the lenders or purchasers have the right
to declare the loans or agreements in default. In such event, there is no
assurance that the lenders or purchasers will consider replacement executive
officers acceptable to them and not declare such instruments in default.

DEPENDENCE ON MEGO FINANCIAL AND PEC

The Company has been dependent on Mego Financial to provide, among other
things, (i) funds for operations without interest and (ii) guarantees of the
Company's financing arrangements. The Company anticipates that no further
financing or guarantees will be made by Mego Financial following the completion
of the Offering. There can be no assurance that the absence of such financing or
guarantees will not have a material adverse effect on the Company, particularly
as the Company seeks to grow. In addition, the Company has been dependent on its
affiliate, PEC, to provide management services, routine loan collection services
and management information systems, including services of certain of its
executive officers. There can be no assurance that PEC will continue to provide
such services. The loss of such services could have a material adverse effect on
the Company if suitable replacements are not made.

COMPETITION

The consumer finance industry is highly competitive. Competitors in the
consumer finance business include mortgage banking companies, commercial banks,
credit unions, thrift institutions, credit card issuers and finance companies.
Certain of the Company's competitors are substantially larger, have greater name
recognition and have more capital and other resources than the Company.
Competition in the home improvement and debt consolidation loan business can
take many forms including convenience in obtaining a loan, customer service,
marketing and distribution channels and interest rates. In addition, the current
level of gains realized by the Company and its existing competitors on the sale
of loans could attract additional competitors to this market with the possible
effect of lower gains on loan sales resulting from increased loan origination
competition.

The Company depends largely on its Correspondents and Dealers for its
originations of loans. The Company's competitors also seek to establish
relationships with the Company's Correspondents and Dealers, none of whom are
required to deal exclusively with the Company. The Company's future results may
become more exposed to fluctuations in the volume and cost of its loans
resulting from competition from other purchasers of such loans, market
conditions and other factors.

CONTROL BY MAJORITY STOCKHOLDER

Upon completion of the Offering, the Company's current sole stockholder,
Mego Financial, will beneficially own approximately 83.3% of the outstanding
shares of Common Stock (approximately 81.3% if the Underwriters' over-allotment
option is exercised in full) and will therefore be able to elect the entire
Board of Directors and control all matters submitted to stockholders for a vote,
all fundamental corporate matters, including the selection of management and key
personnel, whether the Company engages in any mergers, acquisitions or other
business combinations or whether Mego Financial, at some time in the future,
divests all or any portion of its interest in the Company by means of a
distribution to its stockholders or otherwise. The Offering has been structured
in such a way as to facilitate the ability of Mego Financial, should it so
determine in the future, to effect a subsequent tax free distribution of all or
a portion of Mego Financial's shares in the Company to its shareholders,
although there is no assurance that any such distribution will occur. The
Company has been advised that Mego Financial may seek a ruling from the Internal
Revenue Service, as is customary, that such a distribution would be tax free.
There is no assurance that it will obtain such a ruling. Pursuant to the Amended
and Restated Certificate of Incorporation of the Company (the "Certificate of
Incorporation") and an agreement between Mego Financial and the Company, no
additional shares of Common Stock may be issued by the Company that would reduce
Mego Financial's interest below 80% without Mego Financial's written approval,
so long as Mego Financial owns at least 80% of the issued and outstanding Common
Stock of the Company (the "Eighty Percent Period"). In addition, although the
Certificate of Incorporation provides for the issuance of one or more series of
preferred stock from time to

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time, during the Eighty Percent Period no shares of any other class of capital
stock may be issued without Mego Financial's written approval during such
period, nor may the Company invest in or form any corporation without such
approval. Amendments to the Company's bylaws and changes to the Board are also
subject to such approval during the Eighty Percent Period. Any decision as to
whether any transactions of the type mentioned above ultimately occur will be
solely within the discretion of Mego Financial. See "Principal Stockholders" and
"Description of Capital Stock."

PORTION OF PROCEEDS TO BENEFIT MAJORITY STOCKHOLDER

The Company intends to use a portion of the aggregate net proceeds of the
Offering and the Note Offering to repay Intercompany Debt owed to Mego
Financial. See "Use of Proceeds."

DILUTION

Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net book value per share of Common Stock from the public
offering price per share of Common Stock. See "Dilution."

NO DIVIDENDS

The Company has not paid any cash dividends to date and does not intend to
pay cash dividends in the foreseeable future. In addition, certain agreements to
which the Company is a party, including the Indenture, restrict the Company's
ability to pay dividends on the Common Stock. The Company intends to retain
earnings to finance the development and expansion of its business. See "Dividend
Policy."

ABSENCE OF PUBLIC MARKET; POSSIBLE FLUCTUATIONS OF STOCK PRICE

Prior to the Offering, there has been no public market for the Common
Stock. There can be no assurance that an active trading market for the Common
Stock will develop or that, if developed, it will be sustained after the
Offering or that it will be possible to resell the shares of Common Stock at or
above the initial public offering price. The market price of the Common Stock
could be subject to significant fluctuations in response to the Company's
operating results and other factors. In addition, the stock market in recent
years has experienced extreme price and volume fluctuations that often have been
unrelated or disproportionate to the operating performance of companies. Such
fluctuations, and general economic and market conditions, may adversely affect
the market price of the Common Stock. See "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have 12,000,000 shares
of Common Stock outstanding (12,300,000 shares if the over-allotment option
granted to the Underwriters is exercised in full). Of these shares, 2,000,000
shares (2,300,000 shares if the over-allotment option granted to the
Underwriters is exercised in full) will be freely tradeable without restriction
or registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless held by affiliates of the Company. All of the remaining 10,000,000
shares of Common Stock held by Mego Financial will be "restricted securities" as
that term is defined in Rule 144 promulgated under the Securities Act. All of
such shares will become eligible for sale under Rule 144 commencing 90 days
after the consummation of the Offering. Mego Financial has agreed not to sell
any such shares of Common Stock for 180 days from the date of this Prospectus
without the prior written consent of Oppenheimer & Co., Inc. and Friedman,
Billings, Ramsey & Co., Inc. on behalf of the Underwriters. See "Underwriting."
Additionally, upon consummation of the Offering, 900,000 shares of Common Stock
will be reserved for issuance under the Company's Stock Option Plan. The Company
intends to register under the Securities Act all shares reserved for issuance
under its Stock Option Plan. Shares covered by such registration will be
eligible for resale in the public market, subject to Rule 144 limitations
applicable to affiliates. See "Management -- Stock Option Plan." Future sales of
substantial amounts of Common Stock in the public market, or the availability of
such shares for future sale, could impair the

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Company's ability to raise capital through an offering of securities and may
adversely affect the then-prevailing market prices. See "Shares Eligible for
Future Sale."

FACTORS INHIBITING TAKEOVER

As Mego Financial will continue to own in excess of 80% of the Common Stock
after the Offering, no takeover would be successful without its consent. Changes
in the management or ownership of Mego Financial or a reduction in the number of
shares owned by Mego Financial, however, could have an effect on the likelihood
of a takeover. However, the Certificate of Incorporation provides that no
additional shares of Common Stock may be issued that would reduce Mego
Financial's interest below 80% without its written approval during the Eighty
Percent Period. In addition, although the Certificate of Incorporation provides
for the issuance of one or more series of preferred stock from time to time,
during the Eighty Percent Period no shares of any other class of capital stock
may be issued without Mego Financial's written approval. Even in the event that
at some later date Mego Financial's percentage ownership in the Company is
significantly reduced, certain provisions of the Company's Certificate of
Incorporation and Amended and Restated Bylaws (the "Bylaws") may be deemed to
have anti-takeover effects and may delay, defer or prevent a takeover attempt
that a stockholder might consider in its best interest. The Company's
Certificate of Incorporation authorizes the Board to determine the rights,
preferences, privileges and restrictions of unissued series of preferred stock
and to fix the number of shares of any series of preferred stock and the
designation of any such series, without any vote or action by the Company's
stockholders. Thus, the Board may authorize and issue shares of preferred stock
with voting or conversion rights that could adversely affect the voting or other
rights of holders of the Common Stock. In addition, the issuance of preferred
stock may have the effect of delaying, deferring or preventing a change of
control of the Company, since the terms of the preferred stock that might be
issued could potentially prohibit the Company's consummation of any merger,
reorganization, sale of substantially all of its assets, liquidation or other
extraordinary corporate transaction without the approval of the holders of the
outstanding shares of the preferred stock. Other provisions of the Company's
Certificate of Incorporation and Bylaws (i) provide that special meetings of the
stockholders may be called only by the Board of Directors or upon the written
demand of the holders of not less than 30% of the votes entitled to be cast at a
special meeting and (ii) establish certain advance notice procedures for
nomination of candidates for election as directors by stockholders and for
stockholder proposals to be considered at annual stockholders' meetings. Mego
Financial could also vote to amend the Company's Certificate of Incorporation or
Bylaws without the vote of any other holders of the Common Stock.

USE OF PROCEEDS

The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby, based upon an assumed initial public offering price of
$ per share and after deducting underwriting discounts and estimated
expenses of the Offering, are estimated to be approximately $ million
($
million if the Underwriters' over-allotment option is exercised in full). The
net proceeds to the Company from the Note Offering, after deducting underwriting
discounts and estimated expenses of the Note Offering, are estimated to be
approximately $ million.

The Company currently intends to use approximately $ of the
aggregate net proceeds received by the Company from the Offering and the Note
Offering to repay Intercompany Debt which does not bear interest and is due on
demand. The remaining net proceeds will be used to provide capital to originate
and securitize loans. Pending such use, the net proceeds received by the Company
will be invested in high quality, short term interest-bearing investment and
deposit accounts and may be used to temporarily reduce the amounts outstanding
under the Company's lines of credit, which currently bear interest at rates
ranging from 1.0% to 2.0% over the prime rate.

17
<PAGE> 20

DIVIDEND POLICY

The Company has not paid any cash dividends to date. The Company intends to
retain any future earnings for the operation and expansion of its business and
does not currently anticipate paying cash dividends on the Common Stock in the
foreseeable future. Any future determination as to the payment of such cash
dividends would depend upon a number of factors, including future earnings,
results of operations, capital requirements, the Company's financial condition
and any restrictions under credit agreements, including the Indenture, existing
from time to time, as well as such other factors as the Board of Directors might
deem relevant. No assurance can be given that the Company will pay any dividends
in the future.

DILUTION

The net book value of the Company's Common Stock as of May 31, 1996 was
$15.4 million or approximately $1.54 per share. Net book value per share
represents the amount of the Company's stockholder's equity divided by
10,000,000 shares of Common Stock outstanding.

Net book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the Offering
and the pro forma net book value per share of Common Stock immediately after
completion of the Offering. After giving effect to the sale by the Company of
2,000,000 shares of Common Stock in the Offering at an assumed initial public
offering price of $ per share and the application of the estimated net
proceeds therefrom, the pro forma net book value of the Company as of May 31,
1996 would have been $ million or $ per share. This represents an
immediate increase in net book value of $ per share to the existing
stockholder and an immediate dilution in net book value of $ per share to
purchasers of Common Stock in the Offering, as illustrated in the following
table.

<TABLE>
<S> <C> <C>
Assumed public offering price per share.................................. $
Net book value per share as of May 31, 1996............................ $ 1.54
Increase per share attributable to new investors.......................
Pro forma net book value per share after the Offering....................
--------
Net book value dilution per share to new investors....................... $
========
</TABLE>

The following table sets forth as of May 31, 1996 the difference between
the existing stockholder and the purchasers of shares in the Offering with
respect to the number of shares purchased from the Company, the total
consideration paid and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholder........... 10,000,000 83.3% $8,000,000 % $0.80
New investors.................. 2,000,000 16.7
---------- ----- --------- -----
Total................ 12,000,000 100.0% 100.0%
========== ===== ========= =====
</TABLE>

18
<PAGE> 21

CAPITALIZATION

The following table sets forth the capitalization of the Company at May 31,
1996, and as adjusted as of such date to give effect to (i) the sale of the
2,000,000 shares of Common Stock offered hereby at an assumed initial public
offering price of $ per share (after deducting underwriting discounts and
estimated expenses of the Offering), (ii) the sale of the Notes pursuant to the
Note Offering (after deducting underwriting discounts and estimated expenses of
the Note Offering) and (iii) the application of the net proceeds from the
Offering and the Note Offering as described under "Use of Proceeds." This table
should be read in conjunction with the financial statements, the related notes
and the other financial information appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
MAY 31, 1996
-------------------
AS
ACTUAL ADJUSTED
------- -------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Warehouse line of credit............................................... $ 3,012 $ 3,012
Demand note............................................................ 5,000 5,000
Other notes and contracts payable...................................... 860 860
% Senior Subordinated Notes due 2001................................. -- 40,000
Intercompany Debt...................................................... 11,963 --
------- -------
Total debt..................................................... $20,835 $48,872
======= =======
Stockholder's equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized; no shares
issued and outstanding.............................................. -- --
Common stock, $.01 par value; 50,000,000 shares authorized; 10,000,000
shares issued and outstanding, actual and 12,000,000 shares issued
and outstanding, as adjusted(1)..................................... 5,000
Additional paid-in capital............................................. 3,650
Retained earnings...................................................... 6,761 6,761
------- -------
Total stockholder's equity............................................. 15,411
------- -------
Total capitalization........................................... $36,246 $
======= =======
</TABLE>

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

(1) Does not include 900,000 shares of Common Stock reserved for issuance upon
the exercise of stock options available to be granted under the Company's
Stock Option Plan or 300,000 shares of Common Stock issuable pursuant to
the Underwriters' over-allotment option. See "Management -- Stock Option
Plan," "Underwriting" and "Description of Capital Stock."

19
<PAGE> 22

SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected Statement of Operations Data and Balance Sheet Data set forth
below have been derived from the financial statements of the Company. The
financial statements as of August 31, 1994 and 1995 and for each of the two
years in the period ended August 31, 1995 have been audited by Deloitte & Touche
LLP, independent auditors, and are included elsewhere in this Prospectus. The
selected data as of May 31, 1996 and
for the nine month periods ended May 31, 1995 and 1996 are derived from the
unaudited financial statements of the Company, which, in the opinion of
management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The selected financial information set forth below should be read in
conjunction with the financial statements, the related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. The results of operations for the nine
months ended May 31, 1996 may not be indicative of results of operations to be
expected for the full year.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST NINE MONTHS
31, ENDED MAY 31,
----------------- ----------------
1994(1) 1995 1995 1996
------- ------- ------ -------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Gain on sale of loans.................................... $ 579 $12,233 $6,098 $11,621
Net unrealized gain on mortgage related securities(2).... -- -- -- 2,182
Interest income, net..................................... 172 473 313 538
Loan servicing income.................................... -- 873 418 3,049
------- ------- ------- -------
Total revenues................................... 751 13,579 6,829 17,390
------- ------- ------- -------
Costs and expenses:
Other interest........................................... 22 187 58 120
Provision for credit losses.............................. 96 864 558 815
Depreciation and amortization............................ 136 403 260 641
Commissions and selling.................................. 13 552 339 1,560
General and administrative:
Payroll and benefits.................................. 975 3,611 2,442 3,550
Professional services................................. -- 409 244 716
Services by affiliate................................. 442 690 503 503
FHA insurance......................................... 11 231 110 390
Other................................................. 567 713 461 1,632
------- ------- ------- -------
Total costs and expenses......................... 2,262 7,660 4,975 9,927
------- ------- ------- -------
Income (loss) before income taxes(3)....................... (1,511) 5,919 1,854 7,463
Income taxes(3)............................................ -- 2,277 651 2,833
Net income (loss).......................................... $(1,511) $ 3,642 $1,203 $ 4,630
======= ======= ======= =======
Net income (loss) per share................................ $ (0.15) $ 0.36 $ 0.12 $ 0.46
======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF MAY 31, 1996
---------------- ------------------------
1994(1) 1995 ACTUAL AS ADJUSTED(4)
------ ------- ------- --------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Loans held for sale, net.............................. $1,463 $ 3,676 $ 4,671 $ 4,671
Excess servicing rights............................... 904 14,483 12,796 12,796
Mortgage related securities(2)........................ -- -- 15,144 15,144
Total assets.......................................... 5,122 24,081 40,499
Total liabilities..................................... 983 13,300 25,088
Total stockholder's equity............................ 4,139 10,781 15,411
</TABLE>

20
<PAGE> 23

<TABLE>
<CAPTION>
YEAR ENDED AUGUST NINE MONTHS ENDED
31, MAY 31,
------------------ -----------------------
1994(1) 1995 1995 1996
------ ------- ------- -----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Loans originated.................................. $8,133 $87,751 $52,521 $ 89,391
Weighted average interest rate on loans
originated...................................... 14.18% 14.55% 14.47% 14.23%
Servicing portfolio (period end):
Company-owned loans............................. 1,471 3,720 6,250 4,763
Sold loans...................................... 6,555 88,566 52,400 166,285
------ ------- ------- ---------
Total................................... $8,026 $92,286 $58,650 $ 171,048
====== ======= ======= =========
Delinquency period(5):
31-60 days past due............................. 2.06% 2.57% 1.27% 2.41%
61-90 days past due............................. 0.48 0.73 0.39 0.78
91 days and over past due....................... 0.26 0.99 0.68 4.34(6)
91 days and over past due, net of claims
filed(7)..................................... 0.26 0.99 0.68 2.38
Claims filed with HUD(8).......................... -- -- -- 1.96
Amount of FHA insurance available (period end).... $ 831 $ 9,552 $ 6,029 $ 18,084(9)
Amount of FHA insurance available as a percentage
of loans serviced (period end).................. 10.36% 10.35% 10.28% 10.57%(9)
Ratio of earnings to fixed charges(10)............ N/A 7.69x 5.27x 10.23x
</TABLE>

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

21
<PAGE> 24

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Financial Statements, including the notes thereto, contained elsewhere in
this Prospectus.

GENERAL

The Company began originating loans on March 1, 1994 and, accordingly, the
Company's results of operations for the year ended August 31, 1995 include a
full year's operations, while results for the year ended August 31, 1994 include
only six months of loan originations.

The Company recognizes revenue from the gain on sale of loans, interest
income and servicing income. Interest income, net, represents the interest
received on loans in the Company's portfolio prior to their sale, net of
interest paid under its credit agreements. The Company continues to service all
loans sold to date. Net loan servicing income represents servicing fee income
and other ancillary fees received for servicing loans less the amortization of
capitalized mortgage servicing rights. Mortgage servicing rights are amortized
over the estimated net future servicing fee income.

The Company sells its loans through whole loan sales to third party
purchasers, retaining the right to service the loans and to receive any amounts
in excess of the guaranteed yield to the purchasers. In addition, the Company
has commenced the sale of loans through securitizations. Most of the regular
interests of the related securitizations are sold, with the interest only and
residual class securities retained by the Company.

Gain on sale of loans includes the gain on sale of mortgage backed
securities and the gain on sale of loans. The gain on sale of mortgage backed
securities is determined by an allocation of the cost of the securities based on
the relative fair value of the securities sold and the securities retained. The
Company generally retains an interest only strip security and the residual
interest security. The fair value of the interest only strip and residual
interest security is the present value of the estimated cash flow to be received
after considering the effects of estimated prepayments and credit losses. The
net unrealized gain on mortgage related securities represents the difference
between the allocated cost basis of the securities and the estimated fair value.

As the holder of the residual securities, the Company is entitled to
receive certain excess cash flows. These excess cash flows are calculated as the
difference between (a) principal and interest paid by borrowers and (b) the sum
of (i) pass-through interest and principal to be paid to the holders of the
regular securities and interest only securities, (ii) trustee fees, (iii)
third-party credit enhancement fees, (iv) servicing fees and (v) estimated loan
pool losses. The Company's right to receive this excess cash flow is subject to
the satisfaction of certain reserve requirements which are specific to each
securitization and are used as a means of credit enhancement.

The Company carries interest only and residual securities at fair value. As
such, the carrying value of these securities is affected by changes in market
interest rates and prepayment and loss experiences of these and similar
securities. The Company estimates the fair value of the interest only and
residual securities utilizing prepayment and credit loss assumptions the Company
believes to be appropriate for each particular securitization. To the Company's
knowledge, there is no active market for the sale of these interest only and
residual securities. The range of values attributable to the factors used in
determining fair value is broad. Accordingly, the Company's estimate of fair
value is subjective.

The present value of expected net cash flows from the sale of loans is
recorded at the time of sale as excess servicing rights and mortgage related
securities. Excess servicing rights are amortized as a charge to income, as
payments are received on the retained interest differential over the estimated
life of the underlying loans. The expected cash flows used to determine the
excess servicing rights asset and mortgage related securities have been reduced
for potential losses under recourse provisions of the sales agreements. The
allowance for losses on loans sold with recourse represents the Company's
estimate of losses to be incurred in connection with the recourse provisions of
the sales agreements.

22
<PAGE> 25

To determine the fair value of the mortgage servicing rights, the Company
projects net cash flows expected to be received over the life of the loans. Such
projections assume certain servicing costs, prepayment rates and credit losses.
These assumptions are similar to those used by the Company to value the residual
securities. As of May 31, 1996, mortgage servicing rights totaled $2.7 million.

There can be no assurance that the Company's estimates used to determine
the fair value of mortgage servicing rights will remain appropriate for the life
of the loans. If actual loan prepayments or credit losses exceed the Company's
estimates, the carrying value for the Company's mortgage servicing rights may
have to be written down through a charge against earnings. The Company will not
write up such assets to reflect slower than expected prepayments, although
slower prepayments may increase future earnings as the Company will receive cash
flows in excess of those anticipated. Fluctuations in interest rates may also
result in a write-down of the Company's mortgage servicing rights in subsequent
periods.

The Company discounts cash flows on its loan sales at the rate it believes
an independent third-party purchaser would require as a rate of return. The cash
flows were discounted to present value using discount rates which averaged 12.0%
for the years ended August 31, 1994 and 1995 and the nine months ended May 31,
1995 and 1996. The Company has developed its assumptions based on experience
with its own portfolio, available market data and ongoing consultation with its
financial advisors.

Total costs and expenses consist primarily of general and administrative
expenses, depreciation and amortization, and interest expense on borrowings to
finance loan originations. Mego Financial provides the services of certain of
its executive officers to the Company. General and administrative expenses
include the portion of the salaries of such executive officers allocated to and
paid by the Company. See "Certain Transactions."

RESULTS OF OPERATIONS

Nine Months Ended May 31, 1996 Compared to Nine Months Ended May 31, 1995

The Company originated $89.0 million of Title I Loans during the nine
months ended May 31, 1996 compared to $52.5 million of Title I Loans during the
nine months ended May 31, 1995, an increase of 69.5%. The increase is a result
of the overall growth in the Company's business, including an increase in the
number of active Correspondents and Dealers and an increase in the number of
states served. At May 31, 1996, the Company had approximately 265 active
Correspondents and 445 active Dealers in 36 states, compared to approximately
120 active Correspondents and 125 active Dealers in 31 states at May 31, 1995.
The Company originated $385,000 of Conventional Loans during the nine months
ended May 31, 1996 and did not originate Conventional Loans during the nine
months ended May 31, 1995.

The following table sets forth certain data regarding loans originated by
the Company during the nine months ended May 31, 1995 and 1996.

<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-----------------------------------------------
1995 1996
--------------------- ---------------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents:
Title I..................................... $40,405,634 76.9% $57,625,881 64.5%
Conventional................................ -- -- 384,900 0.4
----------- ----- ----------- -----
Total Correspondent.................... 40,405,634 76.9% 58,010,781 64.9%
----------- ----- ----------- -----
Dealers........................................ 12,115,753 23.1 31,379,719 35.1
----------- ----- ----------- -----
Total.................................. $52,521,387 100.0% $89,390,500 100.0%
=========== ===== =========== =====
</TABLE>

23
<PAGE> 26

<TABLE>
<CAPTION>
NINE MONTHS ENDED MAY 31,
-------------------------------------------------
1995 1996
----------- -----------
<S> <C> <C> <C> <C>
Number of loans:
Correspondents:
Title I..................................... 2,171 62.5% 3,130 53.2%
Conventional................................ -- -- 13 0.2
----------- ----- ----------- -----
Total Correspondent.................... 2,171 62.5 3,143 53.4
----------- ----- ----------- -----
Dealers........................................ 1,302 37.5 2,742 46.6
----------- ----- ----------- -----
Total.................................. 3,473 100.0% 5,885 100.0%
=========== ===== =========== =====
</TABLE>

The Company sold $88.0 million of Title I Loans and $50,000 of Conventional
Loans during the nine months ended May 31, 1996, recognizing a gain on sale of
loans of $11.6 million and a net unrealized gain on mortgage related securities
of $2.2 million. The Company sold $47.4 million of Title I Loans during the nine
months ended May 31, 1995 recognizing a gain on sale of loans of $6.1 million
and no net unrealized gain on mortgage related securities because there were no
securitization transactions in such period. The increase in gain on sale of
loans was primarily a result of increased volume of loans sold. As a percentage
of loans sold, gain on sale of loans was 13.2% during the nine months ended May
31, 1996 compared to 12.8% during the nine months ended May 31, 1995. The
weighted average gross excess spreads on sold loans was 5.7% and 6.7% for the
nine months ended May 31, 1995 and 1996, respectively. A weighted average
discount rate of 12% per year was used in the determination of the gain on sale
for both periods.

Interest income, net of interest expense increased 71.9% to $538,000 during
the nine months ended May 31, 1996 from $313,000 during the nine months ended
May 31, 1995. The increase was primarily the result of the increase in the size
of the portfolio of loans held for sale.

Net loan servicing income increased 617.7% to $3.0 million during the nine
months ended May 31, 1996 from $418,000 during the nine months ended May 31,
1995. The increase was primarily the result of the increase in the amount of
loans sold with the servicing rights retained by the Company, which increased to
$166.3 million at May 31, 1996 from $54.1 million at May 31, 1995.

Total revenues increased 155.9% to $17.4 million for the nine months ended
May 31, 1996 from $6.8 million for the nine months ended May 31, 1995. The
increase was primarily the result of the increased volume of loans originated
and the sale of such loans.

Total costs and expenses increased 98.0% to $9.9 million for the nine
months ended May 31, 1996 from $5.0 million for the nine months ended May 31,
1995. General and administrative expenses increased 78.9% to $6.8 million from
$3.8 million primarily as a result of increased payroll related to the hiring of
additional loan quality control and other personnel in contemplation of the
expansion of the Company's business and costs related to the opening of
additional offices. The Company has paid its affiliate, PEC, servicing fees in
an amount equal to 50 basis points of the principal balance of loans serviced
per year. In addition, the Company has paid management fees to PEC in an amount
equal to the direct and indirect expenses of PEC for the services rendered by
PEC's employees to the Company, including an allocable portion of the salaries
and expenses of such employees based upon the percentage of time such employees
spend performing services for the Company. Included in general and
administrative expenses were servicing fees paid to PEC in the amount of $87,000
and $479,000 for the nine months ended May 31, 1995 and 1996, respectively, and
management fees paid to PEC in the amount of $503,000 and $503,000 for the nine
months ended May 31, 1995 and 1996, respectively. The provision for credit
losses increased 46.1% to $815,000 from $558,000. At May 31, 1996, the Company
had established a provision for credit losses equal to 1.0% of loans sold. Other
interest increased 106.9% to $120,000 from $58,000 representing interest on
capitalized lease obligations. Depreciation and amortization expense increased
146.5% to $641,000 from $260,000 as a result of the purchase of additional
equipment, the expansion of the Company's facilities and additional development
costs.

Income before income taxes increased 294.7% to $7.5 million for the nine
months ended May 31, 1996 from $1.9 million for the nine months ended May 31,
1995.

24
<PAGE> 27

Income taxes increased 330.1% to $2.8 million for the nine months ended May
31, 1996 from $651,000 for the nine months ended May 31, 1995.

As a result of the foregoing, net income increased 283.3% to $4.6 million
for the nine months ended May 31, 1996 from $1.2 million for the nine months
ended May 31, 1995.

Fiscal 1995 Compared to Fiscal 1994

The Company commenced originating loans in March 1994. The Company
originated $87.8 million of loans during fiscal 1995 compared to $8.1 million of
loans during fiscal 1994, an increase of 984.0%. The increase was a result of
the overall growth in Company's business. At August 31, 1995, the Company had
approximately 150 active Correspondents and 170 active Dealers in 34 states,
compared to approximately 14 active Correspondents and 30 active Dealers in 14
states at August 31, 1994.

The following table sets forth certain data regarding Title I Loans
originated by the Company during the years ended August 31, 1994 and 1995.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
------------------------------------------
1994 1995
------------------ -------------------
<S> <C> <C> <C> <C>
Principal amount of loans:
Correspondents...................................... $5,238,311 64.4% $63,792,680 72.7%
Dealers............................................. 1,488,529 18.3 23,957,829 27.3
Bulk purchase....................................... 1,406,000 17.3 -- --
---------- ----- ----------- -----
Total....................................... $8,132,840 100.0% $87,750,509 100.0%
========== ===== =========== =====
Number of loans:
Correspondents...................................... 338 47.4% 3,437 59.1%
Dealers............................................. 165 23.1 2,375 40.9
Bulk purchase....................................... 210 29.5 -- --
---------- ----- ----------- -----
Total....................................... 713 100.0% 5,812 100.0%
========== ===== =========== =====
</TABLE>

The Company sold $85.7 million of loans during fiscal 1995, recognizing a
gain on sale of loans of $12.2 million. The Company sold $6.6 million of loans
during fiscal 1994 recognizing a gain on sale of loans of $579,000. As a
percentage of loans sold, gain on sale of loans was 14.2% during fiscal 1995
compared to 8.8% during fiscal 1994. The increase in gain on sale was primarily
a result of increased volume of loans sold and a wider differential between the
stated interest rate on the loans and the yield to purchasers. The weighted
average gross excess spread on sold loans was 5.6% and 6.1% for fiscal 1994 and
1995, respectively. The weighted average discount rate used in the determination
of the gain on sale for both periods was 12%.

Interest income, net of interest expense increased 175.0% to $473,000
during fiscal 1995 from $172,000 during fiscal 1994. The increase was primarily
the result of the increase in the size of the portfolio of loans held for sale.

Net loan servicing income was $873,000 during fiscal 1995. This income was
the result of the sale of Title I Loans, with the right to service the loans
being retained by the Company. The Company had no loan servicing income in
fiscal 1994 because the Company did not sell any loans until August 31, 1994.

Total revenues increased 1,710.9% to $13.6 million for fiscal 1995 from
$751,000 for fiscal 1994. The increase was primarily the result of the increased
volume of loans originated and the sale of such loans.

Total costs and expenses increased 234.8% to $7.7 million for fiscal 1995
from $2.3 million for fiscal 1994. General and administrative expenses increased
185.0% to $5.7 million from $2.0 million primarily as a result of increased
payroll related to the hiring of additional personnel in contemplation of the
expansion and projected growth of the Company's business and costs related to
the opening of additional offices. Included in general and administrative
expenses were servicing fees paid to PEC in the amount of $11,000 and $174,000
for fiscal 1994 and 1995, respectively, and management fees paid to PEC in the
amount of $442,000 and $690,000 for fiscal 1994 and 1995, respectively. The
provision for credit losses increased 800.0% to $864,000

25
<PAGE> 28

from $96,000. At August 31, 1995, the Company had established a provision for
credit losses equal to 1.0% of Title I Loans sold. Other interest increased
222.4% to $187,000 from $58,000 consisting of interest on capitalized lease
obligations. Depreciation and amortization expense increased 146.5% to $641,000
from $260,000 as a result of the purchase of additional equipment, the expansion
of the Company's facilities and additional development costs.

Income (loss) before income taxes increased to income of $5.9 million for
fiscal 1995 from a loss of $1.5 million for its six months of operations in
fiscal 1994.

Effective September 1, 1994, the Company adopted SFAS No. 122 which
requires that a mortgage banking enterprise recognize as separate assets the
rights to service mortgage loans for others, regardless of how those servicing
rights are acquired. The effect of adopting SFAS No. 122 on the Company's
financial statements was to increase income before income taxes by $1.1 million
for fiscal 1995.

As a result of the foregoing, net income (loss) increased to net income of
$3.6 million for fiscal 1995 from a net loss of $1.5 million for fiscal 1994.

FINANCIAL CONDITION

May 31, 1996 Compared to August 31, 1995

Cash increased 11.8% to $841,000 at May 31, 1996 from $752,000 at August
31, 1995 primarily as a result of increased borrowings.

Loans held for sale, net increased 27.0% to $4.7 million at May 31, 1996
from $3.7 million at August 31, 1995 primarily as a result of increased loan
originations and the timing of loan sales in the first nine months of fiscal
1996.

Mortgage related securities were $15.1 million at May 31, 1996 as a result
of the Company's first securitization transaction in March 1996 and consist of
an interest only security of $3.0 million and a residual interest security of
$12.1 million. There was no corresponding asset at August 31, 1995.

Excess servicing rights decreased 11.7% to $12.8 million at May 31, 1996
from $14.5 million at August 31, 1995. Excess servicing rights are calculated
using prepayment, default and interest rate assumptions that the Company
believes market participants would use for similar rights. The Company believes
that the excess servicing rights recognized at the time of sale do not exceed
the amount that would be received if such rights were sold at fair market value
in the marketplace. The decrease in excess servicing rights was primarily a
result of loans sold with excess servicing rights recognized which were
reacquired and included in the March 1996 securitization as well as normal
amortization of such excess servicing rights. The excess cash flow which had
been recognized as excess servicing rights is included in the valuation of the
residual securities.

Mortgage servicing rights increased 145.5% to $2.7 million at May 31, 1996
from $1.1 million at August 31, 1995 as a result of additional sales of mortgage
originations and the resulting increase in sold loans serviced from $88.6
million to $166.3 million.

Notes and contracts payable increased 493.3% to $8.9 million at May 31,
1996 from $1.5 million at August 31, 1995, due to increased borrowings.

Accounts payable and accrued liabilities increased 22.7% to $2.7 million at
May 31, 1996 from $2.2 million at August 31, 1995, primarily as a result of
increases in accrued payroll, interest and other unpaid operational costs.

Allowances for credit losses and for loans sold with recourse decreased
16.2% to $838,000 at May 31, 1996 from $1.0 million at August 31, 1995. The
decrease was a result of loans sold with recourse which were reacquired and
included in the March 1996 securitization. The estimated credit losses are
included in the valuation of the residual securities.

Stockholder's equity increased 42.6% to $15.4 million at May 31, 1996 from
$10.8 million at August 31, 1995 as a result of net income of $4.6 million
during the first nine months of fiscal 1996.

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LIQUIDITY AND CAPITAL RESOURCES

The Company had cash of $841,000 at May 31, 1996 compared to cash of
$752,000 at August 31, 1995.

The Company's cash requirements arise from loan originations, payments of
operating and interest expenses and deposits to reserve accounts related to loan
sale transactions. Loan originations are initially funded principally through
the Company's $20.0 million warehouse line of credit pending the sale of loans
in the secondary market. Substantially all of the loans originated by the
Company are sold. Net cash used in the Company's operating activities for the
year ended August 31, 1995 and the nine months ended May 31, 1996 was
approximately $10.3 million and $8.0 million, respectively. This use was funded
primarily from the reinvestment of proceeds from the sale of loans in the
secondary market totaling approximately $85.2 million and $88.1 million for the
year ended August 31, 1995 and the nine months ended May 31, 1996, respectively.
The loan sale transactions required the subordination of certain cash flows
payable to the Company to the payment of scheduled principal and interest due to
the loan purchasers. In connection with certain of such sale transactions, a
portion of amounts payable to the Company from the excess interest spread is
required to be maintained in a reserve account to the extent of the
subordination requirements. The subordination requirements generally provide
that the excess interest spread is payable to the reserve account until a
specified percentage of the principal balances of the sold loans is accumulated
therein.

Excess interest spread payable to the Company is subject to being utilized
first to replenish cash paid from the reserve account to fund shortfalls in
collections of interest from borrowers who default on the payments on the loans
until the Company's deposits into the reserve account equal the specified
percentage. The excess interest required to be deposited and maintained in the
respective reserve accounts is not available to support the cash flow
requirements of the Company. At May 31, 1996, amounts on deposit in such reserve
accounts totaled $2.4 million.

Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans in the secondary market, are essential for
the continuation of the Company's loan origination operations. At May 31, 1996,
the Company had a $20.0 million warehouse line of credit (the "Warehouse Line")
for the financing of loan originations which expires in August 1997. At May 31,
1996, $3.0 million was outstanding under the Warehouse Line and $17.0 million
was available. The Warehouse Line bears interest at the prime rate plus 1.0% per
year and is secured by loans prior to sale. The agreement with the lender
requires the Company to maintain a minimum tangible net worth of $12.5 million,
and a minimum level of profitability of at least $500,000 per rolling six month
period. In addition, at May 31, 1996, the Company had a $5.0 million demand note
facility from the same lender, with respect to which $5.0 million was
outstanding on that date. This note was secured by a pledge of the Company's
excess servicing rights and the interest only and residual class certificates
("Certificates") relating to securitizations carried as "Mortgage related
securities" on the Company's balance sheets, payable to the Company pursuant to
its securitization agreements. As of June 28, 1996, this note was replaced by a
$10.0 million revolving credit loan from the same lender (the "Revolving Loan"),
with the same security. The Revolving Loan has an 18-month revolving credit
period followed by a 30-month amortization period, and requires the Company to
maintain a minimum tangible net worth of $12.5 million and a minimum level of
profitability of at least $500,000 per rolling six month period. Borrowings
under the Revolving Loan cannot exceed the lesser of (i) 40% of the Company's
excess servicing rights and Certificates or (ii) six times the aggregate of the
excess servicing rights and Certificate payments actually received by the
Company over the most recent three-month period. While the Company believes that
it will be able to maintain its existing credit facilities and obtain
replacement financing as its credit arrangements mature and additional
financing, if necessary, there can be no assurance that such financing will be
available on favorable terms, or at all.

From time to time, the Company has sold loans through whole loan sales. In
August 1994, the Company entered into an agreement with a bank pursuant to which
an aggregate of $38.3 million in principal amount of loans had been sold at
December 31, 1995, for an amount equal to their remaining principal balance and
accrued interest. Pursuant to the agreement, the purchaser is entitled to
receive interest at a rate equal to the sum of 187.5 basis points and the yield
paid on four-year Federal Government Treasury obligations at the time of the
sale. The Company retained the right to service the loans and the right to
receive the difference (the

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"Excess Interest") between the sold loans' stated interest rate and the yield to
the purchaser. The Company is required to maintain a reserve account equal to
1.0% of the declining principal balance of the loans sold pursuant to the
agreement funded from the Excess Interest received by the Company less its
servicing fee to fund shortfalls in collections from borrowers who default in
the payment of principal or interest.

In April 1995, the Company entered into a continuing agreement with a
financial institution pursuant to which an aggregate of approximately $138.5
million in principal amount of loans had been sold at May 31, 1996 for an amount
equal to their remaining principal balances. Pursuant to the agreement, the
purchaser is entitled to receive interest at a variable rate equal to the sum of
200 basis points and the one-month LIBOR rate as in effect from time to time.
The Company retained the right to service the loans and the right to receive the
Excess Interest. The Company is required to maintain a reserve account equal to
2.5% of the proceeds received by the Company from the sale of loans pursuant to
the agreement plus the Excess Interest received by the Company less its
servicing fee to fund shortfalls in collections from borrowers who default in
the payment of principal or interest. In May 1995 and June 1995, the Company
reacquired an aggregate of approximately $25.0 million of such Title I Loans for
an amount equal to their remaining principal balance, which were sold to a
financial institution. In March 1996 and August 1996, the Company reacquired an
additional $77.8 million and $36.2 million, respectively, of the Title I Loans
in connection with its first two securitization transactions.

In May 1995, the Company entered into an agreement with a bank pursuant to
which an aggregate of $25.0 million in principal amount of loans had been sold
at June 30, 1995 for an amount equal to their remaining principal balance.
Pursuant to the agreement, the purchaser is entitled to receive interest at a
rate equal to the sum of 190 basis points and the yield paid on four-year
Federal Government Treasury obligations at the time of the sale. The Company
retained the right to service the loans and the right to receive the Excess
Interest. The agreement requires the Company to maintain a reserve account equal
to 1.0% of the declining principal balance of the loans sold pursuant to the
agreement funded from the Excess Interest received by the Company less its
servicing fee to fund shortfalls in collections from borrowers who default in
the payment of principal or interest.

In September 1996, the Company entered into a repurchase agreement with a
financial institution pursuant to which the Company pledged the interest only
certificates from its two 1996 securitizations in exchange for a $3.0 million
advance. The Company also received a commitment from the same financial
institution, providing for the purchase of up to $2.0 billion of loans over a
five-year period. In consideration of the purchase commitment, Mego Financial
will issue to the financial institution five-year warrants to purchase 1,000,000
shares of Mego Financial's common stock at an exercise price of $7.125 per
share. The value of the warrants will be charged to the Company as the
commitment for the purchase of loans is utilized. The financial institution has
also agreed to provide the Company a separate one-year facility of up to $11.0
million, less any amounts advanced under the repurchase agreement, for the
financing of the interest only and residual certificates from future
securitizations.

In furtherance of the Company's strategy to sell loans through
securitizations, in March 1996 and August 1996, the Company completed its first
two securitizations pursuant to which it sold pools of $84.2 million and $48.9
million, respectively, of Title I Loans. The Company previously reacquired at
par $77.8 million and $36.2 million of such loans, respectively. Pursuant to
these securitizations, pass-through certificates evidencing interests in the
pools of loans were sold in a public offering. The Company continues to
subservice the sold loans and is entitled to receive from payments in respect of
interest on the sold loans a servicing fee equal to 1.25% of the balance of each
loan with respect to the March transaction and 1.0% with respect to the August
transaction. In addition, with respect to both transactions, the Company
received certificates (carried as "Mortgage related securities" on the Company's
balance sheet), representing the interest differential, after payment of
servicing and other fees, between the interest paid by the obligors of the sold
loans and the yield on the sold certificates. The Company may be required to
repurchase loans that do not conform to the representations and warranties made
by the Company in the securitization agreements.

During the nine months ended May 31, 1996 and the year ended August 31,
1995, the Company used cash of $8.0 million and $10.3 million, respectively, in
operating activities. During the nine months ended

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May 31, 1996 and the year ended August 31, 1995, the Company provided cash of
$8.6 million and $10.5 million, respectively, in financing activities. During
the nine months ended May 31, 1996 and the year ended August 31, 1995, the
Company used cash of $488,000 and $274,000, respectively, in investing
activities, which was substantially expended for office equipment and
furnishings and data processing equipment.

The Company believes that funds from operations and financing activities,
borrowings under its existing credit facilities and the net proceeds from the
Offering and the Note Offering will be sufficient to satisfy its contemplated
cash requirements for at least 12 months following the consummation of the
Offering.

EFFECTS OF CHANGING PRICES AND INFLATION

The Company's operations are sensitive to increases in interest rates and
to inflation. Increased borrowing costs resulting from increases in interest
rates may not be immediately recoverable from prospective purchasers. The
Company's loans consist primarily of fixed-rate long term installment contracts
that do not increase or decrease as a result of changes in interest rates
charged to the Company. In addition, delinquency and cancellation rates may be
affected by changes in the national economy.

RECENT ACCOUNTING PRONOUNCEMENTS

At August 31, 1995, effective September 1, 1994, the Company adopted SFAS
No. 122, which requires that a mortgage banking enterprise recognize as separate
assets the rights to service mortgage loans for others, regardless of how those
servicing rights are acquired. The effect of adopting SFAS No. 122 on the
Company's financial statements was to increase income before income taxes by
$1.1 million for the year ended August 31, 1995. The fair value of capitalized
mortgage servicing rights was estimated by taking the present value of expected
net cash flows from mortgage servicing using assumptions the Company believes
market participants would use in their estimates of future servicing income and
expense, including assumptions about prepayment, default and interest rates.
Capitalized mortgage servicing rights are amortized in proportion to and over
the period of estimated net servicing income. The estimate of fair value was
based on a 100 basis points per year servicing fee, reduced by estimated costs
of servicing, and using a discount rate of 12% in 1995. The Company has
developed its assumptions based on experience with its own portfolio, available
market data and ongoing consultation with its investment bankers.

The Financial Accounting Standards Board (the "FASB") has issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS No. 121"). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS No. 121 is effective
for fiscal years beginning after December 15, 1995. The Company has not
determined the effect upon adoption on its results of operation or financial
condition.

The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"), which establishes financial accounting and
reporting standards for stock-based employee compensation plans and for
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. SFAS No. 123 is generally effective for fiscal
years beginning after December 15, 1995. The Company intends to provide the pro
forma and other additional disclosures about stock-based employee compensation
plans in its 1997 financial statements as required by SFAS No. 123.

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125"). SFAS
No. 125 provides new accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. SFAS No. 125
also provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings and requires
that liabilities and derivatives incurred or obtained by transferors as part of
a transfer of financial assets be initially measured at fair value. SFAS No. 125
also requires that servicing assets be measured by allocating the carrying
amount between the assets sold and retained interests based on their relative
fair values at the date of transfer. Additionally, SFAS No. 125 requires that
the servicing assets and liabilities be subsequently measured by (i)
amortization in proportion to and over the period of estimated net servicing
income and (ii) assessment for asset impairment or increased obligation based on
their fair

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values. The Company has not adopted SFAS No. 125 for the current period, but
must adopt the new requirements effective January 1, 1997. The Company has not
yet determined the effect of SFAS No. 125 on its results of operations or
financial condition in the period of adoption.

SEASONALITY

Home improvement loan volume tracks the seasonality of home improvement
contract work. Volume tends to build during the spring and early summer months,
particularly with regard to pool installations. A decline is typically
experienced in late summer and early fall until temperatures begin to drop. This
change in seasons precipitates the need for new siding, window and insulation
contracts. Peak volume is experienced in November and early December and
declines dramatically from the holiday season through the winter months. Debt
consolidation and home equity loan volume are not impacted by seasonal climate
changes and, with the exclusion of the holiday season, tend to be stable
throughout the year.

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BUSINESS

GENERAL

The Company is a specialized consumer finance company that originates,
purchases, sells and services consumer loans consisting primarily of home
improvement loans secured by liens on the improved property. Through its network
of Correspondents and Dealers, the Company initially originated only Title I
Loans. The Title I program provides for insurance of 90% of the principal
balance of the loan, and certain other costs. The Company began offering
Conventional Loans through its Correspondents in May 1996 and such loans have
become a significant portion of its current loan originations.

The Company's borrowers are individuals who own their home and have
appropriate verifiable income but may have limited access to traditional
financing sources due to insufficient home equity, limited credit history or
high ratios of debt service to income. These borrowers require or seek a high
degree of personalized service and prompt response to their loan applications.
As a result, the Company's borrowers generally are not averse to paying higher
interest rates that the Company charges for its loan programs as compared to the
interest rates charged by banks and other traditional financial institutions.
The Company has developed a proprietary credit index profile that includes as a
significant component the credit evaluation score methodology developed by Fair,
Isaac and Company to classify borrowers on the basis of likely future
performance. The other components of the Company's scoring system include debt
to income ratio, employment history and residence stability. The Company charges
varying rates of interest based upon the borrower's credit profile and income.
For the year ended August 31, 1996, the loans originated by the Company had a
weighted average interest rate of 14.0%.

The Company's loan originations increased to $139.3 million during the
fiscal year ended August 31, 1996 from $87.8 million during the fiscal year
ended August 31, 1995 and $8.1 million during the six months in which it
originated loans in the fiscal year ended August 31, 1994. The Company's
revenues increased to $13.6 million for the fiscal year ended August 31, 1995
from $751,000 for the fiscal year ended August 31, 1994. For the nine months
ended May 31, 1996, the Company had revenues of $17.4 million compared to $6.8
million for the nine months ended May 31, 1995. For the nine months ended May
31, 1996, the Company had net income of $4.6 million compared to $1.2 million
for the nine months ended May 31, 1995.

The Company sells substantially all the loans it originates through either
whole loan sales to third party institutional purchasers or securitizations at a
yield below the stated interest rate on the loans, retaining the right to
service the loans and receive any amounts in excess of the guaranteed yield to
the purchasers. The Company completed its first two securitizations of Title I
Loans in March and August 1996 totalling $133.1 million and expects to sell a
substantial portion of its loan production through securitizations in the
future. At May 31, 1996, the Company serviced $166.3 million of loans it had
sold.

HOME IMPROVEMENT LOAN INDUSTRY

According to data released by the Commerce Department's Bureau of the
Census, expenditures for home improvement and repairs of residential properties
have exceeded $100.0 billion per year since 1992 with 1995 expenditures
estimated at $112.6 billion. The Company targets the estimated $40.0 billion of
those expenditures which are for owner-occupied single-family properties where
improvements are performed by professional remodelers. As the costs of home
improvements escalate, home owners are seeking financing as a means to improve
their property and maintain and enhance its value. The National Association of
Home Builders Economics Forecast in 1995 estimates that home improvement
expenditures will exceed $200.0 billion by the year 2003. Two types of home
improvement financing are available to borrowers, the Title I program
administered by the FHA, which is authorized to partially insure qualified
lending institutions against losses, and uninsured loans where the lender relies
more heavily on the borrower's creditworthiness, debt capacity and the
underlying collateral. Both types of loans are generally secured with a real
estate mortgage lien on the property improved.

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The conventional home improvement financing market continues to grow, as
many homeowners have limited access to traditional financing sources due to
insufficient home equity, limited credit history or high ratios of debt service
to income. Conventional loan proceeds can be used for a variety of improvements
such as large remodeling projects, both interior and exterior, kitchen and bath
remodeling, room additions and in-ground swimming pools. Borrowers also have the
opportunity to consolidate a portion of their outstanding debt in order to
reduce their monthly debt service.

According to the FHA, the amount of single family Title I Loans originated
has grown from $375.0 million during 1988 to $1.3 billion during 1995. Based on
FHA data, the Company estimates that it had an 8.6% market share of the property
improvement Title I loan market in calendar 1995. Out of approximately 3,100
lenders participating in the program in 1995, according to FHA data, the Company
was the third largest originator of property improvement Title I Loans. Under
Title I, the payment of approximately 90% of the principal balance of a loan is
insured by the United States of America in the event of a payment default. The
Title I program generally limits the maximum amount of the loan to $25,000 and
restricts the type of eligible improvements and the use of the loan proceeds.
Under Title I, only property improvement loans to finance the alteration, repair
or improvement of existing single family, multifamily and non-residential
structures are allowed. The FHA does not review individual loans at the time of
approval. In the case of a Title I Loan less than $7,500, no equity is required
in the property to be improved and the loan may be unsecured.

BUSINESS STRATEGY

The Company's strategic plan is to continue to expand its lending
operations while maintaining its credit quality. The Company's strategies
include: (i) offering new loan products ; (ii) expanding its existing network of
Correspondents and Dealers ; (iii) entering new geographic markets; (iv)
realizing operational efficiencies through economies of scale; and (v) using
securitizations to sell higher volumes of loans on more favorable terms. At May
31, 1996, the Company had developed a nationwide network of approximately 265
active Correspondents and approximately 445 active Dealers. The Company's
Correspondents generally offer a wide variety of loans and its Dealers typically
offer home improvement loans in conjunction with debt consolidation. By offering
a more diversified product line, including Conventional Loans, and maintaining
its high level of service, the Company has increased the loan production from
its existing network of Correspondents. The Company anticipates that as it
expands its lending operations it will realize economies of scale thereby
reducing its average loan origination costs and enhancing its profitability. In
addition, the Company intends to continue to sell its loan production through
securitizations as opportunities arise. Through access to securitization, the
Company believes that it has the ability to sell higher volumes of loans on more
favorable terms than in whole loan sales.

Product Extension and Expansion

The Company intends to continue to review its loan programs and introduce
new loan products to meet the needs of its customers. The Company will also
evaluate products or programs that it believes are complementary to its current
products for the purpose of enhancing revenue by leveraging and enhancing the
Company's value to its existing network of Correspondents and Dealers. The
Company believes that its introduction of new loan products will enhance its
relationship with its Dealers and Correspondents and enable it to become a
single source for their various financing needs.

Expansion of Correspondent Operations

The Company seeks to increase originations of loans from select
Correspondents. The Company has expanded its product line to include
Conventional Loans to meet the needs of its existing network of Correspondents.
Prior to May 1996, the Company originated only Title I Loans. This limited its
ability to attract the more sophisticated Correspondent that offered a multitude
of loan products and, accordingly, limited the Company's market penetration. The
Company began offering Conventional Loans to existing select Correspondents in
May 1996. In order to maintain the Company's customer service excellence, the
Company has gradually increased the number of Correspondents to which it has
offered Conventional Loans. Since the Company commenced offering Conventional
Loans, the loan production of the Company's

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Correspondent division has significantly increased. The Company believes that it
is well positioned to expand this segment without any material increase in
concentration or quality risks.

Expansion of Dealer Operations

The Company seeks to expand its Dealer network and maximize loan
originations from its existing network by offering a variety of innovative
products and providing consistent and prompt service at competitive prices. The
Company will provide conventional products as well as its existing Title I
product to its Dealers in order to meet the needs of the diverse borrower
market. The Company targets Dealers that typically offer financing to their
customers and attempts to retain and grow these relationships by providing
superior customer service, personalized attention and prompt approvals and
fundings. The Company has been unable to fully meet the needs of its Dealers
because of Title I program limits on the amount and types of improvements which
may be financed. The Company intends to meet the needs of its Dealers with new
Conventional Loan programs. These programs allow for more expensive project
financing such as in-ground swimming pools and substantial remodeling as well as
financing for creditworthy borrowers with limited equity who are in need of debt
consolidation and borrowers with marginal creditworthiness and substantial
equity in their property. With this strategy, the Company believes it can
achieve further market penetration of its existing Dealer network and gain new
Dealers and market share in areas in which the Title I product is less
successful because of its restrictions.

Nationwide Geographic Expansion

The Company intends to continue to expand its Correspondent and Dealer
network on a nationwide basis and to enhance its value to its existing network.
The Company's strategy involves (i) focusing on geographic areas that the
Company currently underserves and (ii) tailoring the Company's loan programs to
better serve its existing markets and loan sources.

Maximization of Flexibility in Loan Sales

The Company employs a two-pronged strategy of disposing of its loan
originations primarily through securitizations and, to a lesser extent, through
whole loan sales. By employing this dual strategy, the Company has the
flexibility to better manage its cash flow, diversify its exposure to the
potential volatility of the capital markets and maximize the revenues associated
with the gain on sale of loans given market conditions existing at the time of
disposition. The Company has recently been approved by FNMA as a seller/servicer
of Title I Loans, as a result of which the Company is eligible to sell such
loans to FNMA on a servicing retained basis.

LOAN PRODUCTS

The Company originates Title I and Conventional Loans. Both types of loans
are typically secured by a first or junior lien on the borrower's principal
residence, although the Company occasionally originates and purchases unsecured
loans with borrowers that have an excellent credit history. Borrowers use loan
proceeds for a wide variety of home improvement projects, such as
exterior/interior remodeling, structural additions, roofing and plumbing, as
well as luxury items such as in-ground swimming pools, and for debt
consolidation. The Company lends to borrowers of varying degrees of
creditworthiness. See "Loan Processing and Underwriting."

Conventional Loans

A Conventional Loan is a non-insured home improvement or home equity loan
typically undertaken to pay for a home improvement project, home improvement and
debt consolidation combination or a debt consolidation. Substantially all of the
Conventional Loans originated by the Company are secured by a first or junior
mortgage lien on the borrower's principal residence. Underwriting for
Conventional Loans varies according to the Company's evaluation of the
borrower's credit risk and income stability as well as the underlying
collateral. The Company will rely on the underlying collateral and equity in the
property for borrowers judged to be greater credit risks. The Company targets
the higher credit quality segment of

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borrowers. The Company has begun originating Conventional Loans through its
Correspondent Division and plans to begin offering such loan products to its
Dealer Division.

Title I Loan Program

The National Housing Act of 1934 (the "Housing Act"), Sections 1 and 2(a),
authorized the creation of the FHA and the Title I credit insurance program
("Title I"). Under the Housing Act, the FHA is authorized to insure qualified
lending institutions against losses on certain types of loans, including loans
to finance the alteration, repair or improvement of existing single family,
multi-family and nonresidential real property structures. Under Title I, the
payment of approximately 90% of the principal balance of a loan and certain
other amounts is insured by the United States of America in the event of a
payment default.

Title I and the regulations promulgated thereunder establish criteria
regarding (i) who may originate, acquire, service and sell Title I Loans, (ii)
Title I Loan eligibility of improvements and borrowers, (iii) the principal
amounts and terms of and security for Title I Loans, (iv) the use and
disbursement of loan proceeds, (v) verification of completion of improvements,
(vi) the servicing of Title I Loans in default and (vii) the processing of
claims for Title I insurance.

The principal amount of a secured Title I Loan may not exceed $25,000, in
the case of a loan for the improvement of a single family structure, and
$60,000, in the case of a loan for the improvement of a multi-family structure.
Loans up to a maximum of $7,500 in principal amount may qualify as unsecured
Title I Loans.

Title I Loans are required to bear fixed rates of interest and, with
limited exceptions, be fully amortizing with equal weekly, bi-weekly,
semi-monthly or monthly installment payments. Title I Loan terms may not be less
than six months nor more than 240 months in the case of secured Title I Loans or
120 months in the case of unsecured Title I Loans. Subject to other federal and
state regulations, the lender may establish the interest rate to be charged in
its discretion.

Title I generally provides for two types of Title I Loans, direct loans
("Direct Title I Loans") and dealer loans ("Dealer Title I Loans"). Direct Title
I Loans are made directly by a lender to the borrower and there is no
participation in the loan process by the contractor, if any, performing the
improvements. In the case of Dealer Title I Loans, the Dealer, a contractor
performing the improvements, assists the borrower in obtaining the loan,
contracts with the borrower to perform the improvements, executes a retail
installment contract with the borrower and, upon completion of the improvements,
assigns the retail installment contract to the Title I lender. Each Dealer must
be approved by the Title I lender in accordance with HUD requirements. Direct
Title I Loans are closed by the lender in its own name with the proceeds being
disbursed directly to the borrower prior to completion of the improvements. The
borrower is generally required to complete the improvements financed by a Direct
Title I Loan within six months of receiving the proceeds. In the case of Dealer
Title I Loans, the lender is required to obtain a completion certificate from
the borrower certifying that the improvements have been completed prior to
disbursing the proceeds to the Dealer.

The FHA charges a lender an annual fee equal to 50 basis points of the
original principal balance of a loan for the life of the loan. A Title I lender
or Title I sponsored lender is permitted to require the borrower to pay the
insurance premium with respect to the loan. In general, the borrowers pay the
insurance premiums with respect to Title I Loans originated through the
Company's Correspondents but not with respect to Title I Loans originated
through the Company's Dealers. Title I provides for the establishment of an
insurance coverage reserve account for each lender. The amount of insurance
coverage in a lender's reserve account is equal to 10% of the original principal
amount of all Title I Loans originated or purchased and reported for insurance
coverage by the lender less the amount of all insurance claims approved for
payment. The amount of reimbursement to which a lender is entitled is limited to
the amount of insurance coverage in the lender's reserve account.

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LENDING OPERATIONS

The Company has two principal divisions for the origination of loans, the
Correspondent Division and the Dealer Division. The Correspondent Division
represents the Company's largest source of loan originations. Through its
Correspondent Division, the Company originates loans through a nationwide
network of Correspondents including financial intermediaries, mortgage
companies, commercial banks and savings and loan institutions. The Company
typically originates loans from Correspondents on an individual loan basis,
pursuant to which each loan is pre-approved by the Company and is purchased
immediately after the closing. The Correspondent Division conducts operations
from its headquarters in Atlanta, Georgia, with a vice president of operations
responsible for underwriting and processing and five account executives
supervised by the Vice President-National Marketing responsible for developing
and maintaining relationships with Correspondents. At May 31, 1996, the Company
had a network of approximately 265 active Correspondents.

In addition to purchasing individual Direct Title I Loans and Conventional
Loans, from time to time the Correspondent Division purchases portfolios of
loans from Correspondents. In March 1994, the Company purchased a portfolio of
Direct Title I Loans originated by another financial institution, which
consisted of 210 loans with an aggregate remaining principal balance of $1.4
million, an average balance of $6,695, a weighted average interest rate of
15.46% and a weighted average remaining term of 101 months.

The Dealer Division originates Dealer Title I Loans through a network of
Dealers, consisting of home improvement construction contractors approved by the
Company, by acquiring individual retail installment contracts ("Installment
Contracts") from Dealers. An Installment Contract is an agreement between the
Dealer and the borrower pursuant to which the Dealer performs the improvements
to the property and the borrower agrees to pay in installments the price of the
improvements. Before entering into an Installment Contract with a borrower, the
Dealer assists the borrower in submitting a loan application to the Company. If
the loan application is approved, the Dealer enters into an Installment Contract
with the borrower, the Dealer assigns the Installment Contract to the Company
upon completion of the home improvements and the Company, upon receipt of the
requisite loan documentation (described below) and completion of a satisfactory
telephonic interview with the borrower, pays the Dealer pursuant to the terms of
the Installment Contract. The Dealer Division maintains 12 branch offices
located in Montvale, New Jersey, Kansas City, Missouri, Las Vegas, Nevada,
Austin, Texas, Oklahoma City, Oklahoma, Seattle, Washington, Waterford,
Michigan, Columbus, Ohio, Elmhurst, Illinois, Philadelphia, Pennsylvania,
Denver, Colorado and Woodbridge, Virginia through which it conducts its
marketing to Dealers in the state in which the branch is located as well as
certain contiguous states. The Dealer Division is operated with a vice president
of operations responsible for loan processing and underwriting, two regional
managers, and 12 field representatives supervised by the Vice President-National
Marketing who are responsible for marketing to Dealers. At May 31, 1996, the
Company had a network of approximately 445 active Dealers doing business in 23
states. The Company intends to commence offering Conventional Loans through its
Dealer Division.

Correspondents and Dealers qualify to participate in the Company's programs
only after a review by the Company's management of their reputations and
expertise, including a review of references and financial statements, as well as
a personal visit by one or more representatives of the Company. Title I requires
the Company to reapprove its Dealers annually and to monitor the performance of
those Correspondents that are sponsored by the Company. The Company's compliance
function is performed by a director of compliance and loan administration, whose
staff performs periodic reviews of portfolio loans and Correspondent and Dealer
performance and may recommend to senior management the suspension of a
Correspondent or a Dealer. The Company believes that its system of acquiring
loans through a network of Correspondents and Dealers and processing such loans
through a centralized loan processing facility has (i) assisted the Company in
minimizing its level of capital investment and fixed overhead costs and (ii)
assisted the Company in realizing certain economies of scale associated with
evaluating and acquiring loans. The Company does not believe that the loss of
any particular Correspondent or Dealer would have a material adverse effect upon
the Company. See "Loan Processing and Underwriting."

The Company originates and acquires a limited variety of loan products,
including: (i) fixed rate, secured Title I Loans, secured by single family
residences, with terms and principal amounts ranging from 60 to

35
<PAGE> 38

240 months and approximately $3,000 to $25,000, respectively; and (ii) fixed
rate, unsecured Title I Loans with terms and principal amounts ranging from 36
to 120 months and approximately $2,500 to $7,500, respectively. As part of the
Company's strategic plan, the Company has commenced originating non-FHA insured
Conventional Loans utilizing its established network of Correspondents.

The following table sets forth certain data regarding loan applications
processed and loans originated by the Company during the periods indicated.

<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, NINE MONTHS ENDED MAY 31,
----------------------------------------- ------------------------------------------
1994 1995 1995 1996
------------------ ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Loan Applications:
Number processed.................... 3,512 27,608 17,053 28,699
Number approved..................... 1,984 15,956 9,722 14,100
Approval ratio...................... 56.5% 57.8% 57.0% 49.1%
Loan Originations:
Principal balance of loans:
Correspondents:
Title I........................... $5,238,311 64.4% $63,792,680 72.7% $40,405,634 76.9% $57,625,881 64.5%
Conventional...................... -- -- -- -- -- -- 384,900 0.4
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total Correspondents.......... 5,238,311 64.4 63,792,680 72.7 40,405,634 76.9 58,010,781 64.9
---------- ----- ----------- ----- ----------- ----- ----------- -----
Dealers............................. 1,488,529 18.3 23,957,829 27.3 12,115,753 23.1 31,379,719 35.1
Bulk purchase....................... 1,406,000 17.3 -- -- -- -- -- --
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total......................... $8,132,840 100.0% $87,750,509 100.0% $52,521,387 100.0% $89,390,500 100.0%
========== ===== =========== ===== =========== ===== =========== =====
Number of Loans:
Correspondents:
Title I........................... 338 47.4% 3,437 59.1% 2,171 62.5% 3,130 53.2%
Conventional...................... -- -- -- -- -- -- 13 0.2
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total Correspondents.......... 338 47.4 3,437 59.1 2,171 62.5 3,143 53.4
---------- ----- ----------- ----- ----------- ----- ----------- -----
Dealers............................. 165 23.1 2,375 40.9 1,302 37.5 2,742 46.6
Bulk purchase....................... 210 29.5 -- -- -- -- -- --
---------- ----- ----------- ----- ----------- ----- ----------- -----
Total......................... 713 100.0% 5,812 100.0% 3,473 100.0% 5,885 100.0%
========== ===== =========== ===== =========== ===== =========== =====
Average principal balance of
loans............................. $ 11,407 $ 15,096 $ 15,123 $ 15,180
Weighted average interest rate on
loans originated.................. 14.18% 14.55% 14.47% 14.23%
Weighted average term of loans
originated (months)............... 175 188 185 194
</TABLE>

LOAN PROCESSING AND UNDERWRITING

The Company's loan application and approval process generally is conducted
over the telephone with applications usually received at the Company's
centralized processing facility from Correspondents and Dealers by facsimile
transmission. Upon receipt of an application, the information is entered into
the Company's system and processing begins. All loan applications are
individually analyzed by employees of the Company at its loan processing
headquarters in Atlanta, Georgia.

The Company has developed a proprietary credit index profile ("CIP") as a
statistical credit based tool to predict likely future performance of a
borrower. A significant component of this customized system is the credit
evaluation score methodology developed by Fair, Isaac and Company ("FICO"), a
consulting firm specializing in creating default predictive models through a
high number of variable components. The other components of the CIP include debt
to income analysis, employment stability, self employment criteria, residence
stability and occupancy status of the subject property. By utilizing both
scoring models in tandem, all applicants are considered on the basis of their
ability to repay the loan obligation while allowing the Company to maintain its
risk based pricing for each loan.

Based upon FICO score default predictors and the Company's internal CIP
score, loans are classified by the Company into gradations of descending credit
risks and quality, from "A" credits to "D" credits, with subratings within those
categories. Quality is a function of both the borrowers creditworthiness, and
the extent

36
<PAGE> 39

of the value of the collateral, which is typically a second lien on the
borrower's primary residence. "A+" credits generally have a FICO score greater
than 680. An applicant with a FICO score of less than 620 would be rated a "C"
credit unless the loan-to-value ratio was 75% or less which would raise the
credit risk to the Company to a "B" or better depending on the borrower's debt
service capability. Depending on loan size, typical loan-to-value ratios for "A"
and "B" credits range from 90% to 125%, while loan-to-value ratios for "C" and
"D" credits range from 60% up to 90% with extraordinary compensating factors.

The Company's underwriters review the applicant's credit history, based on
the information contained in the application as well as reports available from
credit reporting bureaus and the Company's CIP score, to determine the
applicant's acceptability under the Company's underwriting guidelines. Based on
the underwriter's approval authority level, certain exceptions to the guidelines
may be made when there are compensating factors subject to approval from a
corporate officer. The underwriter's decision is communicated to the
Correspondent or Dealer and, if approved, fully explains the proposed loan
terms. The Company endeavors to respond to the Correspondent or Dealer on the
same day the application is received.

The Company issues a commitment to purchase a pre-approved loan upon the
receipt of a fully completed loan package. Commitments indicate loan amounts,
fees, funding conditions, approval expiration dates and interest rates. Loan
commitments are generally issued for periods of up to 45 days in the case of
Correspondents and 90 days in the case of Dealers. Prior to disbursement of
funds, all loans are carefully reviewed by funding auditors to ensure that all
documentation is complete, all contingencies specified in the approval have been
met and the loan is closed in accordance with Company and regulatory procedures.

Conventional Loans

The Company has implemented policies for its Conventional Loan program that
are designed to minimize losses by adhering to high credit quality standards or
requiring adequate loan-to-value levels. The Company will only make Conventional
Loans to borrowers with an "A" or "B" credit grade using the CIP. Through August
31, 1996, the Company's portfolio of Conventional Loans originated through its
Correspondent Division had been evaluated as an "A" credit risk and had a
weighted average (i) FICO score of 661, (ii) gross debt to income ratio of 38%,
(iii) interest rate of 14.04% and (iv) loan-to-value ratio of 110%, as well as
an average loan amount of $28,569. Substantially all of the Conventional Loans
originated to date by the Company are secured by first or second mortgage liens
on single family, owner occupied properties.

Terms of Conventional Loans made by the Company, as well as the maximum
loan-to-value ratios and debt service to income coverage (calculated by dividing
fixed monthly debt payments by gross monthly income), vary depending upon the
Company's evaluation of the borrower's creditworthiness. Borrowers with lower
creditworthiness generally pay higher interest rates and loan origination fees.

As part of the underwriting process for Conventional Loans, the Company
generally requires an appraisal of the collateral property as a condition to the
commitment to purchase. The Company requires independent appraisers to be state
licensed and certified. The Company requires that all appraisals be completed
within the Uniform Standards of Professional Appraisal Practice as adopted by
the Appraisal Standards Board of the Appraisal Foundation. Prior to originating
a loan, the Company audits the appraisal for accuracy and to insure that the
appraiser used sufficient care in analyzing data to avoid errors that would
significantly affect the appraiser's opinion and conclusion. This audit includes
a review of economic demand, physical adaptability of the real estate,
neighborhood trends and the highest and best use of the real estate. In the
event the audit reveals any discrepancies as to the method and technique that
are necessary to produce a credible appraisal, the Company will perform
additional property data research or may request a second appraisal to be
performed by an independent appraiser selected by the Company in order to
substantiate further the value of the subject property.

The Company also requires a title report on all subject properties securing
its loans to verify property ownership, lien position and the possibility of
outstanding tax liens or judgments. In the case of larger loan amounts or first
liens, the Company requires a full title insurance policy in compliance with the
American Land Title Association.

37
<PAGE> 40

Title I Loans

The Title I Loans originated by the Company are executed on forms meeting
FHA requirements as well as federal and state regulations. Loan applications and
Installment Contracts are submitted to the Company's processing headquarters for
credit verification. The information provided in loan applications is first
verified by, among other things, (i) written confirmations of the applicant's
income and, if necessary, bank deposits, (ii) a formal credit bureau report on
the applicant from a credit reporting agency, (iii) a title report, (iv) if
necessary, a real estate appraisal and (v) if necessary, evidence of flood
insurance. Appraisals for Title I Loans, when necessary, are generally prepared
by pre-approved independent appraisers that meet the Company's standards for
experience, education and reputation. Loan applications are also reviewed to
ascertain whether or not they satisfy the Company's underwriting criteria,
including loan-to-value ratios (if non-owner occupied), borrower income
qualifications, employment stability, purchaser requirements and necessary
insurance and property appraisal requirements. The Company will make Title I
Loans to borrowers with an "A" to "C" credit grade based on CIP score and lien
position. Since the implementation of the CIP scoring system in February 1996,
through August 31, 1996, the Company's portfolio of Title I Loans originated
through its Correspondent and Dealer Divisions had been evaluated as a "C+" and
"B" credit risk, respectively, and had a weighted average FICO score of 637 and
645, respectively. The Company's underwriting guidelines for Title I Loans meet
FHA's underwriting criteria. Completed loan packages are sent to the Company's
Underwriting Department for predisbursement auditing and funding.

Subject to underwriting approval of an application forwarded to the Company
by a Dealer, the Company issues a commitment to purchase an Installment Contract
from a Dealer upon the Company's receipt of a fully completed loan package and
notice from the borrower of satisfactory work completion. Subject to
underwriting approval of an application forwarded to the Company by a
Correspondent, the Company issues a commitment to purchase a Title I Loan upon
the Company's receipt of a fully completed and closed loan package.

The Company's underwriting personnel review completed loan applications to
verify compliance with the Company's underwriting standards, FHA requirements
and federal and state regulations. In the case of Title I Loans being acquired
from Dealers, the Company conducts a prefunding telephonic interview with the
property owner to determine that the improvements have been completed in
accordance with the terms of the Installment Contract and to the owner's
satisfaction. The Company utilizes a nationwide network of independent
inspectors to perform on-site inspections of improvements within the timeframes
specified by the Title I program.

Since the Company does not currently originate any Title I Loans with an
original principal balance in excess of $25,000, the FHA does not individually
review the Title I Loans originated by the Company.

QUALITY CONTROL

The Company employs various quality control personnel and procedures in
order to insure that loan origination standards are adhered to and regulatory
compliance is maintained while substantial growth is experienced in the
servicing portfolio.

In accordance with Company policy, the Quality Control Department reviews a
statistical sample of loans closed each month. This review is generally
completed within 60 days of funding and circulated to appropriate department
heads and senior management. Finalized reports are maintained in the Company's
files for a period of two years from completion. Typical review procedures
include reverification of employment and income, re-appraisal of the subject
property, obtaining separate credit reports and recalculation of debt-to-income
ratios. The statistical sample is intended to cover 10% of all new loan
originations with particular emphasis on new Correspondents and Dealers.
Emphasis will also be placed on those loan sources where higher levels of
delinquency are experienced, physical inspections reveal a higher level of
non-compliance, or payment defaults occur within the first six months of
funding. On occasion, the Quality Control Department may review all loans
generated from a particular loan source in the event an initial review
determines a higher than normal number of exceptions. The account selection of
the Quality Control Department is also designed

38
<PAGE> 41

to include a statistical sample of loans by each underwriter and each funding
auditor and thereby provide management with information as to any aberration
from Company policies and procedures in the loan origination process.

Under the direction of the Vice President of Credit Quality and Regulatory
Compliance, a variety of review functions are accomplished. On a daily basis, a
sample of recently approved loans are reviewed to insure compliance with
underwriting standards. Particular attention is focused on those underwriters
who have developed a higher than normal level of exceptions. In addition to this
review, the Company has developed a staff of post-disbursement review auditors
which reviews 100% of recently funded accounts, typically within two weeks of
funding. All credit reports are analyzed, debt-to-income ratios recalculated,
contingencies monitored and loan documents inspected. Exception reports are
forwarded to the respective Vice Presidents of Production as well as senior
management. The Company also employs a Physical Inspection Group that is
responsible for monitoring the inspection of all homes which are the subject of
home improvement loans. Non-compliance is tracked by loan source and serves as
another method of evaluating a loan source relationship.

The Company has expended substantial amounts in developing its Quality
Control and Compliance Department. The Company recognizes the need to monitor
its operations continually as it experiences substantial growth. Feedback from
these departments provides senior management with the information necessary to
take corrective action when appropriate, including the revision and expansion of
its operating policies and procedures.

LOAN PRODUCTION TECHNOLOGY SYSTEMS

The Company utilizes a sophisticated computerized loan origination tracking
system that allows it to monitor the performance of Dealers and Correspondents
and supports the marketing efforts of the Dealer and Correspondent Divisions by
tracking the marketing activities of field sales personnel. The system automates
various other functions such as Home Mortgage Disclosure Act and HUD reporting
requirements and routine tasks such as decline letters and the flood
certification process. The system also affords management access to a wide range
of decision support information such as data on the approval pipeline, loan
delinquencies by source, and the activities and performance of underwriters and
funders. The Company uses intercompany electronic mail, as well as an
electronic-mail link with its affiliate, PEC, to facilitate communications and
has an electronic link to PEC that allows for the automated transfer of accounts
to PEC's servicing system.

The Company is enhancing this system to provide for the automation of the
loan origination process as well as loan file indexing and routing. These
enhancements will include electronic routing of loan application facsimile
transmissions, automated credit report inquiries and consumer credit scoring
along with on-screen underwriting and approval functions. Where feasible the
system will interface with comparable systems of the Company's Dealers and
Correspondents. The Company expects that these enhancements will (i) increase
loan production efficiencies by minimizing manual processing of loan
documentation, (ii) enhance the quality of loan processing by use of uniform
electronic images of loan files and (iii) facilitate loan administration and
collections by providing easier access to loan account information. The
implementation of these enhancements is expected to be substantially completed
prior to December 1996.

LOAN SERVICING

The Company's strategy has been to retain the servicing rights associated
with the loans it originates. The Company's loan servicing activities include
responding to borrower inquiries, processing and administering loan payments,
reporting and remitting principal and interest to the whole loan purchasers who
own interests in the loans and to the trustee and others with respect to
securitizations, collecting delinquent loan payments, processing Title I
insurance claims, conducting foreclosure proceedings and disposing of foreclosed
properties and otherwise administering the loans. The Company's various loan
sale and securitization agreements allocate a portion of the difference between
the stated interest rate and the interest rate passed through to purchasers of
its loans to servicing revenue. Servicing fees are collected by the Company out
of monthly loan payments. Other sources of loan servicing revenues include late
charges and miscellaneous fees. The Company

39
<PAGE> 42

uses a sophisticated computer based mortgage servicing system that it believes
enables it to provide effective and efficient administering of Conventional and
Title I Loans. The servicing system is an on-line real time system developed and
maintained by the Company's affiliate, PEC. It provides payment processing and
cashiering functions, automated payoff statements, on-line collections,
statement and notice mailing along with a full range of investor reporting
requirements. The Company has entered into a subservicing agreement with PEC for
the use of the system and continuous support. The monthly investor reporting
package includes a trial balance, accrued interest report, remittance report and
delinquency reports. Formal written procedures have been established for payment
processing, new loan set-up, customer service, tax and insurance monitoring.

The Company is a HUD approved lender and a FNMA approved seller/servicer.
As such, it is subject to a thorough due diligence review of its policies,
procedures, and business, and is qualified to underwrite, sell and service Title
I Loans on behalf of the FHA and FNMA.

The Company's loan collection functions are organized into two areas of
operation: routine collections and management of nonperforming loans.

Routine collection personnel are responsible for collecting loan payments
that are less than 60 days contractually past due and providing prompt and
accurate responses to all customer inquiries and complaints. These personnel
report directly to the Company's Vice President of Loan Administration.
Borrowers are contacted on the due date for each of the first six payments in
order to encourage continued prompt payment. Generally, after six months of
seasoning, collection activity will commence if a loan payment has not been made
within five days of the due date. Borrowers usually will be contacted by
telephone at least once every five days and also by written correspondence
before the loan becomes 60 days delinquent. With respect to loan payments that
are less than 60 days late, routine collections personnel utilize a system of
mailed notices and telephonic conferences for reminding borrowers of late
payments and encouraging borrowers to bring their accounts current. Installment
payment invoices and return envelopes are mailed to each borrower on a monthly
basis. The Company has bilingual customer service personnel available.

Once a loan becomes 30 days past due, a collection supervisor generally
analyzes the account to determine the appropriate course of remedial action. On
or about the 45th day of delinquency, the supervisor determines if the property
needs immediate inspection to determine if it is occupied or vacant. Depending
upon the circumstances surrounding the delinquent account, a temporary
suspension of payments or a repayment plan to return the account to current
status may be authorized by the Vice President of Loan Administration. In any
event, it is the Company's policy to work with the delinquent customer to
resolve the past due balance before Title I claim processing or legal action is
initiated.

Nonperforming loan management personnel are responsible for collecting
severely delinquent loan payments (over 60 days late), filing Title I insurance
claims or initiating legal action for foreclosure and recovery. Operating from
the Company's headquarters in Atlanta, Georgia, collection personnel are
responsible for collecting delinquent loan payments and seeking to mitigate
losses by providing various alternatives to further actions, including
modifications, special refinancing and indulgence plans. Title I insurance claim
personnel are responsible for managing Title I insurance claims, utilizing a
claim management system designed to track insurance claims for Title I Loans so
that all required conditions precedent to claim perfection are met. In the case
of Conventional Loans, a foreclosure coordinator will review all previous
collection activity, evaluate the lien and equity position and obtain any
additional information as necessary. The ultimate decision to foreclose, after
all necessary information is obtained, is made by an officer of the Company.
Foreclosure regulations and practices and the rights of the owner in default
vary from state to state, but generally procedures may be initiated if: (i) the
loan is 90 days or more delinquent; (ii) a notice of default on a senior lien is
received; or (iii) the Company discovers circumstances indicating potential loss
exposure.

Net loan servicing income was $873,000 and $3.0 million for the year ended
August 31, 1995 and the nine month period ended May 31, 1996, respectively,
constituting 6.4% and 17.2%, respectively, of the Company's total revenues in
such periods. As of May 31, 1996, the Company had increased the size of the loan
portfolio it services to approximately $171.0 million from approximately $92.3
million as of August 31, 1995, an increase

40
<PAGE> 43

of approximately 85.3%. The Company's loan servicing portfolio is subject to
reduction by normal amortization, prepayment of outstanding loans and defaults.

The following table sets forth certain information regarding the Company's
loan servicing for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED
AUGUST 31, NINE MONTHS
---------------- ENDED
1994(1) 1995 MAY 31, 1996
------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Servicing portfolio at beginning of period.............. $ -- $ 8,026 $ 92,286
Additions to servicing portfolio........................ 8,317 87,757 89,391
Reductions in servicing portfolio(2).................... 291 3,491 10,629
Servicing portfolio (period end):
Company-owned loans................................... 1,471 3,720 4,763
Sold loans............................................ 6,555 88,566 166,285
------ ------- --------
Total......................................... $8,026 $92,286 $171,048
====== ======= ========
</TABLE>

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

(1) The Company commenced originating loans in March 1994.
(2) Reductions result from scheduled payments, prepayments and write-offs during
the period.

The following table sets forth the delinquency and Title I insurance claims
experience of loans serviced by the Company as of the dates indicated:

<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31, MAY 31,
1994(1) 1995 1996
---------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Delinquency period(2)
31-60 days past due................................... 2.06% 2.57% 2.41%
61-90 days past due................................... 0.48 0.73 0.78
91 days and over past due............................. 0.26 0.99 4.34(3)
91 days and over past due, net of claims filed(4)..... 0.26 0.99 2.38
Claims filed with HUD(5)................................ -- -- 1.96%
Number of Title I insurance claims...................... 1 5 219
Total servicing portfolio at end of period.............. $8,026 $ 92,286 $171,048
Amount of FHA insurance available....................... 831 9,552 18,084(6)
Amount of FHA insurance available as a percentage of
loans serviced........................................ 10.36% 10.35% 10.57%(6)
Losses on liquidated loans(7)........................... $ -- $ -- $ 7.6
</TABLE>

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

(1) The Company commenced originating loans in March 1994.
(2) Represents the dollar amount of delinquent loans as a percentage of total
dollar amount of loans serviced by the Company (including loans owned by
the Company) as of the date indicated.
(3) During the nine-month period ended May 31, 1996, the processing and payment
of claims filed with HUD was delayed.
(4) Represents the dollar amount of delinquent loans net of delinquent Title I
Loans for which claims have been filed with HUD and payment is pending as a
percentage of total dollar amount of loans serviced by the Company
(including loans owned by the Company) as of the date indicated.
(5) Represents the dollar amount of delinquent Title I Loans for which claims
have been filed with HUD and payment is pending as a percentage of total
dollar amount of loans serviced by the Company (including loans owned by
the Company) as of the date indicated.
(6) If all claims with HUD had been processed as of period end, the amount of
FHA insurance available would have been reduced to $15,063,000, which as a
percentage of loans serviced would have been 8.98%.
(7) A loss is recognized upon receipt of payment of a claim or final rejection
thereof. Claims paid in a period may relate to a claim filed in an earlier
period. Since the Company commenced its Title I lending

41
<PAGE> 44

operations in March 1994, there has been no final rejection of a claim by
the FHA. Aggregate losses on liquidated Title I Loans related to 29 of the
225 Title I insurance claims made by the Company since commencing
operations through May 31, 1996. Losses on liquidated loans will increase
as the balance of the claims are processed by HUD. The Company has received
an average payment from HUD equal to 90% of the outstanding principal
balance of such Title I Loans, plus appropriate interest and costs.

The Company has received an average amount equal to 96.68% of the
outstanding principal balance of Title I Loans for which claims have been made,
each payment including certain interest and costs. The processing and payment of
claims filed with HUD have been delayed for a number of reasons including (i)
furloughs experienced by HUD personnel in December 1995 and January 1996, (ii)
the growth in the volume of Title I Loans originated from approximately $750
million in 1994 to $1.3 billion in 1995 without a corresponding increase in HUD
personnel to service claims and (iii) the transition of processing operations to
regional centers during the second and third quarters of 1996. It is expected
that once appropriate staffing and training have been completed at HUD regional
centers, the timeframe for payment of HUD claims will be significantly
shortened.

Sale of Loans

The Company customarily sells the loans it originates to third party
purchasers or, in the case of a third party purchaser not eligible to own a
Title I Loan, sells Title I Loan participation certificates backed by Title I
Loans. Whether the Company sells a loan or a loan participation, the Company
typically retains the right to service the loans for a servicing fee. The
Company typically sells loans for an amount approximating the then remaining
principal balance. The purchasers are entitled to receive interest at yields
below the stated interest rates of the loans. In connection with such sales, the
Company is typically required to deposit into a reserve account the excess
servicing spread received by it, less its servicing fee, up to a specified
percentage of the principal balance of the loans, to fund shortfalls in
collections that may result from borrower defaults.

The following table sets forth certain data regarding Title I Loans sold by
the Company during the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED AUGUST
31, NINE MONTHS
------------------ ENDED
1994(1) 1995 MAY 31, 1996
------ ------- ------------
<S> <C> <C> <C>
Principal amount of loans sold to third party
purchasers........................................ $6,555 $85,363 $ 88,073
Gain on sales of loans to third party purchasers.... 579 12,233 11,621
Net unrealized gain on mortgage related
securities........................................ -- -- 2,182
Weighted average stated interest rate on loans sold
to third party purchasers......................... 14.15% 14.53% 14.26%
Weighted average pass-through interest rate on loans
sold to third party purchasers.................... 8.53 8.42 7.56
Weighted average excess spread retained on loans
sold.............................................. 5.62 6.11 6.70
</TABLE>

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

(1) The Company commenced originating loans in March 1994.

At August 31, 1995 and May 31, 1996, the Company's balance sheet reflected
excess servicing rights of approximately $14.5 million and $12.8 million,
respectively. The Company also retains mortgage related securities through
securitization transactions. At May 31, 1996, the Company's balance sheet
reflected $15.1 million of mortgage related securities. The Company derives a
significant portion of its income by realizing gains upon the sale of loans and
loan participations due to the excess servicing rights associated with such
loans. Excess servicing rights represent the excess of the interest rate payable
by a borrower on a loan over the interest rate passed through to the purchaser
of an interest in the loan, less the Company's normal servicing fee and other
applicable recurring fees. Mortgage related securities consist of certificates
representing the excess of the interest rate payable by an obligor on a sold
loan over the yield on pass through certificates sold pursuant to a
securitization transaction, after payment of servicing and other fees. When
loans are sold, the Company recognizes as current revenue the present value of
the excess servicing rights expected to be realized over the

42
<PAGE> 45

anticipated average life of the loans sold less future estimated credit losses
relating to the loans sold. The capitalized excess servicing rights and
valuation of mortgage related securities are computed using prepayment, default
and interest rate assumptions that the Company believes are reasonable based on
experience with its own portfolio, available market data and ongoing
consultation with industry participants. The amount of revenue recognized by the
Company upon the sale of loans or loan participations will vary depending on the
assumptions utilized. The weighted average discount rate used to determine the
present value of the balance of capitalized excess servicing rights reflected on
the Company's balance sheet at August 31, 1995 and May 31, 1996 was
approximately 12.0%.

Capitalized excess servicing rights are amortized over the lesser of the
estimated or actual remaining life of the underlying loans as an offset against
the excess servicing rights component of servicing income actually received in
connection with such loans. Although the Company believes that it has made
reasonable estimates of the excess servicing rights likely to be realized, the
rate of prepayment and the amount of defaults utilized by the Company are
estimates and experience may vary from its estimates. The gain recognized by the
Company upon the sale of loans will have been overstated if prepayments or
defaults are greater than anticipated. Higher levels of future prepayments would
result in capitalized excess servicing rights amortization expense exceeding
realized excess servicing rights, thereby adversely affecting the Company's
servicing income and resulting in a charge to earnings in the period of
adjustment. Similarly, if delinquencies or liquidations were to be greater than
was initially assumed, capitalized excess servicing rights amortization would
occur more quickly than originally anticipated, which would have an adverse
effect on servicing income in the period of such adjustment. The Company
periodically reviews its prepayment assumptions in relation to current rates of
prepayment and, if necessary, reduces the remaining asset to the net present
value of the estimated remaining future excess servicing income. Rapid increases
in interest rates or competitive pressures may result in a reduction of future
excess servicing income, thereby reducing the gains recognized by the Company
upon the sale of loans or loan participations in the future.

At August 31, 1995 and May 31, 1996, the Company's balance sheet reflected
mortgage servicing rights of approximately $1.1 million and $2.7 million,
respectively. The fair value of capitalized mortgage servicing rights was
estimated by taking the present value of expected net cash flows from mortgage
servicing using assumptions the Company believes market participants would use
in their estimates of future servicing income and expense, including assumptions
about prepayment, default and interest rates. Capitalized mortgage servicing
rights are amortized in proportion to and over the period of estimated net
servicing income. The estimate of fair value was based on a range of 100 to 125
basis points per year servicing fee, reduced by estimated costs of servicing,
and using a discount rate of 12% in the year ended August 31, 1995 and the nine
months ended May 31, 1996. The Company has developed its assumptions based on
experience with its own portfolio, available market data and ongoing
consultation with industry participants.

The Company typically earns net interest income during the "warehouse"
period between the closing or assignment of a loan and its delivery to a
purchaser. On loans held for sale, the Company earns interest at long-term
rates, financed by lines of credit which bear interest at short-term interest
rates. Normally, short-term interest rates are lower than long-term interest
rates and the Company earns a positive spread on its loans held for sale. The
average warehouse period for a loan ranges from six to 90 days, and the balance
of loans in

43
<PAGE> 46

warehouse was approximately $1.5 million and $3.1 million as of August 31, 1995
and May 31, 1996, respectively. The Company's interest income, net of interest
expense was $473,000 and $538,000 for the year ended August 31, 1995 and the
nine months ended May 31, 1996, respectively.

SEASONALITY

COMPETITION

The consumer finance industry is highly competitive. Competitors in the
home improvement and debt consolidation loan business include mortgage banking
companies, commercial banks, credit unions, thrift institutions, credit card
issuers and finance companies. Certain of the Company's competitors are
substantially larger and have more capital and other resources than the Company.

The Company faces substantial competition within both the home improvement
and debt consolidation loan industry. The home improvement and debt
consolidation loan industry is dominated by widely diversified mortgage banking
companies, commercial banks, savings and loan institutions, credit card
companies, financial service affiliates of Dealers and unregulated financial
service companies, many of which have substantially greater personnel and
financial resources than those of the Company. At present, these types of
competitors dominate the home improvement and debt consolidation loan industry;
however, no one lender or group of lenders dominates the industry. The Company
believes that Greentree Financial Corp., The Money Store, First Plus Financial
Inc., Associates First Capital Corporation and Empire Funding Corp. are some of
the its largest direct competitors. The Company competes principally by
providing prompt, professional service to its Correspondents and Dealers and,
depending on circumstances, by providing competitive lending rates.

Competition can take many forms including convenience in obtaining a loan,
customer service, marketing and distribution channels, amount and term of the
loan, and interest rates. In addition, the current level of gains realized by
the Company and its existing competitors on the sale of loans could attract
additional competitors into this market with the possible effect of lowering
gains on future loan sales owing to increased loan origination competition.

GOVERNMENT REGULATION

The Company's consumer lending activities are subject to the Federal
Truth-in-Lending Act and Regulation Z (including the Home Ownership and Equity
Protection Act of 1994), ECOA, the Fair Credit Reporting Act of 1970, as
amended, RESPA and Regulation X, the Home Mortgage Disclosure Act, the Federal
Debt Collection Practices Act and the Housing Act, as well as other federal and
state statutes and regulations affecting the Company's activities. Failure to
comply with these requirements can lead to loss of approved status, termination
or suspension of servicing contracts without compensation to the servicer,
demands for indemnifications or mortgage loan repurchases, certain rights of
rescission for mortgage loans, class action lawsuits and administrative
enforcements actions.

The Company presently is subject to the rules and regulations of, and
examinations by, HUD, FHA and other federal and state regulatory authorities
with respect to originating, underwriting, funding, acquiring, selling and
servicing consumer and mortgage loans. In addition, there are other federal and
state statutes and regulations affecting such activities. These rules and
regulations, among other things, impose licensing obligations on the Company,
establish eligibility criteria for loans, prohibit discrimination, provide for
inspection and appraisals of properties, require credit reports on prospective
borrowers, regulate payment features and, in some cases, fix maximum interest
rates, fees and loan amounts. The Company is required to

44
<PAGE> 47

submit annual audited financial statements to various governmental regulatory
agencies that require the maintenance of specified net worth levels. The
Company's affairs are also subject to examination, at all times, by the Federal
Housing Commissioner to assure compliance with FHA regulations, policies and
procedures. For more information regarding regulation of the Company under Title
I, see "Title I Loan Program."

The Company is a HUD approved Title I mortgage lender and is subject to the
supervision of HUD. The Company is also a FNMA approved seller/servicer and is
subject to the supervision of FNMA. In addition, the Company's operations are
subject to supervision by state authorities (typically state banking or consumer
credit authorities), many of which generally require that the Company be
licensed to conduct its business. This normally requires state examinations and
reporting requirements on an annual basis.

The Federal Consumer Credit Protection Act ("FCCPA") requires a written
statement showing an annual percentage rate of finance charges and requires that
other information be presented to debtors when consumer credit contracts are
executed. The Fair Credit Reporting Act requires certain disclosures to
applicants concerning information that is used as a basis for denial of credit.
ECOA prohibits discrimination against applicants with respect to any aspect of a
credit transaction on the basis of sex, marital status, race, color, religion,
national origin, age, derivation of income from public assistance program, or
the good faith exercise of a right under the FCCPA.

The interest rates which the Company may charge on its loans are subject to
state usury laws, which specify the maximum rate which may be charged to
consumers. In addition, both federal and state truth-in-lending regulations
require that the Company disclose to its customers prior to execution of the
loans, all material terms and conditions of the financing, including the payment
schedule and total obligation under the loans. The Company believes that it is
in compliance in all material respects with such regulations.

EMPLOYEES

As of May 31, 1996, the Company had 153 employees, including 7 executive
officers, 67 managerial and staff professional personnel, 19 marketing and sales
specialists and 60 general administrative and support personnel and loan
processors. None of the Company's employees is represented by a collective
bargaining unit. The Company believes that its relations with its employees are
satisfactory.

PROPERTIES

In order to accommodate the Company's growth, a lease of new corporate
headquarters was executed in April 1996 for 45,950 square feet at 1000 Parkwood
Circle, Atlanta, Georgia. This lease is for an initial six year term expiring
August 2002 with a conditional option to extend the term to August 2007. After
an initial partial rent abatement period of six months, monthly rentals will be
$73,711 plus a pro rata share of any operating expense increase. This lease rate
will escalate 2% per year throughout the term of the lease. The Company also
leases 10,478 square feet of office space at its prior headquarters location in
Atlanta, Georgia, at a rental of $13,193 per month, pursuant to a lease that
expires in March 1999. The Company intends to sublease this office space for the
remaining term of its lease. The Company also leases office space on short-term
or month-to-month leases in Kansas City, Missouri, Austin, Texas, Montvale, New
Jersey, Oklahoma City, Oklahoma, Seattle, Washington, Waterford, Michigan,
Columbus, Ohio, Elmhurst, Illinois, Philadelphia, Pennsylvania, Denver, Colorado
and Woodbridge, Virginia.

LEGAL PROCEEDINGS

In the ordinary course of its business, the Company is, from time to time,
named in lawsuits. The Company believes that it has meritorious defenses to
these lawsuits and that resolution of these matters will not have a material
adverse effect on the business or financial condition of the Company.

45
<PAGE> 48

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Jerome J. Cohen............................ 68 Chairman of the Board and Chief Executive
Officer
Jeffrey S. Moore........................... 38 President, Chief Operating Officer and
Director
James L. Belter............................ 49 Executive Vice President and Chief
Financial Officer
Michael G. Ebinger......................... 40 Vice President, National Marketing
Robert Nederlander......................... 63 Director
Herbert B. Hirsch.......................... 60 Director
Don A. Mayerson............................ 69 Director
</TABLE>

Jerome J. Cohen has been Chairman of the Board and Chief Executive Officer
of the Company since April 1995. Mr. Cohen has been the President and a Director
of Mego Financial since January 1988. Since April 1992, Mr. Cohen has been a
Director of Atlantic Gulf Communities Inc., formerly known as General
Development Corporation, a publicly held company engaged in land development,
land sales and utility operations in Florida and Tennessee. Mr. Cohen does not
currently serve on a full time basis in his capacities with the Company.

Jeffrey S. Moore has been the President of the Company since April 1995 and
Chief Operating Officer since December 1993. In addition, Mr. Moore has served
as a director of the Company since June 1992. Prior to being elected President,
Mr. Moore served as an Executive Vice President of the Company from June 1992 to
March 1995. Mr. Moore was the founder and from August 1984 until March 1992,
served as President, Chief Executive Officer and a director of Empire Funding
Corp., a privately-held, nationwide consumer finance company specializing in
originating, purchasing, selling and servicing FHA Title I and other home
improvement mortgage loans. Mr. Moore serves as a director of the Title One Home
Improvement Lenders Association and is a member of its Legislative and
Regulatory Affairs Committee.

James L. Belter has been Executive Vice President of the Company since
April 1995 and Chief Financial Officer since September 1996. Prior to joining
the Company, from May 1989 to September 1993, Mr. Belter served as the
President, Chief Operating Officer and a director of Del-Val Capital
Corporation, a commercial finance company. From April 1985 to April 1989, Mr.
Belter served as Executive Vice President of Security Capital Credit
Corporation, a commercial finance company, where he was responsible for the
formation of the company's installment receivable lending division. From
November 1976 to April 1985, Mr. Belter served as a corporate Vice President of
Barclays Business Credit, Inc. where he managed a unit specializing in financing
portfolios of consumer contracts including residential second mortgages, home
improvement contracts, timeshare and land sales.

Michael G. Ebinger has served as Vice President of National Marketing since
June 1995. From January 1995 to June 1995, Mr. Ebinger served as Director of
National Accounts of the Correspondent Division. From 1989 to 1994, Mr. Ebinger
served as Director of National Accounts for the home improvement division of
Greentree Financial Corporation, where he developed and managed the national
account program which created a network of over 1,000 home improvement
contractors. From 1987 to 1989, he served as West Coast Regional Manager for
VIPCO, a division of Crane Plastics, a manufacturer of replacement vinyl siding.
From 1986 to 1987, he served as National Accounts Manager for Security Pacific
Financial Services Corporation in its Manufacturer Funding Division and was
responsible for the marketing of its indirect home improvement loan programs to
home improvement contractors.

Robert Nederlander has been a Director of the Company since September 1996.
Mr. Nederlander has been the Chairman of the Board and Chief Executive Officer
of Mego Financial since January 1988.

46
<PAGE> 49

Mr. Nederlander is a member of the Company's Audit Committee. Since July 1995,
Mr. Nederlander has served on the Board of Directors of Hospitality Franchise
Systems, Inc. Mr. Nederlander has been President of Nederlander Organization,
Inc., a company principally engaged in the theatrical business, since 1981.
Since May 1989, Mr. Nederlander served as the Chairman of the Board and Chief
Executive Officer of Allis-Chalmers Corporation, a publicly held company engaged
in the machinery, equipment repair and women's shoulder pad business, and since
November 1993, Mr. Nederlander has served as Vice Chairman of Allis-Chalmers
Corporation. Between August 1990 and December 1991, Mr. Nederlander was the
managing general partner of the New York Yankees Baseball Club. Since April
1988, Mr. Nederlander has been the Chairman of the Board of Riddell Sports,
Inc., a publicly held company principally engaged in the manufacture of football
helmets and other athletic protective equipment and the licensing of trademarks.

Herbert B. Hirsch has been a Director of the Company since the Company's
formation in June 1992. Mr. Hirsch has been the Senior Vice President, Chief
Financial Officer, Treasurer and a Director of Mego Financial since January
1988. Mr. Hirsch served as Vice President and Treasurer of the Company from June
1992 to September 1996.

Don A. Mayerson has been a Director of the Company since the Company's
formation in June 1992. Mr. Mayerson has been the Secretary of Mego Financial
since January 1988 and the Executive Vice President and General Counsel of Mego
Financial since April 1988. Mr. Mayerson served as Vice President, General
Counsel and Secretary of the Company from June 1992 to September 1996.

The Company's officers are elected annually by the Board of Directors and
serve at the discretion of the Board of Directors. The Company's directors hold
office until the next annual meeting of stockholders and until their successors
have been duly elected and qualified. The Company reimburses all directors for
their expenses in connection with their activities as directors of the Company.
Directors of the Company who are also employees of the Company do not receive
additional compensation for their services as directors. Members of the Board of
Directors of the Company who are not employees of the Company receive an annual
fee of $20,000 for four Board meetings per year plus $2,500 for each additional
meeting attended in person and $1,000 for each additional telephonic meeting
attended. Directors are also reimbursed for their expenses incurred in attending
meetings of the Board of Directors and its committees.

KEY EMPLOYEES

Robert Bellacosa -- Mr. Bellacosa, age 54, has served as Vice President of
Financial Management since October 1993 and Secretary since September 1996. From
May 1989 to October 1993, Mr. Bellacosa served as Senior Vice President of
Accounting for Del-Val Capital Corp. From May 1985 to May 1989, he served as
Vice President of Security Capital Credit Corp. where he was responsible for
loan administration of commercial real estate and term receivable lending
functions. From 1974 to 1985, he served as Vice President for Aetna Business
Credit, Inc. which was purchased by Barclays American Business Credit, Inc. and
was responsible for the management of loan administration for special term
receivables.

Jack Elrod -- Mr. Elrod, age 40, has served as Vice President of Loan
Administration since May 1995. From March 1994 to May 1995, Mr. Elrod served as
a Senior Underwriter for ITT Financial Corporation. From March 1993 to March
1994, he served as Branch Manager for Commercial Credit Corporation and from
January 1977 to February 1993, he served as Assistant Vice President and
District Manager of Household Finance Corporation.

Samuel Schultz -- Mr. Schultz, age 47, has served as Vice President of
Credit Quality since June 1996 and as Vice President of the Company's Dealer
Division Operations from December 1993 until June 1996. Mr. Schultz was a
consultant to the Company from June 1993 until December 1993. From September
1990 to June 1993, he served as Vice President of Underwriting for Empire
Funding Corp., a nationwide consumer finance company specializing in the
purchase of FHA Title I and other home improvement mortgage loans. From February
1988 to September 1990, he served as a Senior Manager for Avco Financial
Services. From October 1985 to February 1988, he served as a Department Manager
for Associates Financial Services Inc. Prior to 1985, and since 1971, Mr.
Schultz's experience includes collections and originations of consumer finance
loans for Postal Finance, Turner Mortgage and other consumer finance companies.

47
<PAGE> 50

Jeffrey Rast -- Mr. Rast, age 46, has served as Vice President of
Correspondent Division Operations since July 1994. From March 1989 to December
1993, Mr. Rast served as Senior Vice President and Regional Manager for Barclays
American Financial Corp. From December 1987 to March 1989, he served as
President and Chief Operating Officer of Bankwest Industrial Bank. From January
1981 to December 1987, he served as Vice President and Regional Manager of
Manufacturers Hanover Financial Services. From January 1974 to December 1982, he
served in various positions including District and Branch Manager for ITT
Financial Services.

Yancy Lockie -- Mr. Lockie, age 33, has served as Vice President of Dealer
Division Operations since July 1996. From September 1993 to June 1996, Mr.
Lockie served as Manager of Real Estate Underwriting for NationsCredit Financial
Services and was responsible for underwriting of real estate and indirect home
improvement loans for 245 branches and from December 1990 to August 1993, he
served as Branch Manager for NationsCredit Financial Services. From 1987 to
November 1990, he served as a Senior Assistant Manager and Senior Underwriter
for Household Finance Corporation.

John Kostelich -- Mr. Kostelich, age 33, has served as Vice President of
Project Management since June 1996 and is responsible for developing and
implementing the Company's policies and procedures for new and diversified loan
products. From June 1995 to June 1996, Mr. Kostelich served as Director of
Compliance for the Company. From 1985 to 1995, he served in various positions
for ITT Consumer Financial Corporation, including Director of Quality Control
and Correspondent Support Operations, Senior Compliance Officer, in which he
managed special projects for the Chairman of the company, Regional Manager and
Branch Manager.

EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual and
long-term compensation earned by the Company's chief executive officer and each
of the three other executive officers whose annual salary and bonus during the
fiscal years presented exceeded $100,000 (the "Named Executive Officers"). The
Company did not grant any stock options to the Named Executive Officers during
the fiscal year ended August 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- ------------------------
OTHER NUMBER OF
FISCAL ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) GRANTED(2) COMPENSATION
- ------------------------------ ------ -------- ------- --------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Jerome J. Cohen(3)............ 1994 $ 75,000 $ -- $ -- -- $ --
Chairman of the Board and 1995 64,388 -- -- -- --
Chief Executive Officer 1996 65,748 -- -- -- --
Jeffrey S. Moore.............. 1994 $126,771 $ -- $ 5,140 25,000 $ --
President and Chief 1995 200,003 -- 13,963 -- --
Operating Officer 1996 286,087 86,385 13,625 -- --
James L. Belter............... 1994 $ 98,079 $ -- $ -- 15,000 $ --
Executive Vice President and 1995 150,003 50,000 1,510 -- --
Chief Financial Officer 1996 159,080 50,000 4,330 -- --
Michael G. Ebinger............ 1994 $ -- $ -- $ -- -- $ --
Vice President 1995 55,320 -- 5,609 15,000 --
1996 110,011 11,500 -- -- --
</TABLE>

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

(1) Other annual compensation consists of car allowances, contributions to
401(k) plans and moving expenses.
(2) Represents options to purchase shares of Mego Financial's common stock paid
as compensation for services rendered to the Company.
(3) Mr. Cohen's compensation is included in the management fees paid to PEC. See
"Certain Transactions."

48
<PAGE> 51

EMPLOYMENT AGREEMENT

The Company has entered into an employment agreement with Jeffrey S. Moore
which expires on December 31, 1998 and which provides for an annual base salary
of $200,000. In addition, Mr. Moore is to receive an incentive bonus each
calendar year equal to 1.5% of the Company's after tax income, provided that
certain scheduled sales goals are met, as well as deferred compensation of 1% of
the gain on sale from sales of loans during such year, payable in 48 equal
installments. In the event payments of the incentive bonus and deferred
compensation due in any year exceed $500,000, then the excess over $500,000 is
only payable with the approval of the Company's Board of Directors.

COMPANY STOCK OPTION PLAN

Under the Company's Stock Option Plan (the "Plan"), which will be effective
upon the consummation of the Offering, 900,000 shares of Common Stock will be
reserved for issuance upon exercise of stock options. The options, even if
vested, may not be exercised without the written approval of Mego Financial
during the Eighty Percent Period. Such shares will be accompanied by stock
appreciation rights which will become exercisable as determined by the Board, or
a Committee thereof, only if Mego Financial does not give approval to the
exercise of the option. The Plan is designed as a means to retain and motivate
key employees and directors. The Company's Board of Directors, or a committee
thereof, administers and interprets the Plan and is authorized to grant options
thereunder to all eligible employees and directors of the Company, except that
no incentive stock options (as defined in Section 422 of the Internal Revenue
Code) may be granted to a director who is not also an employee of the Company or
a subsidiary.

The Plan will provide for the granting of both incentive stock options and
nonqualified stock options. Options will be granted under the Plan on such terms
and at such prices as determined by the Company's Board of Directors, or a
committee thereof, except that the per share exercise price of incentive stock
options cannot be less than the fair market value of the Common Stock on the
date of grant. Each option is exercisable after the period or periods specified
in the related option agreement, but no option may be exercisable after the
expiration of ten years from the date of grant. Options granted to an individual
who owns (or is deemed to own) at least 10% of the total combined voting power
of all classes of stock of the Company must have an exercise price of at least
110% of the fair market value of the Common Stock on the date of grant and a
term of no more than five years. The Plan also authorizes the Company to make or
guarantee loans to optionees to enable them to exercise their options. Such
loans must (i) provide for recourse to the optionee, (ii) bear interest at a
rate no less than the prime rate of interest, and (iii) be secured by the shares
of Common Stock purchased. The Board of Directors has the authority to amend or
terminate the Plan, provided that no such action may impair the rights of the
holder of any outstanding option without the written consent of such holder, and
provided further that certain amendments of the Plan are subject to stockholder
approval. Unless terminated sooner, the Plan will continue in effect until all
options granted thereunder have expired or been exercised, provided that no
options may be granted ten years after commencement of the Plan.

The following table sets forth information with respect to options to be
granted under the Plan upon consummation of the Offering to (i) each Named
Officer and (ii) each director and nominee for director. All of the options are
nonstatutory, are being granted with an exercise price equal to the offering
price, are subject to the consummation of the Offering and are being granted in
1996.

<TABLE>
<CAPTION>
NAME OF GRANTEE NUMBER OF SHARES
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Robert Nederlander...........................................................
Jerome J. Cohen..............................................................
Jeffrey S. Moore.............................................................
James L. Belter..............................................................
Herbert B. Hirsch............................................................
Don A. Mayerson..............................................................
</TABLE>

49
<PAGE> 52

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company does not currently have a Compensation Committee. Mr. Cohen
participated in deliberations concerning compensation of executive officers
during fiscal 1996. Mr. Cohen's compensation was determined by the Board of
Directors of Mego Financial.

BONUS PLAN

The Company does not currently have a bonus plan but anticipates it may
adopt a bonus plan pursuant to which an aggregate of not in excess of 2 1/2% of
pretax income will be distributed to officers and key employees.

PRINCIPAL STOCKHOLDERS

Mego Financial currently owns 10,000,000 shares of Common Stock (after
giving effect to the 1,600-for-one stock split), representing 100% of all the
issued and outstanding Common Stock of the Company. After giving effect to the
issuance of the Common Stock pursuant to the Offering, Mego Financial will own
approximately 83.3% of the issued and outstanding Common Stock of the Company
(approximately 81.3% if the Underwriters' over-allotment option is exercised in
full).

The following table sets forth, as of the date of this Prospectus,
information with respect to the beneficial ownership of the common stock of Mego
Financial by (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of common stock of Mego Financial, (ii)
each director of the Company, (iii) each of the Named Executive Officers and
(iv) all directors and executive officers of the Company as a group. Unless
otherwise noted, the Company believes that all persons named in the table have
sole voting and investment power with respect to all shares of common stock of
Mego Financial beneficially owned by them.

<TABLE>
<CAPTION>
PERCENTAGE
OWNERSHIP
ATTRIBUTABLE TO
THE COMPANY
-------------------
AMOUNT AND NATURE OF BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP OFFERING OFFERING
- ----------------------------------------------------------- -------------------- -------- --------
<S> <C> <C> <C>
Robert Nederlander(2)...................................... 2,126,697 11.6% 9.7%
Eugene I. Schuster and Growth Realty Inc. ("GRI")(3)....... 1,933,634 10.5 8.7
Jerome J. Cohen(4)......................................... 1,120,823 6.1 5.1
Jeffrey S. Moore(5)........................................ 5,000 * *
James L. Belter(6)......................................... 3,000 * *
Michael G. Ebinger(7)...................................... 3,000 * *
Herbert B. Hirsch(8)....................................... 1,692,623 9.2 7.7
Don A. Mayerson(9)......................................... 817,414 4.5 3.7
All executive officers and directors of the Company as a
group
(7 persons)(10).......................................... 5,768,557 30.1 25.1
</TABLE>

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

* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options and warrants. Each beneficial owner's
percentage ownership is determined by assuming that options and warrants
that are held by such person (but not those held by any other person) and
that are exercisable within 60 days from the date of this Prospectus have
been exercised.
(2) 810 Seventh Avenue, 21st Floor, New York, New York 10019. Includes 14,000
shares issuable under an option granted pursuant to the Mego Financial
Stock Option Plan, to the extent exercisable within the next 60 days, and
250,000 shares issuable upon the exercise of warrants held by an affiliate
of Mr. Nederlander which are presently exercisable.
(3) 321 Fisher Building, Detroit, Michigan 48202. Consists of 1,683,634 shares
held of record by GRI, a wholly-owned subsidiary of Venture Funding, Ltd.
of which Mr. Schuster is a principal shareholder,

50
<PAGE> 53

Director and Chief Executive Officer, and 250,000 shares issuable upon the
exercise of warrants held by an affiliate of Mr. Schuster which are
presently exercisable.
(4) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Includes
14,000 shares issuable under an option granted pursuant to the Mego
Financial Stock Option Plan, to the extent exercisable within the next 60
days, and 200,000 shares issuable upon the exercise of warrants held by Mr.
Cohen which are presently exercisable. Excludes 103,503 shares owned by Mr.
Cohen's spouse and 500,000 shares owned by a trust for the benefit of his
children over which Mr. Cohen does not have any investment or voting power,
as to which he disclaims beneficial ownership.
(5) 1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339. Includes 5,000
shares issuable under an option granted pursuant to the Mego Financial
Stock Option Plan, to the extent exercisable within the next 60 days.
(6) 1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339. Includes 3,000
shares issuable under an option granted pursuant to the Mego Financial
Stock Option Plan, to the extent exercisable within the next 60 days.
(7) 1000 Parkwood Circle, Suite 500, Atlanta, Georgia 30339. Includes 3,000
shares issuable under an option granted pursuant to the Mego Financial
Stock Option Plan, to the extent exercisable within the next 60 days.
(8) 230 East Flamingo Road, Las Vegas, Nevada 89109. Includes 14,000 shares
issuable under an option granted pursuant to the Mego Financial Stock
Option Plan, to the extent exercisable within the next 60 days, and 200,000
shares issuable upon the exercise of warrants held by Mr. Hirsch which are
presently exercisable. Excludes 10,000 shares held by the daughter of Mr.
Hirsch as custodian for a minor child as to which he disclaims beneficial
ownership, and 21,666 shares held by a family trust, as to which he
disclaims beneficial ownership.
(9) 1125 N.E. 125th Street, Suite 206, North Miami, Florida 33161. Includes
14,000 shares issuable under an option granted pursuant to the Mego
Financial Stock Option Plan, to the extent exercisable within the next 60
days, and 100,000 shares issuable upon the exercise of warrants held by Mr.
Mayerson which are presently exercisable. Excludes 56,667 shares owned by
Mr. Mayerson's spouse, as to which he disclaims beneficial ownership.
(10) See Notes (2)-(9).

CERTAIN TRANSACTIONS

TAX SHARING AND INDEMNITY AGREEMENT

After the Offering, the results of operations of the Company will continue
to be included in the tax returns filed by Mego Financial's affiliated or
combined group for federal income tax purposes. The members of the group,
including the Company, currently are parties to a tax allocation arrangement
that allocates the liability for those taxes among them. Effective on
consummation of the Offering, the Company, Mego Financial and the other members
of the tax reporting group will enter into a tax allocation and indemnity
agreement. Under that agreement, for periods ending after the Offering, the tax
liabilities of each entity in the group will be allocated pursuant to a method
that would impose on the Company liability for an amount that corresponds (with
various modifications) to the liability that the Company would incur if it filed
a separate tax return. In addition, the agreement provides that the Company and
the other members of the group each will indemnify the other under certain
circumstances.

MANAGEMENT AGREEMENT WITH PEC

The Company and PEC are parties to a management services agreement (the
"Management Agreement") pursuant to which certain employees of PEC provide
services to the Company on an as needed basis. The Management Agreement provides
for the payment by the Company of a management fee to PEC in an amount equal to
the direct and indirect expenses of PEC related to the services rendered by its
employees to the Company, including an allocable portion of the salaries and
expenses of such employees based upon the percentage of time such employees
spend performing services for the Company. For the years ended

51
<PAGE> 54

August 31, 1994, 1995 and 1996, $442,000, $690,000 and $671,000, respectively,
of the salaries and expenses of certain employees of PEC were attributable to
and paid by the Company in connection with services rendered by such employees
to the Company.

SERVICING AGREEMENT WITH PEC

The Company has an arrangement with PEC pursuant to which it pays servicing
fees of 50 basis points of the principal balance of loans serviced per year. For
the years ended August 31, 1994, 1995 and 1996, the Company paid servicing fees
to PEC of $11,000, $174,000 and $709,000, respectively. The Company anticipates
that prior to consummation of the Offering it will enter into a servicing
agreement with PEC providing for the payment of servicing fees of 50 basis
points of the principal balance of loans serviced per year.

GUARANTEES BY MEGO FINANCIAL

Mego Financial has guaranteed the Company's obligations under the Warehouse
Line, the Revolving Loan and the Company's new office lease.

DESCRIPTION OF NOTE OFFERING

Concurrently with the Offering, the Company is offering the Notes by a
separate prospectus pursuant to the Note Offering. The following summary of the
principal terms of the Notes does not purport to be complete and is qualified in
its entirety by reference to all of the provisions of the Indenture governing
the Notes and the Notes, copies of which will be filed as exhibits to the
Registration Statement governing the Notes. Capitalized terms not otherwise
defined herein have the meanings specified in the Indenture.

The Notes will be limited in aggregate principal amount to $40.0 million
and will mature on , 2001. The Notes will be general unsecured
obligations of the Company, subordinated in right of payment to all Senior
Indebtedness of the Company. Interest on the Notes will accrue at a rate of
% per year and will be payable in cash semi-annually on and
of each year, commencing , 1997.

Upon the occurrence of a Change of Control (as defined in the Indenture),
each holder of Notes will have the right to require that the Company repurchase
all or a portion of such holder's Notes at a purchase price in cash equal to %
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase.

The Indenture governing the Notes will contain certain covenants, including
limitations on the incurrence of indebtedness, the incurrence of indebtedness
and issuance of preferred stock by subsidiaries, the making of restricted
payments (including restrictions on the payment of dividends on the Common
Stock), the imposition of certain distribution restrictions on subsidiaries,
transactions with affiliates, the existence of liens, the making of guarantees
by subsidiaries, mergers and sales of assets.

The Offering is conditioned upon the consummation of the Note Offering.

52
<PAGE> 55

DESCRIPTION OF CAPITAL STOCK

GENERAL

The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value, and 5,000,000 shares of Preferred Stock, par value
$.01 per share. No shares of Preferred Stock have been issued to date. The
following brief description of the Company's capital stock does not purport to
be complete and is subject in all respects to applicable law and the provisions
of the Company's Certificate of Incorporation and Bylaws, copies of which have
been filed as exhibits to the Registration Statement of which this Prospectus is
a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by stockholders. There is no cumulative
voting with respect to the election of directors, with the result that the
holders of more than 50% of the shares voted for the election of directors can
elect all of the directors. The holders of Common Stock are entitled to receive
dividends when, as and if declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision has been made for each class of stock, if any,
having preference over the Common Stock.

Upon completion of the Offering, the Company's existing sole stockholder
will beneficially own approximately 83.3% of the outstanding shares of Common
Stock (approximately 81.3% if the Underwriters' over-allotment option is
exercised in full) and will therefore be able to elect the entire Board of
Directors and control all matters submitted to stockholders for a vote.

During the Eighty Percent Period, no additional shares of Common Stock may
be issued that would reduce Mego Financial's ownership interest in the Common
Stock below 80% of the issued and outstanding shares of Common Stock without
Mego Financial's written approval, and no shares of any other class of capital
stock may be issued without Mego Financial's written approval. The shares of
Common Stock offered hereby will be, when issued and paid for, fully paid and
non-assessable.

PREFERRED STOCK

Although the Company has no present plans to issue shares of Preferred
Stock, Preferred Stock may be issued from time to time in one or more classes or
series with such designations, powers, preferences, rights, qualifications,
limitations and restrictions as may be fixed by the Company's Board of
Directors. The Board of Directors, without obtaining stockholder approval other
than written approval from Mego Financial during the Eighty Percent Period,
could issue the Preferred Stock with voting and/or conversion rights and thereby
dilute the voting power and equity of the holders of Common Stock and adversely
effect the market price of such stock. The issuance of Preferred Stock could
also be used as an antitakeover measure by the Company without any further
action by the stockholders.

PAYMENT OF DIVIDENDS

The Company has never paid any cash dividends on its capital stock. The
Company intends to retain all of its future earnings to finance its operations
and does not anticipate paying cash dividends in the foreseeable future. In
addition, certain agreements to which the Company is a party, including the
Indenture, restrict the Company's ability to pay dividends on the Common Stock.

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporation Law. In general, Section 203 prevents an
"interested stockholder" (defined generally as a person owning 15% or more of
the Company's outstanding voting stock) from engaging in a "business
combination"

53
<PAGE> 56

(as defined in Section 203) with the Company for three years following the date
that person became an interested stockholder unless: (i) before that person
became an interested stockholder, the Board approved the transaction in which
the interested stockholder became an interested stockholder or approved the
business combination; (ii) upon completion of the transaction that resulted in
the interested stockholders becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer); or (iii) on or
following the date on which that person became an interested stockholder, the
business combination is approved by the Company's Board and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the Company not owned by the
interested stockholder.

Under Section 203, these restrictions also do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors (but not less than one) who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.

Pursuant to Section 162 of the Delaware General Corporation Law, the Board
of Directors of the Company can, without stockholder approval, issue shares of
capital stock, which may have the effect of delaying, deferring or preventing a
change of control of the Company. Other than pursuant to the Offering, the
Company has no plan or arrangement for the issuance of any shares of capital
stock other than in the ordinary course pursuant to the Stock Option Plan.

CERTAIN CHARTER AND BYLAW PROVISIONS

The Company's Certificate of Incorporation contains certain provisions that
could discourage potential takeover attempts and make more difficult attempts by
stockholders to change management. The Company's Certificate of Incorporation
provides that no additional shares of Common Stock may be issued that would
reduce Mego Financial's interest below 80% without its written approval during
the Eighty Percent Period. In addition, although the Certificate of
Incorporation provides for the issuance of one or more series of preferred stock
from time to time, during the Eighty Percent Period no shares of any other class
of capital stock may be issued without Mego Financial's written approval. Even
in the event that at some later date Mego Financial's percentage ownership in
the Company is significantly reduced, certain provisions of the Company's
Certificate of Incorporation and Bylaws may be deemed to have anti-takeover
effects and may delay, defer or prevent a takeover attempt that a stockholder
might consider in its best interest. The Certificate of Incorporation and Bylaws
provide (i) that special meetings of stockholders may be called only by the
Board of Directors or upon the written demand of the holders of not less than
30% of the votes entitled to be cast at a special meeting and (ii) establish
certain advance notice procedures for nomination of candidates for election as
directors by stockholders and for stockholder proposals to be considered at
annual stockholders' meetings.

The Certificate of Incorporation permits the Board of Directors to create
new directorships and the Company's Bylaws permit the Board of Directors to
elect new directors to serve the full term of the class of directors in which
the new directorship was created. The Bylaws also provide that the Board of
Directors (or its remaining members, even though less than a quorum) is
empowered to fill vacancies on the Board of Directors occurring for any reason
for the remainder of the terms of the class of directors in which the vacancy
occurred.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock will be American
Stock Transfer & Trust Company.

54
<PAGE> 57

SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have 12,000,000 shares
of Common Stock outstanding (12,300,000 shares if the Underwriters'
over-allotment option is exercised in full). Of those shares, the 2,000,000
shares sold in the Offering (2,300,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely transferable without
restriction or registration under the Act, unless purchased by persons deemed to
be "affiliates" of the Company (as that term is defined under the Act). The
remaining 10,000,000 shares of Common Stock to be outstanding immediately
following the Offering ("restricted shares") may only be sold in the public
market if such shares are registered under the Act or sold in accordance with
Rule 144 promulgated under the Act.

In general, under Rule 144 a person (or persons whose shares are
aggregated) including an affiliate, who has beneficially owned his shares for
two years, may sell in the open market within any three-month period a number of
shares that does not exceed the greater of (i) 1% of the then outstanding shares
of the Company's Common Stock (approximately 120,000 shares immediately after
the Offering, 123,000 shares if the over-allotment option is exercised in full)
or (ii) the average weekly trading volume in the Common Stock in the
over-the-counter market during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain limitations on the manner of
sale, notice requirements and availability of current public information about
the Company. A person (or persons whose shares are aggregated) who is deemed not
to have been an "affiliate" of the Company at any time during the 90 days
preceding a sale by such person and who has beneficially owned his shares for at
least three years, may sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, notice
requirements or availability of current information referred to above.
Restricted shares properly sold in reliance upon Rule 144 are thereafter freely
tradeable without restrictions or registration under the Act, unless thereafter
held by an "affiliate" of the Company.

The Company has reserved an aggregate of 900,000 shares of Common Stock for
issuance pursuant to the Stock Option Plan and the Company intends to register
such shares on Form S-8 following the Offering. Subject to restrictions imposed
pursuant to the Stock Option Plan, shares of Common Stock issued pursuant to the
Stock Option Plan after the effective date of any Registration Statement on Form
S-8 will be available for sale in the public market without restriction to the
extent they are held by persons who are not affiliates of the Company, and by
affiliates pursuant to Rule 144. See "Management -- Stock Option Plan."

Prior to the Offering, there has been no trading market for the Common
Stock. No prediction can be made as to the effect, if any, that future sales of
shares pursuant to Rule 144 or otherwise will have on the market price
prevailing from time to time. Sales of substantial amounts of the Common Stock
in the public market following the Offering could adversely affect the then
prevailing market price. All of the 10,000,000 shares of Common Stock held by
Mego Financial will be eligible for sale under Rule 144 commencing 90 days after
consummation of the Offering. Mego Financial has agreed that it will not sell or
otherwise transfer any shares of Common Stock to the public for 180 days after
the Offering without the prior written consent of Oppenheimer & Co., Inc. and
Friedman, Billings, Ramsey & Co., Inc., on behalf of the Underwriters. See
"Underwriting."

55
<PAGE> 58

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company and the underwriters named below (the "Underwriters"), for
whom Oppenheimer & Co., Inc. ("Oppenheimer") and Friedman, Billings, Ramsey &
Co., Inc. are acting as representatives (the "Representatives"), each of the
Underwriters has severally agreed to purchase from the Company, and the Company
has agreed to sell to the Underwriters, the respective numbers of shares of
Common Stock set forth opposite their names below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Oppenheimer & Co., Inc. ..................................................
Friedman, Billings, Ramsey & Co., Inc. ...................................

---------
Total........................................................... 2,000,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The Underwriters are committed to
purchase and pay for all of the above shares of Common Stock if any are
purchased.

The Underwriters have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock directly to the public at the
initial public offering price set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of
$ per share of Common Stock. The Underwriters may allow, and such
dealers may reallow, a concession not in excess of $ per share of
Common Stock on sales to certain other dealers. After the initial public
offering, the public offering price and other selling terms may be changed by
the Underwriters.

Prior to the Offering, there has been no public trading market for the
Common Stock. Although the Company has applied for quotation of the Common Stock
on Nasdaq, there can be no assurance that any active trading market will develop
for the Common Stock or, if developed, will be maintained. The initial public
offering price will be determined through negotiations among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price will include the history of and the prospects for the industry in
which the Company competes, the ability of the Company's management, the past
and present operations of the Company, the historical results of operations of
the Company, the prospects for future earnings of the Company, the general
condition of the securities markets at the time of the Offering and the recent
market prices of securities of generally comparable companies.

The Company has granted the Underwriters a 30-day over-allotment option to
purchase up to an aggregate of 300,000 additional shares of Common Stock at the
public offering price less the underwriting discount. If the Underwriters
exercise such over-allotment option, the Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof as the number of shares of Common Stock offered hereby. The Underwriters
may exercise such option only to cover over-allotments made in connection with
the sale of the shares of Common Stock offered hereby.

The Company and Mego Financial have agreed that they will not, without the
prior written consent of the Representatives, directly or indirectly, offer,
sell, grant any option to purchase or otherwise dispose (or announce the offer,
sale, grant of any option to purchase or other disposition) of any shares of
Common Stock or any securities convertible into or exchangeable or exercisable
for shares of Common Stock for a period of 180 days after the date of this
Prospectus.

The Representatives have informed the Company that the Underwriters do not
intend to confirm sales to any accounts over which they have discretionary
authority.

56
<PAGE> 59

The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments that the Underwriters may be required to make in respect
thereof.

Oppenheimer has provided from time to time, and expects to provide in the
future, investment banking and financial services to the Company and its
affiliates, for which Oppenheimer has received and will receive customary fees
and commissions.

LEGAL MATTERS

The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel,
P.A., Miami, Florida. Gibson, Dunn & Crutcher LLP, New York, New York has acted
as counsel for the Underwriters in connection with the Offering.

EXPERTS

The financial statements included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein and elsewhere in the registration statement, and are so included in
reliance upon their authority as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act, with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement. For further information with respect to the Company and the Common
Stock offered hereby, reference is hereby made to such Registration Statement.
Statements contained in this Prospectus as to the contents of any contract or
other document are not necessarily complete and, in each instance, reference is
made to the copy of such contract or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission, or may be examined without charge at the offices of the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the
Commission's regional offices at Seven World Trade Center, Suite 1300, New York,
New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. In addition, copies of the Registration
Statement and related documents may be obtained from the Commission's web site
at http://www.sec.gov.

Upon completion of the Offering, the Company will be subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, and
in accordance therewith will file annual and quarterly reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information may be inspected, and copies of such material may be obtained
upon payment of prescribed fees, at the Commission's Public Reference Section at
the addresses set forth above.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements of the Company which have been certified
by its independent public accountants.

57
<PAGE> 60

MEGO MORTGAGE CORPORATION

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.......................................................... F-2
Financial Statements:
Balance Sheets -- August 31, 1994 and 1995 and May 31, 1996 (unaudited)............. F-3
Statements of Operations -- Years Ended August 31, 1994 and 1995 and Nine Months
Ended May 31, 1995 and 1996 (unaudited).......................................... F-4
Statements of Cash Flows -- Years Ended August 31, 1994 and 1995 and Nine Months
Ended May 31, 1995 and 1996 (unaudited).......................................... F-5
Statements of Stockholder's Equity -- Years Ended August 31, 1994 and 1995 and Nine
Months Ended May 31, 1995 and 1996 (unaudited)................................... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 61

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholder of
Mego Mortgage Corporation
Las Vegas, Nevada

We have audited the accompanying balance sheets of Mego Mortgage
Corporation (a wholly owned subsidiary of Mego Financial Corp.) (the "Company")
as of August 31, 1994 and 1995, and the related statements of operations,
stockholder's equity and of cash flows for the years then ended. 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, such financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of August 31,
1994 and 1995, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.

As discussed in Note 13 to the financial statements, the accompanying 1994
financial statements have been restated.

As discussed in Note 2 to the financial statements, the Company adopted
Statement of Financial Accounting Standards No. 122, Accounting for Mortgage
Servicing Rights.

Las Vegas, Nevada
February 29, 1996
(September , 1996 as to the last paragraph of Note 2)

The accompanying financial statements retroactively reflect the effect of a
sixteen-hundred-for-one stock split of the common stock which is to be effected
before the effective date of this Registration Statement. The above opinion is
in the form which will be signed by Deloitte & Touche LLP upon consummation of
such stock split, which is described in Note 2 of Notes to Financial Statements,
and assuming that, from February 29, 1996 to the date of such stock split, no
other events shall have occurred that would affect the accompanying financial
statements and notes thereto.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
September 20, 1996

F-2
<PAGE> 62

MEGO MORTGAGE CORPORATION

BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)

AUGUST 31,
-------------------------- MAY 31,
1994 1995 1996
-------------- ------- -----------
(AS RESTATED-- (UNAUDITED)
NOTE 15)
<S> <C> <C> <C>
ASSETS
Cash...................................................... $ 824 $ 752 $ 841
Cash deposits, restricted................................. -- 2,532 2,399
Loans held for sale, net.................................. 1,463 3,676 4,671
Mortgage related securities, at fair value................ -- -- 15,144
Excess servicing rights................................... 904 14,483 12,796
Mortgage servicing rights................................. -- 1,076 2,738
Other receivables......................................... 313 142 15
Due from affiliate........................................ 276 -- --
Property and equipment, at cost, net...................... 237 429 800
Organizational costs, net................................. 867 675 530
Other assets.............................................. 238 316 565
------- ------- -------
TOTAL ASSETS.................................... $ 5,122 $24,081 $40,499
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Notes and contracts payable............................. $ 637 $ 1,458 $ 8,872
Accounts payable and accrued liabilities................ 280 2,239 2,678
Allowance for losses on loans sold with recourse........ 66 886 838
State income taxes payable.............................. -- 264 687
Due to affiliated company............................... -- -- 50
Due to parent company................................... -- 8,453 11,963
------- ------- -------
Total liabilities............................... 983 13,300 25,088
------- ------- -------
Commitments (Note 12)
Stockholder's equity (Note 2):
Common Stock -- $.01 par value per share
Authorized -- 50,000,000 shares
Issued and outstanding -- 10,000,000 shares.......... 5,000 5,000 5,000
Additional paid in capital.............................. 650 3,650 3,650
Retained earnings (accumulated deficit)................. (1,511) 2,131 6,761
------- ------- -------
Total stockholder's equity...................... 4,139 10,781 15,411
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY...... $ 5,122 $24,081 $40,499
======= ======= =======
</TABLE>

See notes to financial statements.

F-3
<PAGE> 63

MEGO MORTGAGE CORPORATION

STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
AUGUST 31, MAY 31,
-------------------------- -------------------------
1994 1995 1995 1996
----------- ---------- ---------- ----------
(AS
RESTATED --
NOTE 15) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Gain on sale of loans................. $ 579 $ 12,233 $ 6,098 $ 11,621
Net unrealized gain on mortgage
related securities................. -- -- -- 2,182
Net loan servicing income............. -- 873 418 3,049
Interest income, net.................. 172 473 313 538
-------- ------- ------- -------
Total revenues................ 751 13,579 6,829 17,390
-------- ------- ------- -------
COSTS AND EXPENSES
Provision for credit losses........... 96 864 558 815
Depreciation and amortization......... 136 403 260 641
Commissions and selling............... 13 552 339 1,560
Other interest........................ 22 187 58 120
General and administrative
Payroll and benefits............... 975 3,611 2,442 3,550
Professional services.............. -- 409 244 716
Services by affiliate.............. 442 690 503 503
FHA insurance...................... 11 231 110 390
Other.............................. 567 713 461 1,632
-------- ------- ------- -------
Total costs and expenses...... 2,262 7,660 4,975 9,927
-------- ------- ------- -------
INCOME BEFORE INCOME TAXES.............. (1,511) 5,919 1,854 7,463
INCOME TAXES............................ -- 2,277 651 2,833
-------- ------- ------- -------
NET INCOME (LOSS)....................... $ (1,511) $ 3,642 $ 1,203 $ 4,630
======== ======= ======= =======
NET INCOME (LOSS) PER SHARE (Note 2).... $ (0.15) $ 0.36 $ 0.12 $ 0.46
======== ======= ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING (Note 2).................. 10,000,000 10,000,000 10,000,000 10,000,000
======== ======= ======= =======
</TABLE>

See notes to financial statements.

F-4
<PAGE> 64

MEGO MORTGAGE CORPORATION

STATEMENTS OF CASH FLOW
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS ENDED MONTHS ENDED
AUGUST 31, MAY 31,
------------------------ -------------------
1994 1995 1995 1996
------------- -------- -------- --------
(AS
RESTATED--
NOTE 15) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)..................................................... $(1,511) $ 3,642 $ 1,203 $ 4,630
------- -------- -------- --------
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Gain on sale of loans............................................... (579) (12,233) (6,098) (11,621)
Net unrealized gain on mortgage related securities.................. -- -- -- (2,182)
Provision for credit losses......................................... 96 864 558 815
Income tax.......................................................... -- 2,277 651 2,833
Depreciation and amortization....................................... 136 403 260 641
Amortization of excess servicing rights............................. -- 519 241 1,730
Amortization of other assets........................................ 50 50 50 75
Increase in loans originated, net................................... (8,019) (87,556) (52,438) (89,391)
Proceeds from sale of loans......................................... 6,555 85,297 47,448 88,073
Changes in operating assets and liabilities:
Increase (decrease) in cash deposits, restricted.................. -- (2,532) (1,438) 133
Increase (decrease) in excess servicing rights.................... (355) (1,865) (986) (1,257)
Increase in mortgage servicing rights............................. -- (1,176) (697) (2,022)
(Increase) decrease in other assets............................... (549) 16 98 (343)
Increase in accounts payable and accrued liabilities.............. 279 1,959 1,125 414
------- -------- -------- --------
Total adjustments.............................................. (2,386) (13,977) (11,226) (12,642)
------- -------- -------- --------
Net cash used in operating activities.......................... (3,897) (10,335) (10,023) (8,012)
------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes and contracts payable............... 6,275 77,178 47,860 92,202
Payments on notes and contracts payable............................... (5,638) (76,357) (43,705) (84,788)
Increase in due (from) to affiliate................................... (505) 276 1,901 50
Increase in due to parent............................................. -- 6,440 1,200 1,125
Receipt of common stock subscription.................................. 4,500 -- 3,000 --
Increase in paid in capital........................................... -- 3,000 -- --
------- -------- -------- --------
Net cash provided by financing activities...................... 4,632 10,537 10,256 8,589
------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.................................... (263) (274) (168) (488)
------- -------- -------- --------
Net cash used in investing activities.......................... (263) (274) (168) (488)
------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH......................................... 472 (72) 65 89
CASH -- BEGINNING OF PERIOD............................................. 352 824 824 752
------- -------- -------- --------
CASH -- END OF PERIOD................................................... $ 824 $ 752 $ 889 $ 841
======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest............................................................ $ 38 $ 618 $ 254 $ 560
======= ======== ======== ========
Income taxes........................................................ $ -- $ 3 $ -- $ --
======= ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
In connection with the organization of the Company, the Company's
parent contributed $650,000 to the Company as additional paid-in
capital by the issuance of 475,000 shares of its Common Stock to an
unrelated entity for services rendered.............................. $ 650 $ -- $ -- $ --
======= ======== ======== ========
In connection with the transfer of mortgage backed securities, the
Company retained an interest only security and a residual interest
security............................................................ $ -- $ -- $ -- $ 15,144
======= ======== ======== ========
</TABLE>

See notes to financial statements.

F-5
<PAGE> 65

MEGO MORTGAGE CORPORATION

STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED AUGUST 31, 1994 AND 1995 AND THE
NINE MONTHS ENDED MAY 31, 1996 (UNAUDITED)
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS
------------------- PAID IN (ACCUMULATED)
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ------ ---------- ------------- -------
(NOTE 2)
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1993................. 10,000,000 $5,000 $ -- $ -- $ 5,000
Additional paid in capital............... -- -- 650 -- 650
Net loss for the year ended August 31, 1994
(as restated -- Note 15)................. -- -- -- (1,511) (1,511)
----- ------ ------ ------- --------
BALANCE AT AUGUST 31, 1994 (AS RESTATED --
NOTE 15)................................. 10,000,000 5,000 650 (1,511) 4,139
Additional paid in capital............... -- -- 3,000 -- 3,000
Net income for the year ended August 31,
1995..................................... -- -- -- 3,642 3,642
----- ------ ------ ------- --------
BALANCE AT AUGUST 31, 1995................. 10,000,000 5,000 3,650 2,131 10,781
Net income for the nine months ended
May 31, 1996............................. -- -- -- 4,630 4,630
----- ------ ------ ------- --------
BALANCE AT MAY 31, 1996 (UNAUDITED)........ 10,000,000 $5,000 $3,650 $ 6,761 $15,411
===== ====== ====== ======= ========
</TABLE>

See notes to financial statements.

F-6
<PAGE> 66

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1994 AND 1995
AND THE NINE MONTHS ENDED MAY 31, 1995 (UNAUDITED) AND 1996 (UNAUDITED)

1. NATURE OF OPERATIONS

Mego Mortgage Corporation (the "Company") was incorporated on June 12,
1992, in the State of Delaware. The authorized capital stock of the Company is
50,000,000 shares of Common Stock with a par value of $.01 per share. The
Company issued a total of 10,000,000 shares of its capital stock to Mego
Financial Corp. ("Mego Financial"), a New York corporation, for $5,000,000 and
became a wholly-owned subsidiary of Mego Financial. The Company, through its
loan correspondents and home improvement contractors, is primarily engaged in
the business of originating, servicing, pooling and selling home improvement
loans ("Loans"), which qualify under the provisions of Title I of the National
Housing Act which is administered by the U.S. Department of Housing and Urban
Development ("HUD"). Pursuant to that program 90% of the principal balances of
the Loans are U.S. government insured ("Title I Loans"), with a cumulative
maximum equal to 10% of all Title I Loans originated by the Company. In May
1996, the Company commenced the origination of conventional home improvement
loans through its network of loan correspondents.

Interim Unaudited Financial Information -- In the opinion of management,
the accompanying unaudited financial statements contain all adjustments
(consisting only of various normal accruals) necessary to present fairly the
Company's financial position, results of operations and cash flows. The
financial position at May 31, 1996 is not necessarily indicative of the
financial position to be expected at August 31, 1996 and results of operations
for the nine months ended May 31, 1996 are not necessarily indicative of the
results of operations to be expected for the year ending August 31, 1996.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Cash Deposits, Restricted -- Restricted cash represents cash on deposit
which is restricted in accordance with the Loan sale agreement and untransmitted
funds received from collection of Loans which have not as yet been disbursed to
the purchasers of such Loans in accordance with the Loan sale agreement.

Loans Held for Sale -- Loans held for sale are carried at the lower of cost
or market value in the accompanying balance sheets, net of allowance for credit
losses. Cost includes the cost of origination.

Mortgage Related Securities -- The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115") on September 1, 1995. There was no
cumulative effect as a result of adopting SFAS 115.

In accordance with the provisions of SFAS No. 115, the Company classifies
residual interests securities and interest only securities as trading securities
which are recorded at fair value with any unrealized gains or losses recorded in
the results of operations in the period of the change in fair value. Valuations
at origination and at each reporting period are based on discounted cash flow
analyses. The cash flows are estimated as the excess of the weighted average
coupon on each pool of loans sold over the sum of the pass-through interest
rate, a servicing fee, a trustee fee, an insurance fee and an estimate of annual
future credit losses related to the loans securitized, over the life of the
loans. These cash flows are projected over the life of the loans using
prepayment, default, loss, and interest rate assumptions that market
participants would use for similar financial instruments subject to prepayment,
credit and interest rate risk and are discounted using an interest rate that a
purchaser unrelated to the seller of such a financial instrument would demand.

Revenue Recognition-Gain on Sales of Loans -- Gain on sale of loans
includes the gain on sale of mortgage backed securities and the gain on sale of
Loans. In accordance with EITF 88-11, the gain on sale of mortgage backed
securities is determined by an allocation of the cost of the securities based on
the relative fair value of the securities sold and the securities retained. The
Company retains an interest only strip security and the residual interest
security. The fair value of the interest only strip and residual interest
security is the present value of the estimated cash flow to be received after
considering the effects of estimated prepayments

F-7
<PAGE> 67

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

and credit losses. The interest only strip and residual interest security are
included in Mortgage related securities in the balance sheet.

The present value of expected net cash flows from the sale of loans are
recorded at the time of sale as Excess servicing rights. Excess servicing rights
are amortized as a charge to income, as payments are received on the retained
interest differential over the estimated life of the underlying Loans. Excess
servicing rights are carried at the lower of unamortized cost or estimated fair
value. The expected cash flows used to determine the Excess servicing rights
asset have been reduced for potential losses under recourse provisions of the
sales agreements. The Allowance for losses on loans sold with recourse
represents the Company's estimate of losses to be incurred in connection with
the recourse provisions of the sales agreements and is shown separately as a
liability on the Company's balance sheet.

In discounting cash flows related to loan sales the Company defers
servicing income at annual rates of 1.00% to 1.25% and discounts cash flows on
its sales at the rate it believes a purchaser would require as a rate of return.
The cash flows were discounted to present value using discount rates which
averaged 12.0% for the years ended August 31, 1994 and 1995 and the nine months
ended May 31, 1995 and 1996, respectively. The Company has developed its
assumptions based on experience with its own portfolio, available market data
and ongoing consultation with its investment bankers.

In determining expected cash flows, management considers economic
conditions at the date of sale. In subsequent periods, these estimates may be
revised as necessary using the original discount rate, and any losses arising
from prepayment and loss experience will be recognized as realized.

Mortgage Servicing Rights -- At August 31, 1995, effective September 1,
1994, the Company adopted the provisions of SFAS No. 122 "Accounting for
Mortgage Servicing Rights, an amendment of SFAS No. 65" which requires that a
mortgage banking enterprise recognize as separate assets the rights to service
mortgage loans for others however those servicing rights are acquired. The
effect of adopting SFAS No. 122 on the Company's financial statements was to
increase income before income taxes by $1,076,000 for the year ended August 31,
1995. The fair value of capitalized mortgage servicing rights was estimated by
taking the present value of expected net cash flows from mortgage servicing
using assumptions the Company believes market participants would use in their
estimates of future servicing income and expense, including assumptions about
prepayment, default and interest rates. Capitalized mortgage servicing rights
are amortized in proportion to and over the period of estimated net servicing
income. The estimate of fair value was based on a one hundred basis points per
annum servicing fee reduced by estimated costs of servicing using a discount
rate of 12% for the nine months ended May 31, 1995, and a one hundred
twenty-five basis points per annum servicing fee reduced by estimated costs of
servicing using a discount rate of 12% for the nine months ended May 31, 1996.
At August 31, 1995 and May 31, 1996, the capitalized servicing rights
approximated fair value. The Company periodically reviews capitalized servicing
fees receivable to evaluate for impairment. This review is performed on a
disaggregated basis based on date of origination. Impairment is recognized in a
valuation allowance for each pool in the period of impairment. The Company has
developed its assumptions based on experience with its own portfolio, available
market data and ongoing consultation with its investment bankers.

Allowance for Credit Losses -- Provision for credit losses relating to
unsold Loans is charged to income in amounts sufficient to maintain the
allowance at a level considered adequate to provide for anticipated losses
resulting from liquidation of outstanding Loans. The provision for credit losses
is based upon periodic analysis of the portfolio, economic conditions and
trends, historical credit loss experience, borrowers' ability to repay,
collateral values and giving effect to estimated FHA Insurance recoveries on
Title I Loans.

Property and Equipment -- Property and equipment is stated at cost and is
depreciated over its estimated life (5 years) using the straight-line method.
Costs of maintenance and repairs that do not improve or extend the life of the
respective assets are charged to expense. The cost and related accumulated
depreciation of

F-8
<PAGE> 68

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

property sold or retired are removed from the accounts and any gains or losses
realized are included in the determination of income.

Organizational Costs -- Organizational costs associated with the
commencement of originating, purchasing, selling and servicing of Title I Loans
are being amortized over a five year period which commenced on March 1, 1994.
Such amortization is included in Depreciation and amortization. Accumulated
amortization was $96, $289 and $434 at August 31, 1994 and 1995 and May 31,
1996, respectively.

Loan Origination Costs and Fees -- Loan origination costs and fees
including non-refundable Loan origination fees and incremental direct costs
associated with Loan originations are deferred and amortized over the lives of
the Loans. Unamortized Loan origination costs and fees are recorded as expense
or income upon sale of the related Loans.

Allowance for Losses on Loans Sold with Recourse -- Recourse to the Company on
sales of Loans is governed by the agreements between the purchasers and the
Company. The allowance for losses on Loans sold with recourse represents the
Company's best estimate of its probable future credit losses to be incurred over
the life of the Loans, giving effect to estimated FHA Insurance recoveries on
Title I Loans.

Net Loan Servicing Income -- Fees for servicing Loans originated or
acquired by the Company and sold with servicing rights retained are generally
based on a stipulated percentage of the outstanding principal balance of such
Loans and are recognized when earned. Interest received on Loans sold, less
amounts paid to investors, is reported as Net loan servicing income. Capitalized
excess servicing rights are amortized systematically to reduce Net loan
servicing income to an amount representing normal servicing income and the
present value discount. Late charges and other ancillary income are recognized
when collected. Costs to service Loans are charged to income as incurred.

Income Taxes -- For Federal income tax purposes the Company reports its
income in a consolidated return filed by its parent, Mego Financial. As part of
a tax sharing arrangement, the Company records a liability to Mego Financial for
Federal income taxes calculated at the Federal statutory rate (currently 34%)
applied to the Company's financial statement income before giving consideration
to income tax expense. The Company also provides for state income taxes at the
rate of 6% of Income before income taxes.

Recently Issued Accounting Standards -- The Financial Accounting Standards
Board (the "FASB") has issued Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS 121").
SFAS 121 requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS 121 is
effective for fiscal years beginning after December 15, 1995. The Company has
not determined the effect upon adoption on results of operation or financial
condition.

The FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which establishes financial accounting and reporting
standards for stock-based employee compensation plans and for transactions in
which an entity issues its equity instruments to acquire goods or services from
nonemployees. SFAS 123 is generally effective for fiscal years beginning after
December 15, 1995. The Company intends to provide the pro forma and other
additional disclosure about stock-based employee compensation plans in its 1997
financial statements as required by SFAS 123.

The FASB has issued SFAS No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities." This statement provides
new accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. This statement also provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings and requires that liabilities
and derivatives incurred or obtained by transferors as part of a transfer of
financial assets be initially measured at fair value. It also requires that
servicing assets be measured by

F-9
<PAGE> 69

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

allocating the carrying amount between the assets sold and retained interests
based on their relative fair values at the date of transfer. Additionally, this
statement requires that the servicing assets and liabilities be subsequently
measured by (a) amortization in proportion to and over the period of estimated
net servicing income and (b) assessment for asset impairment or increased
obligation based on their fair values. The Company has not adopted the new
standard for the current period, but must adopt the new requirements effective
January 1, 1997. The Company has not determined the effect on results of
operations or financial condition in the period of adoption.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Income (Loss) Per Share -- Shares used in computing income (loss) per share
include the weighted average of common stock outstanding during the period
adjusted for the proposed sixteen-hundred-for-one stock split. There are no
common stock equivalents.

Reclassification -- Certain prior years information has been reclassified
to conform with current period presentation.

Stock Split -- The accompanying financial statements retroactively reflect
a proposed sixteen-hundred-for-one stock split, an increase in authorized shares
of Common Stock to 50,000,000 and the establishment of a $.01 par value per
share which are to be effective before the effective date of the Registration
Statement covering shares issued in the Company's initial public offering of its
Common Stock.

3. FAIR VALUES OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments" ("SFAS 107"), requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statement of financial condition. Fair values are based on estimates using
present value or other valuation techniques in cases where quoted market prices
are not available. Those techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. SFAS 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.

F-10
<PAGE> 70

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Estimated fair values, carrying values and various methods and assumptions
used in valuing the Company's financial instruments at May 31, 1996 are set
forth below (in thousands of dollars).

<TABLE>
<CAPTION>
CARRYING ESTIMATED FAIR
VALUE VALUE
-------- --------------
<S> <C> <C>
Financial Assets:
Cash(a).............................................................. $ 841 $ 841
Loans held for sale, net(b).......................................... 4,671 4,814
Mortgage related securities(c)....................................... 15,144 15,144
Excess servicing rights(c)........................................... 12,796 12,796
Mortgage servicing rights(c)......................................... 2,738 2,738
Financial Liabilities:
Notes and contracts payable(d)....................................... 8,872 8,872
</TABLE>

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

(a) The carrying value of cash is considered to be a reasonable estimate of fair
value.
(b) Since it is the Company's business to sell loans it originates, the fair
value was estimated by using current investor yields or outstanding
commitments from investors after consideration of non-qualified loans and
the collateral securing such loans.
(c) The fair value was estimated by discounting future cash flows using rates
available for instruments with similar terms and remaining maturities.
(d) Notes payable generally are adjustable rate and indexed to the prime rate;
therefore, carrying value is a reasonable estimate of fair value. Contracts
payable represent capitalized equipment leases with implicit fixed interest
rates ranging from 8.81% to 9.93%, which approximate fair value in the
aggregate.

The fair value estimates made at May 31, 1996 were based upon pertinent
market data and relevant information on the financial instruments at that time.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the entire portion of the financial instrument.
Because no market exists for a portion of the financial instruments, fair value
estimates may be based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment and therefore cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.

Fair value estimates are based on existing on-and-off balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. For instance, the Company has certain fee-generating
business lines (e.g., its loan servicing operations) that were not considered in
these estimates since these activities are not financial instruments. In
addition, the tax implications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in any of the estimates.

Off-Balance Sheet Activities -- The Company is exposed to on-balance sheet
credit risk related to its loans held for sale and mortgage related securities.
The Company is exposed to off-balance sheet credit risk related to loans which
the Company has committed to originate.

The Company is party to financial instruments with off-balance sheet credit
risk in the normal course of business. These financial instruments include
commitments to extend credit to borrowers and commitments to purchase loans from
others. As of August 31, 1995 and May 31, 1996, the Company had outstanding
commitments to extend credit or purchase loans in the amounts of $53,447,000 and
$49,120,000, respectively.

F-11
<PAGE> 71

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

4. LOANS HELD FOR SALE, NET

Loans held for sale, net (in thousands of dollars) consisted of the
following at:

<TABLE>
<CAPTION>
AUGUST 31,
----------------- MAY 31,
1994 1995 1996
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Loans held for sale................................... $1,493 $3,750 $ 4,766
Less: Allowance for credit losses..................... 30 74 95
------ ------ ------
Net total................................... $1,463 $3,676 $ 4,671
====== ====== ======
</TABLE>

The serviced Loan portfolio which includes Loans sold to investors and
Loans retained by the Company aggregate approximately $8,027,000, $92,286,000
and $171,048,000 at August 31, 1994 and 1995 and May 31, 1996, respectively.

At August 31, 1994 and 1995 and May 31, 1996, the Company was contingently
liable for losses, to the extent not covered by FHA insurance, with respect to
Loans sold with recourse totaling $6,555,000, $88,565,000 and $83,801,000,
respectively.

During the years ended August 31, 1994 and 1995 and the nine months ended
May 31, 1996, the Company originated 497, 5,818 and 5,900 Title I and
conventional loans respectively, with Loan proceeds of $8,133,000, $87,751,000
and $89,391,000, respectively. Additionally, the Company was servicing 11,700
Loans with an unpaid principal balance of $171,048,000 at May 31, 1996.

The Company provides an allowance for credit losses, in an amount which in
the Company's judgment will be adequate to absorb losses after FHA insurance
recoveries on the Loans, that may become uncollectible. The Company's judgment
in determining the adequacy of this allowance is based on its continual review
of its portfolio of Loans which utilizes historical experience and current
economic factors. These reviews take into consideration changes in the nature
and level of the portfolio, current and future economic conditions which may
affect the obligor's ability to pay, collateral values and overall portfolio
quality. Changes in the allowance for credit losses for Loans (in thousands of
dollars) consisted of the following:

<TABLE>
<CAPTION>
FOR THE YEARS
ENDED AUGUST
31, FOR THE NINE
------------- MONTHS ENDED
MAY 31,
1994 1995 1996
---- ---- ------------
(UNAUDITED)
<S> <C> <C> <C>
Balance at beginning of year............................. $-- $ 96 $ 960
Provisions for credit losses on Company generated
Loans.................................................. 68 864 815
Provision for credit losses on acquired Loans............ 28 -- --
Reductions due to reacquisition and securitization....... -- -- (842)
--- ---- -----
Balance at end of year................................... $96 $960 $ 933
=== ==== =====
Allowance for credit losses.............................. $30 $ 74 $ 95
Allowance for Loans sold with recourse................... 66 886 838
--- ---- -----
Total.......................................... $96 $960 $ 933
=== ==== =====
</TABLE>

F-12
<PAGE> 72

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

5. MORTGAGE RELATED SECURITIES

Mortgage related securities are classified as trading securities and are
carried at estimated market value. Changes in the estimated market value are
recorded in current operations. As of May 31, 1996 mortgage related securities
(in thousands of dollars) consisted of the following:

<TABLE>
<S> <C>
Interest only security..................................................... $ 2,992
Residual interest security................................................. 12,152
-------
Total............................................................ $15,144
=======
</TABLE>

6. EXCESS SERVICING RIGHTS

Activity in excess servicing rights (in thousands of dollars) consisted of
the following:

<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE MONTHS
ENDED AUGUST 31, ENDED MAY 31,
---------------- -------------------
1994 1995 1995 1996
---- ------- ------ --------
<S> <C> <C> <C> <C>
Beginning balance............................. $ -- $ 904 $ 904 $ 14,483
Plus additions................................ 904 14,098 7,084 15,675
Less amortization............................. -- (519) (241) (1,730)
Less transfers to securities.................. -- -- -- (15,632)
---- ------- ------ --------
Ending balance...................... $904 $14,483 $7,747 $ 12,796
==== ======= ====== ========
</TABLE>

The Company sold $6,555,000, $85,182,000 and $88,073,000 of Title I Loans
in the fiscal years ended August 31, 1994 and 1995 and the nine months ended May
31, 1996, respectively, at an average yield to the purchaser of 8.5%, 8.4% and
7.1%, respectively.

During the nine months ended May 31, 1995 and 1996, the Company sold
$55,889,000 and $88,073,000 of Title I Loans to financial institutions. From the
proceeds $43,688,000 and $79,856,000, respectively, were used to pay debt. The
Title I Loans bear interest rates averaging 14.5% and 14.3%, respectively, and
were sold to yield returns averaging 8.6% and 7.1%, respectively, to the
purchaser, with any excess interest received from the obligors being payable to
the Company.

During the years ended August 31, 1994 and 1995 and the nine months ended
May 31, 1996, amortization of the Excess servicing rights was zero, $519,000 and
$1,730,000, respectively, and reduces Net loan servicing income.

Of the Title I Loans sold in the year ended August 31, 1995, $56,922,000 of
such Loans were sold to a purchaser, in a series of sales commencing on April
21, 1995, under a continuing sales agreement which provides for the yield to the
purchaser to be adjusted monthly to a rate equal to 200 basis points (2%) per
annum over the one-month London Interbank Offered Rate ("LIBOR"). LIBOR was
5.875% per annum at August 31, 1995. Certain loans were reacquired and sold as
part of a securitization in March 1996. The principal balance of Loans subject
to the LIBOR adjustment was $28,823,000 at May 31, 1996. The effect of an
increase or decrease in LIBOR of 100 basis points (1.0%) applied to those Loans
would be a decrease or increase, respectively, to the Company's future pre-tax
income of approximately $953,000.

The Company's serviced portfolio is geographically diversified within the
United States. The Company services mortgage loans in 45 states and the District
of Columbia. At May 31, 1996, 38% of the dollar value of loans serviced had been
originated in California and no other state accounted for more than 10% of the
serviced portfolio. The risk inherent in such concentration is dependent upon
regional and general economic stability which affects property values and the
financial well-being of the borrowers.

F-13
<PAGE> 73

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. MORTGAGE SERVICING RIGHTS

Activity in mortgage servicing rights (in thousands of dollars) consisted
of the following:

<TABLE>
<CAPTION>
FOR THE YEARS FOR THE NINE
ENDED AUGUST MONTHS ENDED
31, MAY 31,
--------------- ---------------
1994 1995 1995 1996
---- ------ ---- ------
<S> <C> <C> <C> <C>
Beginning balance.................................. $ -- $ -- $ -- $1,076
Plus additions..................................... -- 1,176 697 2,023
Less amortization.................................. -- (100) (46) (361)
---- ------ ---- ------
Ending balance........................... $ -- $1,076 $651 $2,738
==== ====== ==== ======
</TABLE>

As indicated in Note 2, the Company adopted the provisions of SFAS No. 122
effective September 1, 1994.

8. PROPERTY AND EQUIPMENT

Property and equipment (in thousands of dollars) consisted of the following
at:

<TABLE>
<CAPTION>
AUGUST 31,
-------------- MAY 31,
1994 1995 1996
---- ----- -------
<S> <C> <C> <C>
Office equipment and furnishings......................... $180 $ 337 $ 617
Vehicles................................................. -- 34 34
EDP equipment............................................ 83 166 374
---- ----- -------
263 537 1,025
Less accumulated depreciation............................ (26) (108) (225 )
---- ----- -------
Total property and equipment, net.............. $237 $ 429 $ 800
==== ===== ========
</TABLE>

9. OTHER ASSETS

Other assets (in thousands of dollars) consisted of the following at:

<TABLE>
<CAPTION>
AUGUST 31,
------------- MAY 31,
1994 1995 1996
---- ---- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred loan costs...................................... $ 50 $129 $ 104
Software costs, net of amortization (Note 13)............ 117 127 163
Other.................................................... 71 60 298
---- ---- ----
Total.......................................... $238 $316 $ 565
==== ==== ====
</TABLE>

10. NOTES AND CONTRACTS PAYABLE

Notes and contracts payable (in thousands of dollars) consisted of the
following at:

<TABLE>
<CAPTION>
AUGUST 31,
------------- MAY 31,
1994 1995 1996
---- ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable -- warehouse line of credit.................... $373 $1,039 $ 3,012
Note payable -- demand...................................... -- -- 5,000
Contracts payable........................................... 264 419 860
---- ------ ------
Total............................................. $637 $1,458 $ 8,872
==== ====== ======
</TABLE>

F-14
<PAGE> 74

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Notes payable at May 31, 1996 included $3,012,000 of borrowings outstanding
under a Warehousing Credit and Security Agreement with a bank that provides
available credit facilities up to $20,000,000. The outstanding borrowings bear
interest at the bank's prevailing prime rate plus 1% (9.25% at May 31, 1996) and
are collateralized by security interests in the Company's Loans held for sale.
The revolving line of credit is due for renewal on August 9, 1997. Availability
of borrowings under this credit facility is subject to certain conditions as
specified in such agreement. Beginning as of August 11, 1995, the terms of this
credit facility contain, among other provisions, financial covenants requiring
the maintenance of a minimum tangible net worth of $7,500,000 (changed to
$12,500,000 in August 1996), a minimum level of profitability of at last
$500,000 per six month period and certain restrictions, including but not
limited to, restrictions on additional indebtedness. This note is guaranteed by
Mego Financial.

In addition to the $20.0 million warehouse line of credit, at May 31, 1996,
the Company had a $5.0 million demand note facility from the same lender
expiring August 31, 1996, bearing interest at the bank's prime rate plus 2%,
with respect to which $5.0 million was outstanding on that date. This facility
was secured by a pledge of the Company's Excess servicing rights (together with
the Mortgage related securities). As of June 28, 1996, this facility was
replaced by a $10.0 million revolving credit loan from the same lender, with the
same security. The new facility has an eighteen month revolving credit period
followed by a thirty month payment period, and requires the Company to maintain
a minimum tangible net worth of $12.5 million and a minimum level of
profitability of at least $500,000 per rolling six month period. Borrowings
under this facility cannot exceed the lesser of (a) 40% of the Company's Excess
servicing rights and Mortgage related securities or (b) six times the aggregate
of the Excess servicing rights and Mortgage related securities payments actually
received by the Company over the most recent three month period. The agreement
contains certain restrictions, including but not limited to, restrictions on
additional indebtedness. Both lines of credit have been guaranteed by Mego
Financial.

At August 31, 1994 and 1995 and the nine months ended May 31, 1996,
Contracts payable consisted of $264,000, $419,000 and $860,000, respectively, in
obligations under lease purchase arrangements secured by Property and equipment,
bearing an interest rate of prime plus 1%.

The prime rate of interest was 8.25% at May 31, 1996.

Scheduled maturities of the Company's debt, excluding lines of credit of
$8,012,000 at May 31, 1996 are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------------------
TOTAL 1996 1997 1998 1999 2000 THEREAFTER
- ----- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
$860 $46 $224 $246 $192 $145 $7
==== ==== === ==== ==== ==== ====
</TABLE>

11. PAID IN CAPITAL

During fiscal 1995, Mego Financial contributed $3,000,000 to the Company as
Additional paid in capital. During fiscal 1994, Mego Financial contributed
$650,000 to the Company as Additional paid in capital by the issuance of 475,000
shares of Common Stock of Mego Financial to an unrelated company for its
services in obtaining the necessary HUD approval, state licensing and other
matters in connection with the organization of the Company.

12. COMMITMENTS

The Company leases its main office under the terms of a lease that expires
March 31, 1999. During fiscal 1994, 1995 and the nine months ended May 31, 1996,
the Company's rent expense related to this lease was $54,000, $154,000 and
$123,000, respectively. Future minimum rental payments under the lease (in
thousands of dollars) are set forth below. In April 1996, the Company executed a
lease in another location on space for

F-15
<PAGE> 75

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

its main offices which it will occupy in September 1996. The 1996 lease
commences September 1, 1996, expires August 31, 2002 and is guaranteed by Mego
Financial. Future minimum rental payments under the lease (in thousands of
dollars) are set forth below.

<TABLE>
<CAPTION>
1995 1996
FOR THE YEARS ENDED AUGUST 31, LEASE LEASE
---------------------------------------------------------------------- ----- ------
<S> <C> <C>
1996.................................................................. $ 42 $ --
1997.................................................................. 169 774
1998.................................................................. 169 902
1999.................................................................. 84 921
2000.................................................................. -- 939
Thereafter............................................................ -- 1,935
---- ------
Total....................................................... $ 464 $5,471
==== ======
</TABLE>

13. RELATED PARTY TRANSACTIONS

During the years ended August 31, 1994 and 1995 and the nine months ended
May 31, 1996, an affiliated company, Preferred Equities Corporation ("PEC"),
provided certain services to the Company including loan servicing and collection
of $13,000, $174,000 and $479,000, respectively. In addition, certain expenses
including executive, accounting, legal, management information, advertising and
promotional materials totalling $442,000, $690,000 and $503,000 are included in
General and administrative expenses for the years ended August 31, 1994 and 1995
and the nine months ended May 31, 1996, respectively. Included in Interest
expense for the year ended August 31, 1995 and the nine months ended May 31,
1996, is $85,000 and $23,000 related to advances from PEC. At August 31, 1995,
PEC transferred the related receivable to Mego Financial.

During the years ended August 31, 1994, 1995 and the nine months ended May
31, 1996, the Company paid PEC for developing certain computer programming (see
Note 8), incurring costs of $130,000, $36,000 and $56,000, respectively. The
Company is amortizing these costs over a five year period. During fiscal 1994
and 1995 and for the nine months ended May 31, 1996, amortization of $13,000,
$26,000 and $20,000, respectively, was included in expense.

At May 31, 1996 and at August 31, 1995, the Company had a non-interest
bearing liability to Mego Financial of $11,963,000 and $8,453,000, respectively,
for Federal income taxes and cash advances, which is due on demand and has not
as yet been paid. At August 31, 1994, the Company had a receivable from PEC of
$276,000 resulting from an adjustment in charges for services to the Company,
which amount was subsequently paid during September 1994.

It is the Company's belief that Mego Financial, its parent, will continue
to provide the Company with sufficient financial support, as circumstances
warrant, to enable the Company to meet its obligations as they become due.
However, Mego Financial has no contractual obligation to provide such support
other than its guaranty of the warehouse line of credit, revolving credit loan
and operating lease described in Notes 10 and 12.

F-16
<PAGE> 76

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

14. INCOME TAXES

As described in Note 2, the Company records a liability to Mego Financial
for Federal income taxes at the statutory rate (currently 34%) applied to Income
before income taxes. State income taxes are computed at the appropriate state
rate (6%) net of any available operating loss carryovers and are recorded as
State income taxes payable. For the years ended August 31, 1994 and 1995, Income
tax expense has been computed (in thousands of dollars) as follows:

FOR THE YEARS
ENDED FOR THE NINE
AUGUST 31, MONTHS ENDED
---------------- MAY 31,
1994 1995 1996
------- ------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Income (loss) before income taxes....................... $(1,511) $5,919 $7,463
======= ====== ======
Federal income taxes at 34% of income................... $ -- $2,013 $2,385
State income taxes at 6% of income after application of
prior year carryforward............................... -- 264 448
------- ------ ------
Income tax expense...................................... $ -- $2,277 $2,833
======= ====== ======
</TABLE>

As part of a tax sharing arrangement, the Company records a liability to
its parent, Mego Financial, for Federal income taxes calculated at the Federal
statutory rate (currently 34%) applied to the Company's financial statement
income before giving consideration to income tax expense.

Income tax expense (benefit) is comprised of the following:

<TABLE>
<CAPTION>
YEARS ENDED AUGUST
31, NINE MONTHS
------------------ ENDED MAY
1994 1995 31, 1996
----- ------ -----------
<S> <C> <C> <C>
Current........................................... $ -- $1,670 $ 1,340
Deferred.......................................... -- 607 1,493
----- ------ -----------
Total................................... $ -- $2,277 $ 2,833
===== ====== ============
</TABLE>

F-17
<PAGE> 77

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, (b) temporary
differences between the timing of revenue recognition for book purposes and
income tax purposes and (c) operating loss and tax credit carryforwards. The tax
effects of significant items comprising the Company's net deferred tax liability
as of August 31, 1994 and 1995, and May 31, 1996 (in thousands of dollars), are
as follows:

<TABLE>
<CAPTION>
AUGUST 31,
---------------- MAY 31,
1994 1995 1996
----- ------ -------
<S> <C> <C> <C>
Deferred tax liabilities:
Difference between book and tax carrying value of
assets........................................... $ -- $ 1 $ 117
Timing of revenue recognition...................... -- 541 1,283
Mortgage servicing rights.......................... -- 366 931
----- ------ -------
-- 908 2,331
----- ------ -------
Deferred tax assets:
Operating loss carryforward........................ 514 -- --
Difference between book and tax carrying value of
assets........................................... 5 -- --
Timing of revenue recognition...................... 22 301 285
----- ------ -------
541 301 285
----- ------ -------
Valuation allowance..................................... 541 -- --
----- ------ -------
Net deferred tax liability.................... $ -- $ 607 $2,046
----- ------ -------
</TABLE>

15. RESTATEMENT

Subsequent to the issuance of its financial statements for the year ended
August 31, 1994, the Company determined that certain adjustments were required
to be made to the previously reported amounts as of and for the year ended
August 31, 1994.

As a result, the Company restated such previously reported amounts to
reflect appropriate estimates and assumptions used to determine the discounted
revenue related to the gain on Loans sold by the Company during fiscal 1994, to
properly record deferred loan origination costs included in Loans held for sale,
net and to write-off certain expenses previously included in Organizational
costs. The restatement also included other miscellaneous adjustments.

A summary of the effect of the restatement on the Balance Sheet at August
31, 1994 is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Loans held for sale, net...................................... $ 1,416 $ 1,463
Excess servicing rights....................................... 1,246 904
Due from affiliate............................................ 145 276
Organizational costs, net of amortization..................... 1,756 867
Other assets.................................................. 271 238
Accounts payable and accrued liabilities...................... 230 280
Allowance for losses on Loans sold with recourse.............. 59 66
Accumulated deficit........................................... (368) (1,511)
</TABLE>

F-18
<PAGE> 78

MEGO MORTGAGE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

A summary of the effect of the restatement on the Statement of Operations
for the year ended August 31, 1994 is as follows (in thousands of dollars):

<TABLE>
<CAPTION>
AS PREVIOUSLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Gain on sale of Loans......................................... $ 1,206 $ 579
Interest income............................................... 298 279
Interest...................................................... 79 129
Provision for credit losses................................... 133 96
Depreciation and amortization................................. 189 136
Commissions and selling....................................... -- 13
General and administrative.................................... 1,471 1,995
Net loss...................................................... (368) (1,511)
</TABLE>

F-19
<PAGE> 79

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

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY BY ANY OF THE SECURITIES OFFERED HEREBY IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH
DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 8
Use of Proceeds........................... 17
Dividend Policy........................... 18
Dilution.................................. 18
Capitalization............................ 19
Selected Financial Data................... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 22
Business.................................. 31
Management................................ 46
Principal Stockholders.................... 50
Certain Transactions...................... 51
Description of Note Offering.............. 52
Description of Capital Stock.............. 53
Shares Eligible for Future Sale........... 55
Underwriting.............................. 56
Legal Matters............................. 57
Experts................................... 57
Additional Information.................... 57
Index to Financial Statements............. F-1
</TABLE>

---------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
2,000,000 SHARES

MEGO MORTGAGE CORPORATION

COMMON STOCK
------------------------
PROSPECTUS
------------------------

OPPENHEIMER & CO., INC.

FRIEDMAN, BILLINGS,

RAMSEY & CO., INC.
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 80

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 11,104
NASD filing fee........................................................... 3,720
Nasdaq National Market listing fee........................................ *
Printing expenses......................................................... *
Accounting fees and expenses.............................................. *
Legal fees and expenses................................................... *
Fees and expenses (including legal fees) for qualifications under state
securities laws......................................................... *
Transfer agent's fees and expenses........................................ *
Miscellaneous............................................................. *
--------
Total........................................................... $ *
========
</TABLE>

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

* To be provided by amendment

All amounts except the Securities and Exchange Commission registration fee,
the NASD filing fee and the Nasdaq listing fee are estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145(a) of the Delaware General Corporation Law (the "GCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no cause to believe his
or her conduct was unlawful.

Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.

Section 145 of GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsection (a) and (b) or in the defense of any
claim, issue or matter therein, such officer or director shall be indemnified
against expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of a
director or officer of the

II-1
<PAGE> 81

corporation against any liability asserted against such officer or director and
incurred by him or her in any such capacity or arising out of his or her status
as such, whether or not the corporation would have the power to indemnify him or
her against such liabilities under Section 145.

As permitted by Section 102(b)(7) of the GCL, the Company's Amended and
Restated Certificate of Incorporation provides that a director shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. However, such provision does not eliminate or
limit the liability of a director for acts or omissions not in good faith or for
breaching his or her duty of loyalty, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a stock repurchase
which was illegal, or obtaining an improper personal benefit. A provision of
this type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty.

The Company's Bylaws require the Company to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.

In addition, the Company's Bylaws require the Company to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company, except that no indemnification may
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable for negligence or misconduct in the performance
of his duty to the Company unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

Any indemnification (unless ordered by a court) made by the Company may be
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct as set forth
above. Such determination must be made (i) by the Board by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders.

To the extent that a director, officer, employee or agent of the Company
has been successful on the merits or otherwise in defense of any covered action,
suit or proceeding, or in defense of any covered claim, issue or matter therein,
he will be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.

Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized by

II-2
<PAGE> 82

the Board in the specific case upon receipt of an undertaking by or on behalf of
the director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company as authorized in
the Amended and Restated Certificate of Incorporation. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.

The Company presently maintains policies of directors' and officers'
liability insurance in the amount of $30.0 million.

Pursuant to the Underwriting Agreement to be filed as Exhibit 1.1 to this
Registration Statement, the Underwriters have agreed to indemnify the directors,
officers and controlling persons of the Registrant against certain civil
liabilities that may be incurred in connection with the Offering, including
certain liabilities under the Securities Act of 1933, as amended.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

No securities that were not registered under the 1933 Act have been issued
or sold by the Registrant within the past three years.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
1.1* -- Underwriting Agreement.
3.1* -- Amended and Restated Certificate of Incorporation of the Registrant.
3.2* -- By-laws of the Registrant, as amended.
4.1* -- Specimen Common Stock Certificate.
5.1* -- Opinion of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A.
10.1* -- Stock Option Plan
10.2(1) -- Agreement for Line of Credit and Commercial Promissory Note between the Registrant
and First National Bank of Boston, dated January 4, 1994.
10.3(1) -- Agreement between the Registrant and Hamilton Consulting, Inc., dated January 31,
1994.
10.4(1) -- Loan Purchase and Sale Agreement dated March 22, 1994, between the Registrant as
Buyer, and Southwest Beneficial Finance, Inc. as Seller.
10.5(1) -- Master Loan Purchase and Servicing Agreement dated as of August 26, 1994, between
the Registrant as Seller, and First National Bank of Boston, as Purchaser.
10.6(2) -- Master Loan Purchase and Servicing Agreement dated April 1, 1995, by and between
Greenwich Capital Financial Products, Inc. and the Registrant.
10.7(2) -- Participation and Servicing Agreement dated May 25, 1995, by and between Atlantic
Bank, N.A. and the Registrant.
10.8(2) -- Warehousing Credit and Security Agreement, dated as of August 11, 1995, between
the Registrant and First National Bank of Boston.
10.9* -- Tax Sharing Agreement among the Registrant, Mego Financial Corp., Preferred
Equities Corporation and the subsidiaries of Preferred Equities Corporation.
10.10* -- Servicing Agreement between the Registrant and Preferred Equities Corporation.
10.11 -- Servicing Agreement by and among Mego Mortgage FHA Title I Loan Trust 1996-1,
First Trust of New York, National Association, as Trustee, Norwest Bank Minnesota,
N.A., as Master Servicer and the Registrant, as Servicer dated as of March 21,
1996.
10.12 -- Loan Purchase Agreement between Financial Asset Securities Corp., as Purchaser,
and the Registrant, as Seller, dated as of March 21, 1996.
10.13* -- Indemnification Agreement among MBIA Insurance Corporation, as Insurer, the
Registrant, as Seller and Greenwich Capital Markets, Inc. as Underwriter, dated as
of March 29, 1996.
</TABLE>

II-3
<PAGE> 83

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.14 -- Pooling and Servicing Agreement, dated as of March 21, 1996, among the Registrant,
Financial Asset Securities Corp., as Depositor, First Trust of New York, National
Association, as Trustee and Contract of Insurance Holder and Norwest Bank
Minnesota, N.A., as Master Servicer.
10.15* -- Insurance Agreement among MBIA Insurance Corporation, as Insurer, Norwest Bank
Minnesota, N.A., as Master Servicer, the Registrant, as Seller, Servicer and
Claims Administrator, Financial Asset Securities Corp., as Depositor, Greenwich
Capital Financial Products, Inc., and First Trust of New York, National
Association, as Trustee and Contract of Insurance Holder, dated as of March 21,
1996.
10.16* -- Credit Agreement dated as of June 28, 1996 between the Registrant and First
National Bank of Boston as Agent.
10.17 -- Loan Purchase Agreement dated as of August 1, 1996 between Financial Asset
Securities Corp., as Purchaser, and the Registrant, as Seller.
10.18 -- Pooling and Servicing Agreement dated as of August 1, 1996 between Financial Asset
Securities Corp., as Purchaser, and the Registrant, as Seller.
10.19* -- Amendment No. 1 to Warehousing Credit and Security Agreement dated as of August 9,
1996 between the Registrant and First National Bank of Boston.
10.20* -- Office Lease by and between MassMutual and the Registrant dated April 1996.
10.21* -- Amendment to Master Loan Purchase and Servicing Agreement between Greenwich
Capital Financial Products, Inc. and the Registrant dated February 1, 1996.
10.22* -- Amendment No. 2 to Master Loan Purchase and Servicing Agreement between Greenwich
Capital Financial Products, Inc. and the Registrant dated July 1, 1996.
10.23* -- Management Agreement between Mego Financial Corp. and the Registrant dated October
1996.
10.24* -- Employment Agreement between the Registrant and Jeffrey S. Moore dated January 1,
1994.
10.25* -- Form of Indenture to be entered into between the Registrant and the Indenture
Trustee.
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
21.1 -- Subsidiaries of the Registrant.
23.1* -- Consent of Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. (to be
included in its opinion to be filed as Exhibit 5.1*).
23.2 -- Consent of Deloitte & Touche LLP.
24.1 -- Reference is made to the Signatures section of this Registration Statement for the
Power of Attorney contained therein.
27.1 -- Financial Data Schedule
</TABLE>

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

* To be filed by amendment
(1) Filed as part of the Form 10-K for the fiscal year ended August 31, 1994 of
Mego Financial Corp. and incorporated herein by reference.
(2) Filed as part of the Form 10-K for the fiscal year ended August 31, 1995 of
Mego Financial Corp. and incorporated herein by reference.

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.

(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise,

II-4
<PAGE> 84

the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-5
<PAGE> 85

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on September 20, 1996.

MEGO MORTGAGE CORPORATION

By: /s/ JEROME J. COHEN
------------------------------------
Jerome J. Cohen,
Chairman of the Board and Chief
Executive Officer

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Jerome J. Cohen and Don A. Mayerson and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each said attorneys-in-fact and agents or any
of them or their or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- -------------------
<C> <S> <C>
/s/ JEROME J. COHEN Chairman of the Board and September 20, 1996
- --------------------------------------------- Chief Executive Officer
Jerome J. Cohen

/s/ JEFFREY S. MOORE President, Chief Operating September 20, 1996
- --------------------------------------------- Officer and Director
Jeffrey S. Moore

/s/ JAMES L. BELTER Executive Vice President September 20, 1996
- --------------------------------------------- and Chief Financial
James L. Belter Officer

/s/ ROBERT NEDERLANDER Director September 20, 1996
- ---------------------------------------------
Robert Nederlander

/s/ HERBERT B. HIRSCH Director September 20, 1996
- ---------------------------------------------
Herbert B. Hirsch

/s/ DON A. MAYERSON Director September 20, 1996
- ---------------------------------------------
Don A. Mayerson
</TABLE>

II-6

<PAGE> 1

EXHIBIT 10.11

SERVICING AGREEMENT

By and Among

MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1,
the Trust,

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
as Trustee,

NORWEST BANK MINNESOTA, N.A.,
as Master Servicer

and

MEGO MORTGAGE CORPORATION,
as Servicer

_______

FHA TITLE I LOANS

_______

Dated as of March 21, 1996
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
----
ARTICLE I

DEFINITIONS

Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
Section 1.02. Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Section 1.03. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

Section 2.01. Representations, Warranties and
Covenants of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
Section 2.02. Representations, Warranties and
Covenants of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
Section 2.03. Representations, Warranties and
Covenants of the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
Section 2.04. Notice to Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -

ARTICLE III

PURCHASE OF DEFECTIVE LOANS

Section 3.01. Purchase Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
Section 3.02. Obligation of Parties Upon Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -

ARTICLE IV

ASSIGNMENT OF AGREEMENT

Section 4.01. Assignment of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
Section 4.02. Assignment of Servicing Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -

ARTICLE V

FURTHER COOPERATION; CONFLICTS

Section 5.01. Review of Servicing Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Section 5.02. Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Section 5.03. Inspections; Other Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -

ARTICLE VI

SERVICING DUTIES OF THE SERVICER
</TABLE>

(i)
<PAGE> 3

<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 6.01. General Scope of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
Section 6.02. Specific Duties; Collateral Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
Section 6.03. Servicing Record; Collections;
Remittances to Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Section 6.04. Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
Section 6.05. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Section 6.06. Advances; Compensating Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
Section 6.07. Reimbursement of Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
Section 6.08. Modifications, Waivers, Amendments and
Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
Section 6.09. Due-On-Sale; Due-On-Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
Section 6.10. Claim for FHA Insurance and Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
Section 6.11. Sale of Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Section 6.12. Management of Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
Section 6.13. Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 6.14. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 6.15. Release of Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
Section 6.16. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Section 6.17. Segregation of Loans; Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
Section 6.18. Late Report Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -

ARTICLE VII

TERMINATION AND LIABILITIES

Section 7.01. Voluntary Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
Section 7.02. Involuntary Termination of Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Section 7.03. Servicer's Duties Upon Termination;
Payment to Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Section 7.04. Agreement to Pay Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -

ARTICLE VIII

INSURANCE COVERAGE

Section 8.01. Fidelity Bond Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 8.02. Errors and Omissions Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 8.03. Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -

ARTICLE IX

NOTICE OF CLAIMS

Section 9.01. Notice of Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
Section 9.02. Use of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -

ARTICLE X

[RESERVED]
</TABLE>

(ii)
<PAGE> 4

<TABLE>
<CAPTION>
Page
----
ARTICLE XI

MISCELLANEOUS PROVISIONS

<S> <C> <C>
Section 11.01. Amendments, Changes and Modifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.02. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.04. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.05. Term of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.06. Limitation of Liability of Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 49 -
Section 11.07. Limitation of Liability of Directors, Officers, Employees and Agents of a Party . . . . . . . - 50 -
Section 11.08. Survival of Obligations and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 11.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 11.10. Forms and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 11.11. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 11.12. Recitals and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 11.13. Relationship of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 11.14. Third Party Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
EXHIBIT A

DESIGNATED SERVICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
EXHIBIT B

FORM OF SERVICER REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 55 -
EXHIBIT C

LOAN SCHEDULE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 61 -
</TABLE>

(iii)
<PAGE> 5
THIS SERVICING AGREEMENT (the "Agreement"), is made and entered into
as of March 21, 1996 by and among MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1
(the "Trust"), FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION (the "Trustee"),
NORWEST BANK MINNESOTA, N.A. (the "Master Servicer") and MEGO MORTGAGE
CORPORATION (the "Servicer").

W I T N E S S E T H:

WHEREAS, the Servicer is engaged as an independent contractor in the
business of servicing FHA Title I Home Improvement Loans; and

WHEREAS, the Pooling and Servicing Agreement contemplates the
execution of this Agreement and that the Loans will be serviced pursuant to the
provisions hereof; and

WHEREAS, the Trust, the Trustee, the Master Servicer and the Servicer
desire to execute this Agreement to define the rights, duties and obligations
of the Servicer with respect to the servicing of the Loans;

NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the Trust, the Trustee, the Master Servicer and
the Servicer each agree as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. DEFINITIONS. All words and phrases defined in this
Article I (except as expressly provided otherwise herein or unless the context
otherwise requires) shall have the respective meanings specified in this
Article I for all purposes of this Agreement. Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned in the
Pooling and Servicing Agreement.

"ADVANCE" means the amounts paid and advanced by the Servicer pursuant
to Section 6.06(a) and (b) hereof.

"AGGREGATE PRINCIPAL BALANCE" means, as of any date of determination,
the sum of the principal balances for all Loans serviced by the Servicer
hereunder.

"AGREEMENT" means this Servicing Agreement entered into by and among
the Trust, the Trustee, the Master Servicer and the Servicer, and all exhibits,
amendments, and supplements hereto.

- 1 -
<PAGE> 6
"ANNUAL DEFAULT PERCENTAGE (THREE MONTH AVERAGE)" means, as of any
date of determination, the average of the percentage equivalents of the
fractions for each of the three immediately preceding Due Periods, the
numerator of which is 12 times the aggregate of the principal balances of all
Loans that became Credit Support Multiple Defaulted Loans during such Due
Period immediately prior to such Loans becoming Credit Support Multiple
Defaulted Loans and the denominator of which is the Aggregate Principal Balance
as of the end of such Due Period.

"BUSINESS DAY" means any day of the week other than Saturday, Sunday,
or a day which banking institutions in the City of New York or the city in
which either the Master Servicer's or the Servicer's servicing operations are
located are authorized or obligated by Law or executive order, or government
decree to close.

"CERTIFICATE INSURER" means MBIA Insurance Corporation, a monoline
insurance company, or any successor thereto, as issuer of the Policy.

"CLOSING DATE" means March 29, 1996.

"CODE" means the Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor statutes thereto.

"COLLECTION ACCOUNT" means the account established and maintained
pursuant to Section 6.03(e).

"CONTRACT OF INSURANCE" means the FHA contract of insurance covering
the Loans, which Contract of Insurance is held under the name of First Trust of
New York, National Association, or any successor thereto as contract of
insurance holder under the Pooling and Servicing Agreement.

"CREDIT DOCUMENTS" means all documents with respect to a Loan that are
necessary to submit a claim to FHA in respect of such Loan.

"CREDIT SUPPORT MULTIPLE DEFAULTED LOAN" means a loan with respect to
which (a) claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced
on the related Property, (c) any portion of a Monthly Payment is 150 days or
more past due; or (d) the Servicer has determined in accordance with customary
servicing practices, that the Loan is uncollectable.

"CUMULATIVE DEFAULT PERCENTAGE" means, as of any date of
determination, the aggregate of the principal balances of all

- 2 -
<PAGE> 7
Credit Support Multiple Defaulted Loans (immediately prior to such Loans
becoming Credit Support Multiple Defaulted Loans) since the Closing Date
through the end of the prior Due Period, plus all accrued and unpaid interest
on such Credit Support Multiple Defaulted Loans to such date, divided by the
aggregate of the Initial Principal Balances of all of the Loans serviced
pursuant hereto.

"DEBTOR RELIEF LAWS" means any applicable state or federal
liquidation, conservatorship, bankruptcy, insolvency, rearrangement,
moratorium, reorganization, or similar debt or relief laws from time to time in
effect affecting the enforcement of creditors' rights generally and general
equitable principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).

"DEFAULTED LOAN" means a Loan with respect to which: (a) a claim has
been paid or rejected pursuant to the Contract of Insurance, (b) the Property
has been repossessed and sold, or (c) any portion of a monthly payment is more
than 150 days past due (without giving effect to any grace period).

"DEFECTIVE LOAN" has the meaning ascribed thereto in Section 3.01 of
this Agreement.

"DESIGNATED SERVICER" means each Person, if any, listed on Exhibit A
hereto designated by the Servicer to perform the Servicer's duties, liabilities
and obligations hereunder with respect to certain Loans, each of which
Designated Servicer (other than Preferred Equities Corporation) shall be an
Eligible Servicer and is subject to approval of the Master Servicer and the
Certificate Insurer. Each Designated Servicer listed on Exhibit A on the
Closing Date shall be deemed to have been approved by the Master Servicer and
the Certificate Insurer.

"DISTRIBUTION DATE" means the twenty-fifth (25th) day of the month, or
if such 25th day is not a Business Day, the immediately following Business Day.
The first Distribution Date will occur in April 1996.

"DUE DATE" means, with respect to each Loan, the date on which
payments of principal, if any, and interest are due pursuant to the terms of
the related Note.

"DUE PERIOD" means the period between and including the first day of
each month and the last day of the month.

"ELIGIBLE ACCOUNT" means (i) a segregated trust account that is
maintained with the corporate trust department of a depository institution
acceptable to the Master Servicer and the Certificate

- 3 -
<PAGE> 8
Insurer, or (ii) a segregated direct deposit account maintained with a
depository institution or trust company organized under the laws of the United
States or America, or any of the States thereof, or the District of Columbia,
having a certificate of deposit, short-term deposit or commercial paper rating
of at least A-1+ by Standard & Poor's and P-1 by Moody's and acceptable to the
Master Servicer and the Certificate Insurer.

"ELIGIBLE SERVICER" means a Person that (i) is servicing a portfolio
of FHA Title I mortgage loans, (ii) is legally qualified to service, and is
capable of servicing, the Loans and has all licenses required to service FHA
Title I mortgage loans, (iii) has demonstrated the ability to service
professionally and competently a portfolio of FHA-insured mortgage loans
similar to the Loans with reasonable skill and care, (iv) has a net worth
calculated in accordance with generally accepted accounting principles of at
least $500,000; and (v) is acceptable to the Certificate Insurer (it being
agreed that each of Norwest Bank Minnesota, N.A., Mego Mortgage Corporation and
Preferred Equities Corporation shall be considered acceptable to the
Certificate Insurer).

"FHA" means the Federal Housing Administration of the Department of
Housing and Urban Development of the United States of America, or any successor
thereto.

"FHA INSURANCE" means insurance issued by FHA pursuant to Title I of
the National Housing Act of 1934, as amended.

"FHA LOAN" means each Loan.

"FILE" means a Mortgage File.

"FORECLOSED PROPERTY" means any Property acquired by the Trust as a
result of:

(i) the completion of foreclosure or comparable proceedings with
respect to the related Loan;

(ii) the Trustee's acceptance of the deed or other evidence of
title to the related Property in lieu of a foreclosure or
other proceeding with respect to the related Loan; or

(iii) the acquisition by the Trustee of title thereto by operation
of law.

"FORECLOSURE ADVANCE" has the meaning ascribed thereto in Section
6.06(b) of this Agreement.

"HUD" means the United States Department of Housing and Urban

- 4 -
<PAGE> 9
Development and any successor thereto.

"INDEPENDENT CONTRACTOR" means any Person that would be an
"independent contractor" with respect to the Trust within the meaning of
Section 856(d)(3) of the Code or such other Person approved by the Master
Servicer.

"INSURANCE PROCEEDS" means, with respect to any Property, all amounts
collected in respect of related title or other insurance policy, other than the
Contract of Insurance, and not required to be applied to the restoration of the
related Property or paid to the related Obligor.

"INTEREST ADVANCE" has the meaning ascribed thereto in Section 6.06(a)
of this Agreement.

"INTERESTED PERSON" means the Master Servicer, the Servicer, the
Trust, Financial Asset Securities Corp., or any holder of a certificate
representing a residual interest in the Trust, or any of their respective
affiliates.

"INVOICED LOAN" means a Loan with respect to which the related Obligor
is required to pay the FHA Insurance premium.

"LAW" means all applicable statutes, laws, ordinances, regulations,
orders, writs, injunctions, or decrees of the United States or any agency
thereof, or any state or political subdivision thereof, or any court of
competent jurisdiction thereof.

"LIQUIDATION PROCEEDS" means amounts (other than Insurance Proceeds
and amounts received from the FHA) received in connection with the liquidation
of Defaulted Loans, whether through trustee's sale, foreclosure sale, or
otherwise.

"LOAN" means a Mortgage Loan.

"LOAN RATE" means, with respect to any Loan, the fixed annual rate of
interest set forth in the related Note (not including any amounts payable as
premiums for FHA Insurance with respect to Invoiced Loans).

"LOAN SCHEDULE" means, as of any date, the schedule of Loans serviced
under this Agreement and attached to this Agreement as Exhibit C, which shall
include any Subsequent Loan Schedule. Each Loan Schedule shall specify with
respect to each Loan the information set forth in Exhibit C hereto.

"MASTER SERVICER" means Norwest Bank Minnesota, N.A., a national
banking association, in its capacity as Master Servicer

- 5 -
<PAGE> 10
under this Agreement, its successors in interest or any Person appointed as
successor master servicer hereunder.

"MORTGAGE" means, with respect to any Mortgage Loan, the original
mortgage, deed of trust or other security instrument executed by a borrower
which creates a lien (and in a title theory state the document conveying title
to the Mortgaged Property as security for the related Loan) on the related
Mortgaged Property.

"MORTGAGE FILE" means the documents related to a Mortgage Loan
maintained in the possession of the Trustee.

"MORTGAGE LOAN" means a Mortgage Loan acquired by the Trust pursuant
to the Pooling and Servicing Agreement and serviced by the Servicer pursuant to
this Agreement and listed on the Loan Schedule attached hereto, other than
those removed from this Agreement as a result of (i) all interest and principal
due on such Mortgage Loan being paid in full, (ii) such Mortgage Loan or any
related Foreclosed Property being sold by the Trust, or (iii) the FHA has paid
a claim with respect to such Mortgage Loan under the Contract of Insurance.

"MORTGAGED PROPERTY" means, with respect to any Mortgage Loan, any fee
interest in the residential property subject to the lien of the related
Mortgage.

"MORTGAGOR" means, with respect to any Mortgage Loan, the Obligor(s)
on the related Note.

"NET LOAN RATE" means, with respect to each Loan, the related Loan
Rate less the applicable Servicing Fee.

"NOTE" means, with respect to any Loan, the note (or notes), or other
instrument evidencing the indebtedness under such Loan.

"NOTICE ADDRESS" means, unless each party is notified otherwise:

(a) As to the Trust and the Trustee:

Mego Mortgage FHA Title I Loan Trust 1996-1
c/o First Trust of New York, National Association
First Trust Center
180 East Fifth Street
Suite 200
St. Paul, Minnesota 55101
Attention: Structured Finance

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<PAGE> 11
(b) As to the Master Servicer:

Norwest Bank Minnesota, N.A.
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Master Servicing Department
Mego Mortgage FHA Title I Loan Trust
1996-1

Mego Mortgage Corporation
210 Interstate North Parkway
Suite 250
Atlanta, Georgia 30339
Attention: Jeffrey S. Moore
President

(d) As to the Certificate Insurer:

MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
Attention: Insured Portfolio Management Structured
Finance (IPM-SF) (Mego Mortgage FHA
Title I Loan Asset-Backed Certificates,
Series 1996-1)

"OBLIGOR" means a Mortgagor.

"OFFICER'S CERTIFICATE" means a certificate executed by a Servicing
Officer certifying that (i) the Servicer has complied with all of the terms and
conditions hereof and (ii) the representations, warranties, and covenants
contained in Article II hereof are true and correct as of the date of such
certificate and (iii) as to such other matters as required by this Agreement.

"PAYMENTS" means all moneys received by the Servicer, representing
principal and interest payments on Loans, including Principal Prepayments,
Insurance Proceeds, proceeds received on claims submitted under the policy of
FHA Insurance covering the related Loans, rents, condemnation proceeds or
proceeds received in connection with a taking under power of eminent domain or
a conveyance in lieu of condemnation, and Liquidation Proceeds.

"PERSON" means an individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization or joint venture, or a court or a

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<PAGE> 12
government or any agency or political subdivision thereof.

"POLICY" means the certificate guarantee insurance policy issued by
the Certificate Insurer to the Trustee for the benefit of the
Certificateholders.

"POOLING AND SERVICING AGREEMENT" means that certain Pooling and
Servicing Agreement, dated as of March 21, 1996, by and among Financial Asset
Securities Corp., as Depositor, Mego Mortgage Corporation, as Claims
Administrator, Seller and Servicer, Norwest Bank Minnesota, N.A., as Master
Servicer and First Trust of New York, National Association, as Trustee and
Contract of Insurance Holder, relating to the Mego Title I Loan Trust 1996-1.

"PRINCIPAL PREPAYMENT" means any Obligor payment or other receipt of
principal in full due on a Loan that is received in advance of the scheduled
maturity date of such Loan.

"PROPERTY" means a Mortgaged Property.

"REMIC PROVISIONS" means the provisions of the federal income tax laws
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter I of the Code, and related
provisions, and regulations (either proposed, temporary or final) and related
revenue rulings and procedures, as the foregoing may be in effect from time to
time.

"SERVICER" means the servicer whose name and notice address appear on
the signature page of this Agreement, or any successor thereto appointed
pursuant to Article VII hereof with the consent of the Certificate Insurer.

"SERVICER DETERMINATION DATE" means, with respect to any Distribution
Date, the fifth (5th) Business Day preceding each Distribution Date.

"SERVICER REPORTING DATE" means the fifth (5th) Business Day preceding
each Servicer Determination Date, but in no event earlier than the tenth (10th)
calendar day of any month.

"SERVICING FEE" means the fee paid monthly to the Servicer in respect
to each Loan serviced by the Servicer. With respect to any Distribution Date,
the Servicing Fee shall equal one-twelfth of the Servicing Fee rate of 1.25%
times the Aggregate Principal Balance as of the opening of business on the
first day of the month preceding the month of such Distribution Date (or the
Cut-Off Date, in the case of the first Distribution Date), reduced by the
aggregate Prepayment Interest Shortfall for the related Due Period. The
Servicing Fee shall be payable as provided in Section

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<PAGE> 13
6.05 hereof.

"SERVICING OFFICER" means an officer of the Servicer responsible for
the administration and servicing of the Loans whose name and specimen signature
appear on a list of servicing officers furnished to the Master Servicer, as
such list may be amended from time to time.

"SERVICING RECORD" means the books and records established pursuant to
Section 6.03 to record all payments in respect of the Loans or the Property
received.

"SUBSEQUENT LOAN SCHEDULE" means the schedule identified as such and
relating to Loans acquired by the Trust after the Closing Date pursuant to the
Pooling and Servicing Agreement, which Subsequent Loan Schedule shall be
attached as part of Exhibit C to this Agreement.

"TANGIBLE NET WORTH" means the tangible assets of the Servicer and any
of its subsidiaries, calculated in accordance with GAAP, including (i) any
excess servicing rights and mortgage servicing rights, but excluding (ii) any
intangible assets such as patents trademarks, trade names copyrights, licenses,
good will, organization costs, advances or loans to or receivables from
directors, officers employees or affiliates, prepaid assets amounts relating to
covenants not to compete, pension assets, deferred charges or treasury stock or
any securities of the Servicer unless such securities are readily marketable in
the United States, minus, all indebtedness of the Servicer and any accounting
reserves of the Servicer. Securities included as tangible assets shall be
taken into account at their current market price or cost, whichever is lower,
and any write-up value of any assets shall not be taken into account.

"TITLE I" means Section 2 of Title I of the National Housing Act of
1934 and the rules and regulations promulgated thereunder, as each may be
amended from time to time and any successor statute, rules or regulations.

"TRUST" means the trust established pursuant to the Pooling and
Servicing Agreement, designated as the "Mego Mortgage FHA Title I Loan Trust
1996-1."

"TRUSTEE" means First Trust of New York, National Association, or any
duly appointed successor thereto.

"30+ DAY DELINQUENT LOAN" means, as of any date of determination, a
Loan, other than a Credit Support Multiple Defaulted Loan, with respect to
which any portion of a monthly payment is, as of the end of the prior Due
Period, 31 days or more

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<PAGE> 14
past due (without giving effect to any grace period).

"30+ DELINQUENCY PERCENTAGE (ROLLING THREE MONTH)" means, as of any
date of determination, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods
the numerator of which is equal to the aggregate principal balance of 30+ Day
Delinquent Loans as of the end of the prior Due Period, and the denominator of
which is equal to the Aggregate Principal Balance as of the end of such Due
Period.

"60+ DAY DELINQUENT LOAN" means, as of any date of determination, a
Loan, other than a Credit Support Multiple Defaulted Loan, with respect to
which any portion of a monthly payment is, as of the end of the prior Due
Period, 61 days or more

"60+ DELINQUENCY PERCENTAGE (ROLLING THREE MONTH)" means, as of any
date of determination, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods
the numerator of which is equal to the aggregate principal balance of all 60+
Day Delinquent Loans as of the end of such Due Period and the denominator of
which is the Aggregate Principal Balance as of the end of such Due Period.

SECTION 1.02. FORMS. All forms specified by the text hereof or by
reference to exhibits attached hereto shall be substantially as set forth
herein, subject to such changes that do not alter the substantive rights of the
parties hereto or as may be required by applicable Laws hereafter enacted.

SECTION 1.03. INTERPRETATION. Unless the context requires
otherwise, words of the masculine gender shall be construed to include
correlative words of the feminine and neuter genders and vice versa, and words
of the singular number shall be construed to include correlative words of the
plural number and vice versa. This Agreement, and all the terms and provisions
hereof, shall be liberally construed to effect the purposes set forth herein
and to sustain the validity of this Agreement.

ARTICLE II

REPRESENTATIONS, WARRANTIES AND COVENANTS

SECTION 2.01. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
TRUSTEE. The Trustee represents and warrants to, and covenants with, the
Master Servicer, the Certificate Insurer and the Servicer as of the Closing
Date that:

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<PAGE> 15
(a) The Trustee is a national banking association duly
organized under the laws of the United States, is validly existing and
in good standing and has the corporate power and authority under the
laws of the United States to conduct its corporate trust business as
now conducted.

(b) The Trustee has full power and authority to enter
into and perform all transactions contemplated herein and no consent,
approval, authorization, or order of any federal, state or local court
or governmental agency or body governing or having jurisdiction with
respect to the Trustee's trust powers is required for the Trustee to
enter into this Agreement and to perform its obligations hereunder.

(c) The execution, delivery, and performance by it of
this Agreement (a) do not violate any provision of any law or
regulation governing the banking and trust powers of the Trustee or
any order, writ, judgment, or decree of any court, arbitrator, or
governmental authority applicable to the Trustee or any of its assets,
(b) do not violate any provision of its corporate charter or by-laws,
or (c) to the best of its knowledge do not violate any provision of,
or constitute, with or without notice or lapse of time, a default
under, or result in the creation or imposition of any lien on any of
the property of the Trust pursuant to the provisions of any mortgage,
indenture, contract, agreement or other undertaking other than this
Agreement to which it is a party.

(d) This Agreement has been duly executed and delivered
by the Trustee and constitutes the legal, valid and binding agreement
of the Trustee, enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by equitable limitations on the
availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

SECTION 2.02. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
SERVICER. The Servicer represents and warrants to, and covenants with, the
Trust, the Trustee, the Certificate Insurer and the Master Servicer as of the
Closing Date that:

(a) Servicer is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of
its incorporation and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified and in good
standing in each state where the Property is located if the laws of
such state

- 11 -
<PAGE> 16
require licensing or qualification in order to conduct business of the
type conducted by Servicer and perform its obligations hereunder;
Servicer has corporate power and authority to execute and deliver this
Agreement and to perform in accordance herewith; the execution,
delivery and performance of this Agreement by Servicer and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action; this
Agreement evidences the valid, binding and enforceable obligation of
Servicer, and all requisite corporate action has been taken by
Servicer to make this Agreement valid, binding and enforceable upon
Servicer in accordance with its terms, subject to the effect of Debtor
Relief Laws, none of which will effect the ownership of the Loans by
the Trust;

(b) All actions, approvals, consents, waivers,
exemptions, variances, franchises, orders, permits, authorizations,
rights and licenses required to be taken, given or obtained, as the
case may be, by or from any federal, state or other governmental
authority or agency that are necessary in connection with the
execution and delivery by Servicer of this Agreement, have been duly
taken, given or obtained, as the case may be, are in full force and
effect on the date hereof, are not subject to any pending proceedings
or appeals (administrative, judicial or otherwise) and either the time
within which any appeal therefrom may be taken or review thereof may
be obtained has expired or no review thereof may be obtained or appeal
therefrom taken, and are adequate to authorize the consummation of the
transactions contemplated by this Agreement on the part of Servicer
and the performance by Servicer of its obligations under this
Agreement;

(c) Neither the execution and delivery of this Agreement,
the consummation of the transactions contemplated herein, nor the
fulfillment of or compliance with the terms of this Agreement will
result in the breach of any terms or provisions of the certificate of
incorporation or by-laws of Servicer or result in the breach of any
term or provision of, or conflict with or constitute a default under
or result in the acceleration of any obligation under, any material
agreement, indenture or loan or credit agreement or other material
instrument to which Servicer or its property is subject, or result in
the violation of any law, rule, regulation, order, judgment or decree
to which Servicer or its property is subject;

(d) Servicer does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every
covenant of the Servicer contained in this Agreement;

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<PAGE> 17
(e) There is no action, suit, proceeding or investigation
pending or, to the best of Servicer's knowledge, threatened against
Servicer which, either in any one instance or in the aggregate, may
(i) result in any material adverse change in the business, operations,
financial condition, properties or assets of Servicer or in any
material impairment of the right or ability of Servicer to carry on
its business substantially as now conducted, or in any material
liability on the part of Servicer or of any action taken or to be
taken in connection with the obligations of Servicer contemplated
herein, or which would be likely to impair materially the ability of
Servicer to perform under the terms of this Agreement, or (ii) which
would draw into question the validity of this Agreement;

(f) Servicer is not in default with respect to any order
or decree of any court or any order, regulation or demand of any
federal, state, municipal or governmental agency, which default might
have consequences that would materially and adversely affect the
condition (financial or other) or operations of Servicer or its
properties or might have consequences that would materially and
adversely affect the execution and delivery of this Agreement and its
performance hereunder;

(g) The Servicer is solvent and will not be rendered
insolvent as a result of the performance of its obligations pursuant
to this Agreement;

(h) The Servicer has not waived any default, breach,
violation or event of acceleration existing under any Note or any
related Mortgage;

(i) The Servicer is now and will be, so long as the
Servicer shall continue to serve in the capacity contemplated under
the terms of the Agreement, a lender approved by FHA for participation
in the programs prescribed by FHA under Title I;

(j) The Servicer holds a valid FHA contract of insurance
and has never had an FHA contract of insurance terminated by FHA;

(k) The Servicer shall comply with, and shall service
each Loan, in accordance with the terms of this Agreement and the
National Housing Act, as amended and supplemented, all rules and
regulations issued thereunder, all administrative publications
published pursuant thereto including, without limitation, all FHA
requirements with respect to Title I loans, and all reasonable
instructions of the Master Servicer

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<PAGE> 18
not in conflict with any of the foregoing;

(l) The Servicer shall comply with all applicable state
and federal laws affecting the servicing of the Loans;

(m) From time to time the Servicer shall report, as more
fully set forth in this Agreement, information relating to the Loans
to the Master Servicer and shall do every act and thing that may be
necessary or required to perform its duties under this Agreement;

(n) The Servicer agrees that, so long as it shall
continue to serve in the capacity contemplated under the terms of this
Agreement, it shall remain in good standing under the Laws governing
its creation and existence and qualified under the Laws of each state
in which the nature of its business requires such qualification, it
shall maintain all licenses, permits and approvals required by any law
or regulations as may be necessary to perform its obligations under
this Agreement and to retain all rights to service the Loans. The
Servicer has no present intention to dissolve or otherwise dispose of
all or substantially all of its assets, and or to voluntarily
consolidate with or merge into any other entity or permit one or more
other entities to consolidate with or merge into it. If the Servicer
consolidates with or merges into another entity, or permits one or
more entities to consolidate or merge into it, or sells or otherwise
transfers to another such entity all or substantially all of its
assets and thereafter dissolves, and if the surviving, resulting, or
transferee entity, as the case may be, is not an Eligible Servicer or
is otherwise not reasonably acceptable to the Master Servicer and the
Certificate Insurer, the Servicer shall be deemed to have requested a
voluntary termination pursuant to Section 7.01 hereof;

(o) No information, Officer's Certificate, statement
furnished in writing, or report required hereunder, delivered by the
Servicer to the Master Servicer or its agents shall, to the best
knowledge of the Servicer, contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
information, certificate, statement, or report not misleading and
there has been no material adverse change in the financial condition
of the Servicer since the date of the Servicer's most recent audited
financial statements;

(p) The Servicer is a mortgage banker, state or national
bank, or a lender that actively provides servicing or otherwise aids
in the financing of FHA Title I Loans on residential housing, and the
transactions contemplated by

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<PAGE> 19
this Agreement are in the ordinary course of business of the Servicer;

(q) The Servicer is an approved lender under Title I, and
maintains all errors and omissions coverage and fidelity insurance
coverage required by the FHA;

(r) The origination and collections practices used by the
Servicer and its respective affiliates with respect to the Loans have
been in all respects legal, proper, prudent and customary in the Title
I mortgage lending and servicing business;

(s) The Servicer has, and at all times shall maintain, a
Tangible Net Worth, as determined in accordance with generally
accepted accounting principles, of at least $8,000,000; and

(t) Neither this Agreement nor any statement, report or
other document furnished or to be furnished pursuant to this Agreement
by Servicer or in connection with the transactions contemplated hereby
and thereby by Servicer contains any untrue statement of material fact
or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.

SECTION 2.03. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
MASTER SERVICER. The Master Servicer represents and warrants to, and covenants
with, the Trust, the Trustee, the Certificate Insurer and the Servicer as of
the Closing Date that:

(a) The Master Servicer is a national banking association
duly organized and validly existing under the laws of the United
States of America, with full power and authority to own its properties
and conduct its business as such properties are presently owned and
such business is presently conducted;

(b) The Master Servicer has the full power and authority
to execute, deliver and perform, and to enter into and consummate all
transactions contemplated by this Agreement, has duly authorized the
execution, delivery and performance of this Agreement, has duly
executed and delivered this Agreement, and this Agreement, when duly
authorized, executed and delivered by the other parties hereto, will
constitute a legal, valid and binding obligation of the Master
Servicer, enforceable against it in accordance with its terms;

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<PAGE> 20
Agreement, the consummation of the transactions required of it herein
or therein, nor the fulfillment of or compliance with the terms and
conditions of this Agreement will conflict with or result in a breach
of any of the terms, conditions or provisions of the Master Servicer's
charter or bylaws or any legal restriction or any material agreement
or instrument to which the Master Servicer is now a party or by which
it is bound, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the violation of
any law, rule, regulation, order, judgment or decree to which the
Master Servicer or its property is subject;

(d) The Master Servicer is not in default, and upon the
execution and delivery of this Agreement and its performance of and
compliance with the terms hereof will not constitute a violation of,
any law, any order or decree of any court, or any order, regulation or
demand of any federal, state or local governmental or regulatory
authority;

(e) No action, suit or other proceeding or investigation
is pending or, to the Master Servicer's knowledge, threatened before
any court of any federal, state or local governmental or regulatory
authority (A) asserting the invalidity of this Agreement, (B) seeking
to prevent the consummation of any of the transactions contemplated by
this Agreement, or (C) seeking any determination or ruling that would
materially and adversely affect the ability of the Master Servicer to
perform its obligations under this Agreement; and

SECTION 2.04. NOTICE TO MASTER SERVICER. If, at any time, any
representation or warranty of the Servicer set forth in this Agreement is not
true and correct in any material respect as of the time made, the Servicer
shall immediately notify the Master Servicer and the Certificate Insurer of
such fact and provide a full and accurate explanation thereof.

ARTICLE III

PURCHASE OF DEFECTIVE LOANS

SECTION 3.01. PURCHASE OBLIGATIONS. If, as a result of the

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<PAGE> 21
Servicer's failure to fully perform its duties hereunder, any Loan is or
becomes ineligible for FHA Insurance or a claim for FHA Insurance is denied
with respect to such Loan and the Master Servicer is required by the terms of
the Pooling and Servicing Agreement to purchase such Loan from the Trust, then
the subject Loan shall be deemed a "Defective Loan." The Master Servicer shall
notify the Servicer in writing that a Loan has become a Defective Loan and the
Servicer shall purchase such Defective Loan by the later of, the last day of
the current month, or ten days after the notice date, at a price equal to (1)
100% of the unpaid principal balance of such Loan, plus (2) any accrued and
unpaid interest at the Net Loan Rate to the date of the purchase, plus (3) any
reasonable costs and expenses incurred by the Master Servicer or the Trust
(including expenses related to any required legal opinions) relating to the
purchase of the Loan, if any.

SECTION 3.02. OBLIGATION OF PARTIES UPON PURCHASE. The purchase
price with respect to any Loan purchased by the Servicer pursuant to Section
3.01 of this Agreement shall be remitted on the date of purchase by the
Servicer (i) if the Master Servicer has purchased such Loan pursuant to the
Pooling and Servicing Agreement, to the Master Servicer, or (ii) if the
Servicer purchases the Loan directly from the Trust, into the Collection
Account, with notice to the Master Servicer and the Certificate Insurer of the
amount of such remittance and Loan concerned, and upon compliance with all of
the terms of this Article III by the Servicer, the Trustee shall assign and
deliver the documents related to the Loan to the Master Servicer for delivery
to the Servicer, without recourse, including FHA Insurance, if applicable. If
the Servicer fails to purchase any Defective Loan at the time and in the manner
provided in this Article III, (i) the Trustee or (ii) the Master Servicer, with
the consent of the Certificate Insurer, may terminate all of the Servicer's
rights pursuant to this Agreement as provided in Section 7.02 and may pursue
any and all remedies available under this Agreement or as otherwise may be
provided by Law. Notwithstanding the foregoing, no purchase of a Loan by the
Servicer pursuant to this Agreement shall alter the duties and obligations of
the Master Servicer under the Pooling and Servicing Agreement.

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<PAGE> 22
ARTICLE IV

ASSIGNMENT OF AGREEMENT

SECTION 4.01. ASSIGNMENT OF RIGHTS. (a) The Servicer acknowledges
that, from time to time, (i) the Trustee and the Master Servicer may assign
their respective right, title and interest in this Agreement with respect to
one or more Loans and (ii) the Trustee may appoint a successor master servicer
hereunder, as provided below. The Trustee or the Master Servicer, as the case
may be, shall provide the Servicer ten (10) days prior notice of any such
assignment or appointment; provided, however, that the failure to give such
notice shall not affect the validity of such assignment or appointment. The
Servicer consents to each such assignment and waives any further notice
thereof.

In the event the Master Servicer is terminated as master servicer
under the Pooling and Servicing Agreement, a successor master servicer shall be
appointed pursuant to the terms of the Pooling and Servicing Agreement and the
Trustee or such successor master servicer shall provide the Servicer written
notice of such appointment. Upon such appointment, the successor master
servicer shall be the successor in all respects to the Master Servicer in its
capacity as master servicer under this Agreement and shall be subject to all
the responsibilities, restrictions, duties and liabilities relating thereto
placed on the Master Servicer by the terms and provisions of this Agreement.
Upon receipt of the written notice described in this section, and until such
successor master servicer is terminated or replaced, the Servicer shall
recognize and deal with the successor master servicer under this Agreement as
master servicer hereunder for all purposes without any further action on the
part of any party hereto.

SECTION 4.02. ASSIGNMENT OF SERVICING OBLIGATIONS. Except as
otherwise provided in Section 2.02(n) and this Section 4.02, the Servicer may
not assign any of its rights or privileges hereunder or make or enter into any
delegation, subcontract, authorization or appointment with respect to any of
its duties, liabilities or obligations hereunder without the prior written
consent of the Master Servicer and the Certificate Insurer. Exhibit A hereto
contains the name of each Designated Servicer, each of which Designated
Servicer (other than any Designated Servicer listed on Exhibit A on the Closing
Date) is subject to the approval of the Master Servicer and the Certificate
Insurer. Notwithstanding any subservicing agreement, any of the provisions of

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<PAGE> 23
this Agreement relating to agreements or arrangements between the Servicer and
a Designated Servicer, or reference to actions taken through a Designated
Servicer or otherwise, the Servicer shall remain obligated and primarily liable
for the servicing and administration of the Loans in accordance with the
provisions of this Agreement without diminution of such obligation or liability
by virtue of such subservicing agreement or arrangement or by virtue of
indemnification from the Designated Servicer and to the same extent and under
the same terms and conditions as if the Servicer alone were servicing and
administering the Loans. For purposes of this Agreement, the Servicer shall be
deemed to have received payments on Loans when any Designated Servicer has
received such payment. The Servicer shall be entitled to enter into any
agreement with a Designated Servicer providing for indemnification of the
Servicer by the Designated Servicer, and nothing contained in this Agreement
shall be deemed to limit or modify such indemnification.

ARTICLE V

FURTHER COOPERATION; CONFLICTS

SECTION 5.01. REVIEW OF SERVICING REPORTS. In the event the
reports pertaining to any Loan are, in the reasonable judgment of the Master
Servicer, defective in accordance with the terms of this Agreement, Servicer
shall cooperate with the Master Servicer in curing such defects.

SECTION 5.02. CONFLICTS. Nothing in this Agreement shall preclude
the Servicer, in its individual capacity, from entering into other mortgage
loans or other financial transactions with any Obligor other than refinancing
any Loan.

SECTION 5.03. INSPECTIONS; OTHER ASSISTANCE.

(a) Servicer shall allow, and shall cause each Designated
Servicer to allow, the Master Servicer's, the Certificate Insurer's
and the Trustee's representatives at any time and from time to time,
during normal business hours, reasonable access to Servicer's or
Designated Servicer's premises where services in respect of the Loans
are being provided to examine Servicer's performance under this
Agreement and to cooperate with Servicer's and the Designated
Servicer's staff to facilitate the servicing of the Loans. The
Servicer shall provide, and shall cause each Designated Servicer to
provide, to representatives of the Master Servicer, the Certificate
Insurer and the Trustee reasonable access to the documentation
regarding the Loans. In each case, such access (i) shall be afforded
upon reasonable request and during normal business hours, and (ii)
shall not interfere with the normal business operations of the
Servicer or the Designated Servicer, as applicable. Nothing in this
section shall derogate from the obligation of the Servicer to observe
any applicable law prohibiting disclosure of

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<PAGE> 24
information regarding the Obligors, and the failure of the Servicer to
provide access as provided in this section as a result of such
obligation shall not constitute a breach of this section.

(b) If the Master Servicer or the Trustee receives any
questions, complaints, legal notices, or other communications relating
to a Loan, the recipient shall notify the Servicer.

ARTICLE VI

SERVICING DUTIES OF THE SERVICER

SECTION 6.01. GENERAL SCOPE OF DUTIES.

(a) From and after the date hereof, the Servicer shall
service and administer the Loans pursuant to the terms hereof without
regard to the terms of any other agreement with respect to the
servicing of the Loans.

(b) The Servicer's duties hereunder are generally to
provide loan administration servicing on behalf of the Master Servicer
as agent for the Trust, including but not limited to the collection of
payments for the reduction of principal and application of interest,
the remittance of collected payments, certain foreclosure services as
specified herein, and the employment of collection personnel to
perform such services. Subject to the terms and conditions set forth
herein, the Servicer shall service and administer the Loans in
accordance with all requirements of FHA applicable to the servicing of
the Loans, including Title I and other applicable law, and otherwise
in accordance with all other terms of this Agreement and the terms of
the respective Loans (including the related Notes and Mortgages), on
behalf of the Master Servicer as agent for the Trust and, to the
extent consistent with the foregoing, in the same manner in which it
services and administers similar FHA Title I home improvement mortgage
loans for its own portfolio in accordance with customary and usual
standards of practice of prudent mortgage lending institutions, and
with a view to the maximization of timely recovery of principal and
interest on the Loans, but without regard to: (i) any relationship
that the Servicer or any affiliate of the Servicer may have with the
related Obligor; (ii) the obligation to purchase a Defective Loan
pursuant to Article III; (iii) the Servicer's obligation to make
Advances pursuant to this Agreement; or (iv) the Servicer's right to
receive compensation for its services hereunder.

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<PAGE> 25
(c) Subject only to the above-described servicing
standards and the terms of this Agreement and of the respective Loans,
the Servicer shall have full power and authority, to do or cause to be
done any and all things in connection with such servicing and
administration which it may deem necessary or desirable (including
exercising any remedy under any Loan, retaining counsel in connection
with the performance of any of its obligations hereunder, and
instigating litigation to enforce any obligation of any Obligor,
without the consent or approval of the Trustee or the Certificate
Insurer, unless any such consent or approval is expressly required
hereunder or under applicable law, and except that the consent of the
Certificate Insurer shall be required prior to the taking of any
action with respect to any Loan or Property as to which the Servicer
is on notice of any potential environmental liabilities with respect
to such Property), subject only to the specific requirements and
prohibitions of Title I and other applicable law, this Agreement, and
the respective Loans. In performing its obligations hereunder the
Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA,
where appropriate, applicable to the Loans. In connection with the
servicing of the Loans, the Servicer shall prepare and execute any and
all financing statements, continuation statements and other documents
or instruments necessary to maintain the lien created by any Loan on
the related Property. The Servicer may agree to modifications,
waivers, amendments, subordinations, consents to or with respect to
any documents related to the Loan only as permitted by Section 6.08.
The Servicer shall notify the Master Servicer and the Certificate
Insurer of any such action and the date thereof, and shall provide the
Master Servicer and the Certificate Insurer on each Servicer Reporting
Date a status report with respect to such actions. The Servicer shall
deliver to the Master Servicer for deposit in the related Mortgage
File an original counterpart of the agreement relating to such action
and a copy of such agreement for the Master Servicer's records
promptly following the execution thereof. The Servicer shall service
and administer the Loans in accordance with applicable state and
federal law (including HUD regulation and administrative practice, as
appropriate) and shall provide to the borrowers under the Loans any
reports required to be provided to them thereby. The Trustee shall
execute, at the direction of the Master Servicer, any powers of
attorney and other documents necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties
hereunder and necessary to maintain the lien created by any Mortgage
on the related Mortgaged Property or any portion thereof; provided,
however, that the Servicer shall indemnify the Trustee and the Master
Servicer

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<PAGE> 26
for any loss to the Trustee or the Master Servicer resulting from any
negligence with respect to, or misuse of, any such power of attorney
by the Servicer.

(d) The Servicer agrees to provide the Master Servicer
with such information as is necessary to enable the Master Servicer to
monitor the number and aggregate principal balance of Loans that are
the subject of modifications, waivers or amendments pursuant to
Section 6.01(c).

SECTION 6.02. SPECIFIC DUTIES; COLLATERAL PROTECTION.

(a) From the Closing Date to the termination of this
Agreement, Servicer shall service the Loans as required herein, as
servicer on behalf of Master Servicer as agent for the Trust and,
subject to the provisions of this Agreement, shall do all things
necessary to perform such services, including without limitation:

(i) preparing and maintaining such books and records
and preparing and transmitting such reports concerning the
Loans as Servicer prepares and maintains for loans held for
its own account and as may be reasonably requested by the
Master Servicer;

(ii) receiving, processing and accounting for
payments and credits on the Loans;

(iii) collecting and accounting for Obligor premium
payments on FHA Insurance on Invoiced Loans;

(iv) responding as appropriate in writing or by
telephone to borrower inquiries; requests or billing error
notices and making appropriate adjustments with the
concurrence of Master Servicer;

(v) use its best efforts to collect all payments
called for under the terms and provisions of the Loans, and
shall, to the extent such procedures shall be consistent with
this Agreement, follow such collection procedures as it would
follow with respect to mortgage loans comparable to the Loans
and held for its own account; provided, however, that the
Servicer shall not modify or waive any provision of any Loan
except as provided in Section 6.08;

(vi) preparing and filing claims under the Contract
of Insurance for reimbursement of losses on Loans and pursuing
such claims to final resolution, all in accordance with
Section 6.10 of this Agreement;

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<PAGE> 27
(vii) providing supplies, telecommunications and
data transmission and processing equipment and programs as
needed to permit the proper administration and operation of
all Loans; and

(viii) remitting all collected payments to the
Collection Account, as applicable, in accordance with Section
6.03(e) of this Agreement.

(b) Servicer shall be responsible for safeguarding the
Trustee's interest in each Property and rights under any agreements
relating to the Loans, including, without limitation:

(i) Upon written notice to the Servicer from the
Master Servicer of the necessity for same, the Servicer shall
notify in writing each of the Obligors of the sale of the
Loans to the Trust;

(ii) [RESERVED];

(iii) Servicer shall promptly notify the Master
Servicer whenever it receives notice or otherwise becomes
aware of any notice of liens, bankruptcies, condemnations,
probate proceedings, tax sales, partitions, local ordinance
violations, condemnations or proceedings in eminent domain
that would, in Servicer's judgment, impair the Trustee's
security; and Servicer shall on behalf of the Master Servicer
as agent for the Trustee undertake appropriate action to
preserve its security for the related Loan;

(iv) Servicer shall advise the Master Servicer with
respect to requests for partial releases, easements,
substitutions, divisions, subordinations, alterations, or
waivers of security instrument terms and shall enter into any
of the foregoing only in accordance with Section 6.01(c); and

(v) [RESERVED].

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<PAGE> 28
SECTION 6.03. SERVICING RECORD; COLLECTIONS; REMITTANCES TO
COLLECTION ACCOUNT.

(a) The Servicer shall establish and maintain books and
records (the "Servicing Record") in which the Servicer shall record
all payments received or collected by or on behalf of the Servicer in
respect of each Loan and each Foreclosed Property and all amounts
owing to the Servicer in compensation for services rendered by the
Servicer hereunder and in reimbursement of costs and expenses incurred
by the Servicer hereunder. In addition, the Servicer shall establish
and maintain records (such record the "Servicer Insurance Record"),
which shall be part of the Servicing Record, in which the Servicer
shall record all claims prepared and filed by the Servicer under the
Contract of Insurance, all claims rejected by FHA, the amount of
insurance coverage available in the Servicer Insurance Record, and all
payments received by or on behalf of the Contract of Insurance holder
from the FHA with respect to each such claim whether received by the
Trustee, the Master Servicer or the Servicer. The Trustee and the
Master Servicer shall notify the Servicer and the Servicer shall
notify the Master Servicer and the Certificate Insurer of any
rejections of claims or claim payments received by such party from the
FHA within one (1) Business Day of receipt thereof.

(b) Except as otherwise provided herein, amounts received
or collected by the Servicer from or on behalf of any Obligor or in
respect of any Foreclosed Property or from FHA with respect to a claim
made under the Contract of Insurance shall be recorded to the
Servicing Record:

(i) in the case of any amount received or
collected directly by the Servicer, promptly following deposit
of the receipt or collection in the Collection Account; and

(ii) amounts received or collected by the Servicer
in connection with the sale of any Loan or any Foreclosed
Property shall be so recorded on and as of the date of
receipt. Any prepaid monthly payment received on any Loan
shall be recorded as a prepaid monthly payment when received.
All Payments received from or on behalf of an Obligor shall be
allocated, first, to the oldest payment overdue at such time
and apportioned, as to such oldest payment first to scheduled
interest (other than default interest) due on such oldest
payment date and second, to any principal due and payable in
accordance with the related Loan, and, third, to default
interest, late charges and other

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<PAGE> 29
amounts payable under the related obligations, except to the
extent that such allocation in respect of any Loan is
inconsistent with the terms of the related obligation or Title
I.

(c) The Servicer shall record separately to the Servicing
Record relating to each Due Period, on a Loan-by-Loan basis, each of
the following Payments collected or received by the Servicer in
respect of each Loan and each Foreclosed Property:

(i) all payments on account of principal (including
all Principal Prepayments);

(ii) all payments on account of interest;

(iii) all amounts paid by or on behalf of the
related Obligor in respect of Foreclosure Advances previously
advanced by the Servicer;

(iv) all revenues received or collected in respect
of any Foreclosed Property including, without limitation, all
proceeds of the sale of any Foreclosed Property pursuant to
Section 6.11 of this Agreement;

(v) all Liquidation Proceeds and any Insurance
Proceeds not required to be applied to the restoration of the
property securing the Loan or paid to the Obligor;

(vi) all proceeds received in connection with FHA
Insurance claims;

(vii) all proceeds received in connection with a
purchase of a Loan by the Servicer;

(viii) any condemnation awards or settlements or any
payments made by any related guarantor or third party credit-
support provider and any and all other amounts received in
respect of a Loan and not specified above; and

(ix) all FHA Insurance premiums collected or
received with respect to Invoiced Loans.

All payments of interest on the Loans shall be accounted for on the
basis of a 30-day month and 360-day year. No Loan will be accounted for on the
basis of simple interest.

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<PAGE> 30
(d) On or before each Servicer Determination Date, the
Servicer shall separately record in the Servicing Record, on a
Loan-by-Loan basis:

(i) any unpaid or current Servicing Fees due the
Servicer with respect to the preceding Due Period;

(ii) the amount of fees incurred during the
preceding Due Period to be paid to any Independent Contractor
hired by the Servicer to operate and manage a Foreclosed
Property;

(iii) all amounts due as of the end of the preceding
Due Period in reimbursement of Interest Advances and all
collections of interest in respect of related Loans;

(iv) all amounts due as of the end of the preceding
Due Period in reimbursement of Foreclosure Advances
(separately identifying the type and amount of each expense
then due);

(v) the principal balance of Loans that became
Defaulted Loans during the prior Due Period;

(vi) the principal balance of Loans that became 30+
Day Delinquent Loans and 60+ Day Delinquent Loans during the
prior Due Period, the Annual Default Percentage (Three Month
Average), and the Cumulative Default Percentage;

(vii) the amount deposited into the related
Collection Account representing payments by Obligors on
Invoiced Loans in respect of premium on FHA Insurance; and

(e) The Trustee shall maintain an account (the
"Collection Account") in the name and for the benefit of the Trustee
at a depository institution selected by it, which shall be an Eligible
Account and shall provide the location and designation of such account
to the Master Servicer in writing. All Payments and FHA Insurance
premiums with respect to Invoiced Loans received by Servicer (except
for the Servicing Fee to be retained by the Servicer pursuant to
Section 6.05 hereof) shall be deposited by the Servicer into the
Collection Account no later than the second Business Day following the
date of receipt thereof by the Servicer. The Servicer shall have no
right to make withdrawals from the Collection Account. The Trustee
shall withdraw amounts deposited into the Collection Account no later
than two (2) Business Days prior to each Distribution Date.

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<PAGE> 31
(f) If any amount is deposited in the Collection Account
in error, the Servicer may notify the Master Servicer in writing of
the amount of such deposit and in connection therewith shall be
required to provide such information to the Master Servicer as may be
necessary in the opinion of the Master Servicer to verify the accuracy
of such certification. The Trustee shall promptly withdraw the
erroneous deposit and remit the same to the Master Servicer for
remittance to the Servicer; provided, however, that if the Master
Servicer or the Trustee has not received evidence reasonably
satisfactory to it of the Servicer's entitlement to reimbursement
pursuant to this section, or if the Servicer has prior thereto been
reimbursed, the Trustee shall not make a distribution in respect of
such amount.

(g) The Servicer covenants and agrees, to the extent
required by law, to send to each Obligor with respect to a Loan
specified in a written notice from the Trustee, the Certificate
Insurer or the Master Servicer, if any, a written notice informing
such Obligor of the sale of its Loan to the Trust.

SECTION 6.04. ANNUAL STATEMENT AS TO COMPLIANCE.

(a) The Servicer will deliver to Master Servicer and the
Certificate Insurer within 150 days following the end of each fiscal
year of the Servicer, an Officer's Certificate stating with respect to
the Loans serviced hereunder, that:

(i) a review of the activities of the Servicer
during the preceding fiscal year (or in connection with the
first such Officer's Certificate the period from the Closing
Date through the end of such fiscal year) and of the
Servicer's performance under this Agreement with respect to
such Loans has been made under the supervision of the officer
who signed such Officer's Certificate;

(ii) to the best of such officer's knowledge, based
on such review, the Servicer has fulfilled all its obligations
under this Agreement throughout such year (or such portion of
such year), or if there has been a default in the fulfillment
of any such obligation, such Officer's Certificate shall
specify each such default known to such signer and the nature
and status thereof and what action the Servicer proposes to
take with respect thereto; and

(iii) the Servicer's fidelity bond coverage,

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<PAGE> 32
errors and omissions insurance coverage and liability
insurance coverage continue in full force and effect and
continue to comply with the requirements of Sections 8.01,
8.02 and 8.03 of this Agreement.

(b) Within 150 days following the end of each fiscal year
of the Servicer, the Servicer at its expense, shall cause a firm of
independent certified public accountants acceptable to the Master
Servicer and the Certificate Insurer to furnish to the Master Servicer
a report (the "Accountant's Servicer Report") including: (i) an
opinion on the financial position of the Servicer at the end of its
most recent fiscal year, and the results of operations and changes in
financial position of the Servicer for such year then ended on the
basis of an examination conducted in accordance with generally
accepted accounting principles, and (ii) a letter or letters to the
effect that, based on an examination of certain specified documents
and records relating to the servicing of the Servicer's mortgage loan
portfolio conducted in compliance with the Uniform Single Audit
Program for Mortgage Bankers, such firm is of the opinion that such
servicing has been conducted in compliance with the applicable
accounting standard except for such exceptions as such firm shall
believe to be immaterial and such other exceptions as shall be set
forth in such statement. The Servicer shall be required to pay all
expenses incurred by it in connection with such examination, including
fees and disbursements of independent accountants and expenses
incurred in connection with distribution of reports to the Master
Servicer.

(c) At the expense of the Trust, annually within 90 days
of each anniversary of the Closing Date, the Servicer (and each
Designated Servicer) shall cause a firm of nationally recognized
independent public accountants designated by the Master Servicer or
the Trustee to review the servicing books and records of the Servicer
(and any Designated Servicer) to evaluate the Servicer's performance
under this Agreement in order to confirm that the records of the
Servicer accurately reflect collections, delinquencies and other
relevant data with respect to the Loans reported to the Master
Servicer, and that such data is accurately reported to the Master
Servicer. Any such review shall be conducted upon reasonable notice
during normal business hours. Any exceptions or errors disclosed by
such procedures shall be included in a report delivered to the Master
Servicer, the Trustee, and the Certificate Insurer (the "Servicer
Review Report").

SECTION 6.05. COMPENSATION. In consideration for services

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<PAGE> 33
rendered hereunder, the Servicer shall be entitled to the following amounts;
provided, however, that the right to receive compensation for servicing the
Loans may not be transferred in whole or in part except in connection with the
transfer of all of the Servicer's responsibilities and obligations as permitted
under this Agreement:

(a) in respect of each Loan, the Servicing Fee payable
monthly until the earliest to occur of the date on which:

(i) all interest and principal due on such Loan
is paid in full;

(ii) such Loan is sold by the Trust;

(iii) such Loan is discharged and becomes a
foreclosed Loan; or

(iv) a claim is filed with the HUD with respect to
such Loan for the benefits of the FHA Insurance;

in each case payable solely from related full monthly payments
credited to the Servicing Record with respect to the related Loan.
The Servicing Fee under this Section 6.05 attributable to a monthly
payment payable with respect to a Loan shall be due and payable to the
Servicer as distributed from the Distribution Account by the Trustee
pursuant to the Pooling and Servicing Agreement. With respect to a
Loan for which a claim has been filed with the FHA or HUD, the portion
of the Servicing Fee attributable to the Loan shall continue to accrue
until the date of the filing of the claim and the Servicer will be
paid any such accrued portion of the Servicing Fee only from the
related FHA claim proceeds to the extent such proceeds include accrued
interest on the related Loan. With respect to compensation under
(ii), (iii) or (iv) above, the Servicer may prepare a billing
statement for presentation to the Master Servicer evidencing all
Servicing Fees accrued for each affected Loan. The Master Servicer
will remit to the Servicer Servicing Fees owed pursuant to (ii), (iii)
and (iv) above within ten (10) days of the receipt of such Servicing
Fees for such affected Loans solely from amounts representing interest
to the extent collected under each Loan.

(b) In respect of each Loan, all prepayment penalties and
assumption and processing fees paid by any Obligor, and all similar
fees customarily associated with the servicing of home improvement
loans paid by any Obligor (including, but not limited to, late
charges) in each case paid to and retained by the Servicer from
related Obligor payments designated specifically for such purpose.

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<PAGE> 34
SECTION 6.06. ADVANCES; COMPENSATING INTEREST.

(a) With respect to each Loan (other than a Defaulted
Loan), not later than the close of business on the Servicer
Determination Date, the Servicer shall remit to the Collection Account
an amount equal to the amount, if any, by which (i) the aggregate
scheduled interest due on all Loans at the related Net Loan Rate
during the preceding Due Period exceeds (ii) the aggregate amount
collected on all Loans on or before the Business Day preceding the day
of remittance which collections include Principal Prepayments received
after the Due Period preceding such Servicer Determination Date or
future monthly scheduled payments on deposit in the Collection Account
which are due in any month following the preceding Due Period (an
"Interest Advance"); provided, however, that the Servicer shall not be
required to make any Interest Advance that the Master Servicer
determines is not likely to be recoverable ultimately from Payments in
respect of that Loan. Any funds in the Collection Account so applied
as specified in (ii) above by the Servicer in lieu of making all or
any portion of an Interest Advance shall be reimbursed by the Servicer
in the remittance for the following month to the extent such funds are
not otherwise collected and on deposit in the Collection Account. The
Servicer shall provide the Master Servicer written evidence of the
remittance to the Collection Account of each Interest Advance on the
Business Day following the day of remittance.

(b) The Servicer shall advance (each, a "Foreclosure
Advance") from its own funds the following amounts in respect of any
Loan or Foreclosed Property, as applicable, only if (i) in the
Servicer's good faith judgment, the Servicer would make such an
advance if it or an affiliate held the affected Loan or Foreclosed
Property for its own account and (ii) the Master Servicer, after
consultation with the Servicer, determines that such amounts will be
recoverable from related Obligor payments or foreclosure proceeds and
approves such advance in writing:

(i) all third party costs and expenses (including
legal fees and costs and expenses relating to bankruptcy or
insolvency proceedings in respect of any Obligor) associated
with the institution of foreclosure proceedings in respect of
any Loan pursuant to Section 6.10;

(ii) all insurance premiums due and payable in
respect of each Foreclosed Property, prior to the date on
which the related insurance policy would otherwise

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<PAGE> 35
be terminated;

(iii) all real estate taxes and assessments in
respect to each Foreclosed Property that have resulted in the
imposition of a lien thereon, other than amounts that are due
but not yet delinquent;

(iv) all costs and expenses necessary to preserve
and maintain each Foreclosed Property;

(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property;
and

(vi) all fees and expenses of any independent
appraiser or other real estate expert retained pursuant to
Section 6.11.

(c) With respect to each Loan for which a Principal
Prepayment was received during the related Due Period, the Servicer
shall remit to the Collection Account an amount equal to the
difference between (i) the interest that would have been due on the
Due Date occurring in the related Due Period on the related Loan if
the Principal Prepayment had not been made and (ii) the amount of
interest actually received on each such Loan for such Due Period, each
calculated at the related Net Loan Rate; provided, however, such
aggregate amount for any Due Period shall not exceed the amount of the
Servicing Fee for such Due Period. Such amount shall be remitted to
the Collection Account within five Business Days following the end of
the related Due Period. The Servicer shall not be entitled to
reimbursement for any amounts paid by the Servicer pursuant to this
Section 6.06(c).

SECTION 6.07. REIMBURSEMENT OF ADVANCES.

(a) The Servicer shall be entitled to be reimbursed for
any Interest Advance on a Loan from Payments in respect of that Loan
or, if such Loan shall become a Defaulted Loan and the Servicer shall
not have been fully reimbursed for any Interest Advances with respect
to such Loan, the Servicer shall be entitled to be reimbursed for the
outstanding amount of such Interest Advances from Payments of
unrelated Loans to the extent such amounts are distributed to the
Master Servicer with respect to Interest Advances by the Trust
pursuant to the Pooling and Servicing Agreement. No interest shall
accrue on any unreimbursed Interest Advance for any period prior to
the reimbursement thereof.

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<PAGE> 36
(b) The Servicer shall be entitled to be reimbursed for
any Foreclosure Advance in respect of any Loan from Payments in
respect of that Loan, or if the Payments for such Loan are
insufficient to reimburse the full amount of the Foreclosure Advance,
from Payments of unrelated Loans to the extent such amounts are
distributed to the Master Servicer with respect to Foreclosure
Advances by the Trust pursuant to the Pooling and Servicing Agreement.
No interest shall accrue on any unreimbursed Foreclosure Advance for
any period prior to the reimbursement thereof.

SECTION 6.08. MODIFICATIONS, WAIVERS, AMENDMENTS AND CONSENTS.

(a) The Servicer shall not agree to any modification,
waiver or amendment of any provision of any Loan except upon prior
approval of the Master Servicer and unless, in the Servicer's good
faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to
such Loan, (ii) complies with the requirements of Title I or is
required by Title I and (iii) only in the event of a payment default
with respect to such Loan or in the event that a payment default with
respect to such Loan is reasonably foreseeable by the Servicer.
Notwithstanding the foregoing, the Servicer shall not agree to any
modification, waiver or amendment of any Loan without the prior or
subsequent approval of the Certificate Insurer if, as a result of such
modification, waiver or amendment, the Aggregate Principal Balance of
all Loans that have been modified, waived or amended would exceed five
percent of the aggregate Initial Principal Balance of all of the
Loans.

(b) Notwithstanding anything herein to the contrary, the
Servicer shall agree to subordinate the position of the security
interest in the Property which secures any FHA Loan if (a) the Master
Servicer receives written approval of HUD to such subordination or
written certification by the Servicer that such proposed subordination
complies with published HUD requirements and (b) such subordination
would permit the Obligor to refinance a senior lien to take advantage
of a lower interest rate or would permit the Obligor to extend the
term of any senior lien.

(c) The Servicer shall notify the Master Servicer of any
modification, waiver or amendment of any provision of any Loan and the
date thereof, and shall deliver to the Master Servicer for deposit in
the related File, an original counterpart of the agreement relating to
such modification, waiver or amendment, promptly following the
execution

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<PAGE> 37
thereof. Such notice shall state that the conditions contained in
this Section have been satisfied.

SECTION 6.09. DUE-ON-SALE; DUE-ON-ENCUMBRANCE.

(a) If any Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:

(i) provides that such Loan shall (or may at the
obligee's option) become due and payable upon the sale or
other transfer of an interest in the related Property; or

(ii) provides that such Loan may not be assumed
without the consent of the related obligee in connection with
any such sale or other transfer,

then the Servicer shall consult with the Master Servicer regarding any
right the Trustee may have as the obligee of record with respect to
such Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to any such sale or other transfer, and shall take such
action as Master Servicer shall direct.

(b) If any Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:

(i) provides that such Loan shall (or may at the
obligee's option) become due and payable upon the creation of
any lien or other encumbrance on the related Property; or

(ii) requires the consent of the related obligee to
the creation of any such lien or other encumbrance on the
related Property,

then the Servicer shall consult with the Master Servicer regarding any
right the Trustee may have as the obligee of record with respect to
such Loan (x) to accelerate the payments thereon, or (y) to withhold
its consent to the creation of any such lien or other encumbrance, and
shall take such action as the Master Servicer shall direct.

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<PAGE> 38
SECTION 6.10. CLAIM FOR FHA INSURANCE AND FORECLOSURE.

(a) The Servicer shall act as claims administrator with
respect to the FHA Loans and, as such, shall perform or cause to be
performed on behalf of the Trust all of the duties of the Trust as
lender under Title I in connection with the Contract of Insurance,
except to the extent that certain documents must be signed by the
Trustee. If any monthly payment due under any FHA Loan is not paid
when the same becomes due and payable, or if the Obligor fails to
perform any other covenant or obligation under the FHA Loan and such
failure continues beyond any applicable grace period, the Servicer
shall consult with the Master Servicer regarding the action that
should be taken with respect to such FHA Loan (consistent with Title
I, including efforts to cure the default of such FHA Loan pursuant to
24 C.F.R. Section 201.50) and as is in the best interest of the Trust.
At the direction of the Master Servicer, the Servicer shall either (i)
initiate, on behalf of the Trust, a claim for reimbursement for loss
on such FHA Loan under the Contract of Insurance pursuant to Title I
(see 24 C.F.R. Sections 201.54), or (ii) if the Servicer determines
that no FHA Insurance is available with respect to the related Loan,
institute foreclosure proceedings against the Property securing the
Loan as described in subsection (c) below and submit a claim under the
Contract of Insurance with respect to such Loan upon prior approval of
the Secretary of HUD pursuant to 24 C.F.R. Section 201.51.

(b) If the Servicer initiates a claim for reimbursement
for loss on any FHA Loan under this Section 6.10, the Servicer shall
prepare and file the claim with the FHA in accordance with applicable
provisions of Title I and provide to the Master Servicer a copy of the
completed claim, as filed with the FHA, together with a copy of all
related documents and materials in the Servicer's possession required
for review of the claim by the FHA at the time the claim is filed with
the FHA. In connection with any such filing the Servicer shall
request, and receive, from the Trustee, the Mortgage, the related
Note, such Credit Documents, and each other item in the related File
not in the Servicer's possession as are required to be submitted to
the FHA in conjunction with its review of the claim pursuant to Title
I and shall provide such documents for filing with the FHA. If any
document prepared by the Servicer with respect to a claim for
reimbursement must be executed by the Trustee, the Servicer shall
deliver such document to the Trustee (with a copy to the Master
Servicer), together with a request for execution by the Trustee. The
Trustee shall execute and return to the Servicer (with a copy to the
Master Servicer)

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<PAGE> 39
any such documents within five (5) Business Days of receipt thereof.
The Servicer shall, in accordance with the servicing standards set
forth in Section 6.01(a) of this Agreement, diligently pursue each
claim filed with the FHA including, without limitation, any and all
refilings and appeals available to the Servicer under Title I with
respect to each such claim. The Servicer shall provide to the Master
Servicer copies of all correspondence and filings with the FHA
promptly after receipt from or delivery to the FHA. If the FHA
rejects or refuses to pay any claim made under the Contract of
Insurance (including a rejection of a previously paid claim and a
demand by the FHA of a return of the FHA Insurance payment amount for
such FHA Loan) for an FHA Loan (other than a refusal or rejection for
clerical error in computing the claim amount or because of an FHA
Insurance Coverage Insufficiency), upon receipt of the FHA's final
rejection notice from the FHA and determination by the Servicer that
the rejection was not due to clerical error, then (i) the Servicer
shall promptly notify the Master Servicer and the Certificate Insurer
of such fact, and (ii) if the rejection relates to a defect as
provided in Article III hereof, the Servicer shall on or before the
last day of the calendar month in which such notice is given, purchase
such Loan as provided in Article III hereof; provided, however, that
if a claim is rejected solely as a result of a subsequent
subservicer's failure to perform its duties under a subsequent
servicing agreement, Servicer shall have no responsibility to purchase
such Loan.

(c) Subject to the provisions of Section 6.06(b), and
upon approval of the Master Servicer, the Servicer, on behalf of the
Trustee, shall institute foreclosure proceedings, exercise any power
of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure, or otherwise acquire possession of or title to any
Property, by operation of law or otherwise; provided, however, that
the Servicer shall not acquire any personal property pursuant to this
Section 6.10 unless either:

(i) such personal property is incident to real
property (within the meaning of section 856(e)(1) of the Code)
so acquired by the Servicer; or

(ii) the Trustee and the Certificate Insurer shall
have received an opinion of outside counsel to the effect that
the holding of such personal property by the Trust will not
cause the imposition of a tax on the Trust under the REMIC
Provisions or cause the Trust to fail to qualify as a REMIC.

In connection with any foreclosure proceeding on an FHA Loan,

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the Servicer shall comply with the requirements under Title I, shall
follow such practices and procedures in a manner which is consistent
with the Servicer's procedure for foreclosure with respect to FHA
Title I loans held in the Servicer's portfolio for its own account or,
if there are no such loans, FHA Title I loans serviced by the Servicer
for others, giving due consideration to accepted mortgage servicing
practices of prudent lending institutions, and shall sell or liquidate
the Loan or Property pursuant to the provision of Section 6.11. To
the extent required by this Agreement, the Servicer shall advance all
necessary and proper Foreclosure Advances until final disposition of
the Foreclosed Property and shall manage such Foreclosed Property
pursuant to Section 6.12. If, in following such foreclosure
procedures, title to the Foreclosed Property is acquired, the deed or
certificate of sale shall be issued to the Trustee.

(d) Upon approval of the Master Servicer and the
Certificate Insurer, the Servicer shall sell any Foreclosed Property
acquired by the Trust in its entirety prior to the date which is two
years after the date on which it is acquired by the Trust, unless, in
any such case, either (i) the Master Servicer on behalf of the Trust
has applied for and received an extension of the two-year period
pursuant to Code Sections 856(e)(3) and 860G(a)(8)(A) in which case
the Servicer shall sell such Foreclosed Property within the applicable
extension period or (ii) the Master Servicer shall have provided and
the Trustee and the Certificate Insurer shall have received an opinion
of counsel not employed by the Master Servicer to the effect that the
holding of such Foreclosed Property (subject to any conditions set
forth in such opinion) for an additional specified period will not
cause such Foreclosed Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code
(determined without regard to the exception applicable for purposes of
Section 850D(a) of the Code), in which event such two-year period
shall be extended by such additional specified period, subject to any
conditions set forth in such opinion of counsel.

(e) The Trustee, the Master Servicer and the Servicer,
respectively, shall forward for deposit to the Distribution Account on
the day of receipt all amounts received by such party from the FHA
with respect to the Loans. The Trustee and the Master Servicer shall
transmit by facsimile, or such other method requested by the Servicer,
to the Servicer on each such day the letter of transmittal received by
such party from the FHA and any other documents with respect to such
receipt. The Trustee and the Master Servicer, respectively, shall
also promptly deliver to the Servicer copies of any other
correspondence received by such party

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<PAGE> 41
from the FHA or sent to the FHA by such party relating to the Loans.

(f) If the FHA rejects an insurance claim, in whole or
part, under the Contract of Insurance after previously paying such
insurance claim and the FHA demands that the Trustee repurchase such
FHA Loan, the Servicer shall pursue such appeals with the FHA as are
reasonable. If the FHA continues to demand that the Trustee or
Servicer repurchase such Loan after the Servicer exhausts such
administrative appeals as are reasonable, then the Servicer shall
notify the Master Servicer of such fact. If the Trustee or the Master
Servicer is required to repurchase any FHA Loan as a result of any
failure by the Servicer to service such FHA Loan in accordance with
Title I, the Servicer shall be obligated to reimburse the Trustee or
the Master Servicer for amounts paid to FHA to effect such repurchase
and for any expenses of the Trustee or the Master Servicer in
connection therewith.

(g) The Servicer shall be entitled to reimbursement of
expenses associated with the filing of an FHA Insurance claim for any
FHA Loan from and to the extent that such amounts are reimbursed by
HUD.

SECTION 6.11. SALE OF FORECLOSED PROPERTIES.

(a) The Servicer may sell Property only on the terms and
subject to the conditions set forth in this Section 6.11 and in
Section 6.10(d).

(b) At the direction of the Master Servicer, the Servicer
shall offer any Property acquired in a foreclosure sale for sale to
any Person. The Servicer shall provide the Master Servicer upon
receipt thereof the amount of any bids received from any Person for
any Foreclosed Property in an amount at least equal to the sum of:

(i) the principal balance of the related foreclosed
Loan, unreimbursed Foreclosure Advances plus the outstanding
amount of any liens superior in priority to the lien of the
foreclosed Loan; and

(ii) all unpaid interest accrued thereon at the
related Net Loan Rate through the date of sale.

In the absence of any such bids, the Servicer shall provide the Master
Servicer the amount of any bids received from any Person that the
Servicer determines to be a fair price for such Foreclosed Property;
provided that, if the bidder is an Interested Person, the Servicer
shall so notify the Master

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Servicer and shall provide a report from an independent appraiser
retained by the Servicer and approved by the Master Servicer. In the
absence of any bid determined to be fair as aforesaid, the Servicer
shall provide the Master Servicer the amount of any bids received for
the affected Foreclosed Property from any Person, other than an
Interested Person. If no such bid is received, the Servicer shall, at
the direction of the Master Servicer, request any Interested Person
that submitted a bid previously to resubmit its original bid, and the
Servicer shall provide to the Master Servicer the highest outstanding
cash bid, regardless of from whom received. The Servicer shall, at
the direction of the Master Servicer, sell the Foreclosed Property
only in accordance with the information provided to the Master
Servicer pursuant to this section.

(c) In determining whether any bid constitutes a fair
price for any Foreclosed Property, the Servicer shall take into
account, and any independent appraiser in (b) above shall be
instructed to take into account, as applicable, among other factors,
the financial standing of any tenant of the Property or Foreclosed
Property, the physical condition of the Property or Foreclosed
Property, the state of the local and national economies, and the
Servicer's obligation to dispose of any Foreclosed Property within the
time period specified by the Master Servicer.

(d) Subject to the provisions of Section 6.12, the
Servicer shall act on behalf of the Master Servicer for the benefit of
the Trust in negotiating and taking any other action necessary or
appropriate in connection with the sale of any Foreclosed Property,
including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosed Property shall be without
recourse to the Trust, the Trustee or the Master Servicer, and shall
be consummated in accordance with the terms of this Agreement. If
consummated in accordance with this Agreement, the Servicer shall not
have any liability to the Trustee or the Master Servicer with respect
to the purchase price for any Foreclosed Property accepted and
approved by the Master Servicer.

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<PAGE> 43
SECTION 6.12. MANAGEMENT OF REAL ESTATE OWNED.

(a) If the Trust acquires any Foreclosed Property
pursuant to Section 6.10, the Servicer shall have full power and
authority, subject only to the specific requirements and prohibitions
of this Agreement, to do any and all things in connection therewith as
are consistent with the manner in which the Servicer manages and
operates similar property owned by the Servicer or any of its
affiliates on such terms and for such period as the Master Servicer
may direct after consultation with the Servicer.

(b) Notwithstanding the foregoing, the Servicer will not
manage, conserve, protect and operate (or cause to be managed,
conserved, protected and operated) each Foreclosed Property for
disposition and sale in a manner that causes such Foreclosed Property
to fail to qualify as "foreclosure property" within the meaning of the
REMIC Provisions (determined without regard to the exception
applicable for purposes of Section 860D(a) of the Code) or results in
the receipt by the Trust of any "income from nonpermitted assets"
within the meaning of the REMIC Provisions or any "net income from
foreclosure property" subject to taxation under the REMIC Provisions.

(c) The Servicer may contract with any Independent
Contractor for the operation and management of any Foreclosed
Property, provided that:

(i) the terms and conditions of any such contract
may not be inconsistent herewith;

(ii) any such contract shall require, or shall be
administered so as to require, that the Independent Contractor
remit rents or other revenue generated from the property to
the Servicer as soon as practicable, but in no event later
than two Business Days following the receipt thereof by such
Independent Contractor;

(iii) none of the provisions of this Section 6.12(c)
relating to any such contract or to actions taken through any
such Independent Contractor shall be deemed to relieve the
Servicer of any of its duties and obligations to the Master
Servicer or the Trust with respect to the operation and
management of any such Foreclosed Property; and

(iv) the Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all
duties and obligations in connection

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<PAGE> 44
with the operation and management of such Foreclosed Property.

The Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its
duties and obligations hereunder which contract may provide for
indemnification of the Servicer by such Independent Contractor, and
nothing in this Agreement shall be deemed to limit or modify such
indemnification. The Servicer shall be solely liable for all fees
owed by it to any such Independent Contractor, but shall be entitled
to be reimbursed for all such fees advanced by it pursuant to Section
6.06(b)(v), in the manner provided in Section 6.07(b).

SECTION 6.13. INSPECTIONS. The Servicer shall inspect or cause to
be inspected each Property that secures any Loan and each Property with respect
to a Loan at such times and in such manner as are consistent with the servicing
standards set forth in Section 6.02.

SECTION 6.14. MAINTENANCE OF INSURANCE.

(a) The Servicer shall cause to be maintained for each
Property such insurance as is required with respect thereto by Title
I. At the request of the Master Servicer, the Servicer shall maintain
or cause to be maintained such other insurance with respect to each
Foreclosed Property as shall be required by the Master Servicer and
such other types and amounts of insurance as the Servicer shall deem
reasonable.

(b) Any amounts collected by the Servicer under any
insurance policies, other than the Contract of Insurance, shall be
paid over or applied by the Servicer as follows:

(i) in the case of amounts received in respect of
any Loan:

(A) for the restoration or repair of the
affected Property, in which event such amounts shall
be released to the Obligor in accordance with the
terms of the related Loan, or, to the extent not so
used,

(B) in reduction of the principal
balance of the related Loan, in which event such
amounts shall be credited to the Servicing Record,

unless the related Loan documents require a different
application, in which case such amounts shall be

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<PAGE> 45
applied in the manner provided therein; and

(ii) subject to Section 6.12, in the case of
amounts received in respect of any Foreclosed Property, for
the restoration or repair of such Foreclosed Property, unless
the Servicer determines, consistent with the servicing
standards set forth in Section 6.02, that such restoration or
repair is not in the best economic interest of the Trust, in
which event such amounts shall be credited, as of the date of
receipt, to the Servicing Record as an Obligor payment
received from the operation of such Foreclosed Property.

SECTION 6.15. RELEASE OF FILES.

(a) If with respect to any Loan:

(i) the outstanding principal balance of such Loan
plus all interest accrued thereon and other amounts due
thereunder shall have been paid;

(ii) the Servicer shall have received, in escrow,
payment in full of such Loan in a manner customary for such
purposes;

(iii) such Loan has become a Defective Loan;

(iv) the related Foreclosed Property has been sold
pursuant to Section 6.11;

(v) such Loan or the related Foreclosed Property has
been sold in connection with the termination of the Trust; or

(vi) the FHA has paid a claim with respect to such
Loan under the Contract of Insurance.

In each case, the Servicer shall have delivered to the Trustee, the
Certificate Insurer and the Master Servicer an Officer's Certificate,
signed by a Servicing Officer, to the effect that the Servicer has
complied with all of its obligations hereunder with respect to such
Loan and requesting that the Trustee release to the Servicer the
related File, then the Trustee shall, within three (3) Business Days
or such shorter period as may be required by applicable law, release,
or cause to be released, the related File (or, in the case of a
foreclosed Loan, the portion thereof required to be returned to the
related Obligor or delivered to any other Person) to the Servicer and
shall request the Servicer to deliver for execution by the Trustee

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<PAGE> 46
such instruments of transfer or assignment, in each case without
recourse, as shall be necessary to vest ownership of such Loan in the
Servicer or such other Person as may be specified in such
certification, the forms of any such instrument to be appended to such
certificate.

(b) From time to time and as necessary for the servicing
or foreclosure of any Loan, the Servicer may request the release of a
File by providing to the Trustee and the Master Servicer a written
request of the Servicer, signed by a Servicing Officer and stating the
reason for release of the related File (or any requested portion
thereof) and the date by which the Servicer expects to return the
related File (or any requested portion thereof), and upon receipt of
such request and against a receipt for such File (or portion thereof)
signed by a Servicing Officer, the Trustee shall release or cause to
be released the related File (or any requested portion thereof) to the
Servicer. Such receipt shall obligate the Servicer to return the File
(or such portion thereof) to the Trustee when the need therefor by the
Servicer no longer exists unless any of the conditions specified in
subsection (a), above, is satisfied prior thereto. The Trustee shall
provide a copy of such receipt to the Master Servicer.

(c) All documents and instruments held in the custody of
the Servicer (as agent for the Trustee) shall be held by the Servicer
for the benefit of, and as agent for, the Certificateholders, the
Certificate Insurer and the Trustee as the owner thereof. It is
intended that by the Servicer's agreement pursuant to this Section
6.15(c) the Trustee shall be deemed to have possession of the
documents and instruments in the custody of the Servicer for purposes
of Section 9-305 of the Uniform Commercial Code of the State in which
such documents or instruments are located. The Servicer shall
promptly report to the Master Servicer, the Trustee and the
Certificate Insurer any failure by it to hold the documents and
instruments as herein provided and shall promptly take appropriate
action to remedy any such failure. In acting as custodian of such
documents and instruments, the Servicer agrees not to assert any legal
or beneficial ownership interest in the Loans or such documents or
instruments. The Servicer agrees to indemnify the Master Servicer,
the Certificateholders, the Certificate Insurer and the Trustee for
any and all liabilities, obligations, losses, damages, payments,
costs, or expenses of any kind whatsoever which may be imposed on,
incurred by or asserted against the Master Servicer, the
Certificateholders, the Certificate Insurer or the Trustee as the
result of any act or omission by the Servicer relating to the
maintenance and custody of such documents or instruments; provided,
however, that the

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<PAGE> 47
Servicer will not be liable (i) for any portion of any such amount
resulting from the negligence or misconduct of the Master Servicer,
any Certificateholder, the Certificate Insurer or the Trustee and (ii)
for any portion of any such amount resulting from the Servicer's
compliance with any instructions or directions consistent with this
Agreement issued to the Servicer by the Master Servicer, the
Certificateholders, the Certificate Insurer or the Trustee. The
Master Servicer and the Trustee shall have no duty to monitor or
otherwise oversee the Servicer's performance as custodian hereunder.

SECTION 6.16. CERTAIN TAX MATTERS. The Servicer shall provide the
Master Servicer and the Trustee with such information from the Servicing Record
as the Master Servicer or the Trustee shall reasonably request to prepare any
tax returns, and any other federal, state or local tax or information returns
or reports that are required to be so filed, or provided to certificateholders,
by the Trust.

SECTION 6.17. SEGREGATION OF LOANS; REPORTS. The Servicer shall
segregate any documents related to the Loans in its possession from all other
assets. Not later than 3:00 p.m. (Eastern time) on the Servicer Reporting Date
following each Due Period, the Servicer shall submit to the Master Servicer and
the Certificate Insurer a Servicer Certificate, substantially in the form
attached hereto as Exhibit B, which shall include, without limitation, (i) an
accounting report summarizing the activity in the Servicing Record with respect
to payments collected, FHA Insurance premiums, and claims under the Contract of
Insurance prepared and filed by the Servicer, (ii) default management reports
summarizing the status of delinquent loans, loans in bankruptcy and loans in
foreclosure including, without limitation, the Servicer's then current Annual
Default Percentage (Three Month Average), Cumulative Default Percentage, 30+
Delinquency Percentage (Rolling Three Month) and 60+ Delinquency Percentage
(Rolling Three Month), (iii) certification that all amounts required to be
deposited to the Collection Account for the related Due Period were so
deposited and that the amount of any such withdrawals from the Collection
Account for such Due Period conform to the amounts of such required withdrawals
as reported by the Servicer to the Master Servicer, or identifying the amount
of any discrepancies, and (iv) a statement to the effect that the Loans are
owned by the Trust, and shall provide from time to time as requested by the
Master Servicer, such additional information as the Master Servicer may
reasonably require.

SECTION 6.18. LATE REPORT CHARGE. The Servicer hereby acknowledges
that the Servicer Certificate required to be provided to the Master Servicer
under Section 6.17 hereof must be delivered

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<PAGE> 48
in a timely manner to enable the Master Servicer to meet its reporting
obligations to the Trustee. The following charges will apply to all late
Servicer Certificates and to all Servicer Certificates which are incomplete and
adversely affect the ability of the Master Servicer to meet its reporting
obligations:

First occurrence: No charge.

Second occurrence: $100 for each day (not to exceed $500) report
is late or remains incomplete as described
above.

Third occurrence: $250 for each day (not to exceed $1,250)
report is late or remains incomplete as
described above.

Fourth occurrence: $500 for each day (not to exceed $2,500)
report is late or remains incomplete as
described above.

Fifth or more: $500 for each day (not to exceed $2,500)
report is late or remains incomplete as
described above. Servicer may be subject to
termination under Section 7.02 hereof.

The Master Servicer will notify the Servicer of the first occurrence and will
provide reasonable assistance to the Servicer to remedy the situation.
Following the first occurrence, the Master Servicer will notify the Servicer in
writing of each subsequent occurrence. Payment of all charges as identified in
the Master Servicer's notice to the Servicer is required to be made within ten
days of billing by the Master Servicer. The Master Servicer, in its sole
discretion, may waive any of the charges provided for in this Section 6.18.

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ARTICLE VII

TERMINATION AND LIABILITIES

SECTION 7.01. VOLUNTARY TERMINATION. The Servicer shall not have
the right to resign from the obligations and duties hereby imposed on it,
unless it shall be prohibited by applicable law from performing such obligation
and duties, in which case, the Servicer shall cooperate in the orderly transfer
of servicing to the successor subservicer designated by the Master Servicer,
and the Servicer shall continue to perform such duties as are not prohibited
until such transfer is completed. Except as permitted by Section 2.02(n), or
Article IV, Servicer shall have no right or privilege to assign, subcontract or
transfer its rights and duties under this Agreement. The Servicer may request
a voluntary termination of this Agreement. Upon such request, the Servicer
will use its best efforts to secure three bids from qualified subservicers and
present the bids to the Master Servicer. Master Servicer and the Certificate
Insurer shall consent to such voluntary termination if (a) one or more of such
bids are reasonably acceptable to Master Servicer and the Certificate Insurer,
or (b) the Master Servicer and the Certificate Insurer has consented to the
substitution of a different substitute subservicer whose name has not been
submitted by the Servicer, provided that, in either case, the successor
servicer (a) is an Eligible Servicer, and (b) executes an agreement pursuant to
which the successor subservicer accepts and assumes all of the Servicer's
duties, liabilities and obligations hereunder from and after the date of such
successor subservicer's acceptance and makes representations and warranties
similar to those set forth in Section 2.02 hereof. A bid from a successor
subservicer who does not meet the foregoing requirements shall not be deemed
acceptable to the Master Servicer and the Certificate Insurer. Upon
termination of the Servicer pursuant to this Section 7.01 and the completion of
all of the Servicer's obligations under this Agreement, the Servicer shall be
entitled to all amounts paid by the successor subservicer with respect to the
transfer of the Servicer's duties, liabilities and obligations hereunder less
any costs and expenses of the Trust, the Trustee or the Master Servicer
incurred in connection with such transfer. The Servicer shall comply with
Section 7.03 hereof in the event of the consent of the Master Servicer and the
Certificate Insurer to such voluntary termination.

SECTION 7.02. INVOLUNTARY TERMINATION OF SERVICER. The Master
Servicer or the Certificate Insurer (or, in the cases of Sections 7.02(k) and
(1), the Trustee) may, by written notice, terminate all of the Servicer's
rights pursuant to this Agreement with respect to all Loans upon the happening
of any one or more of the following events:

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<PAGE> 50
(a) Failure of the Servicer to deposit to the Collection
Account all moneys relating to the Loans received by the Servicer and
required to be so deposited hereunder;

(b) Upon five Business Days of notice thereof, failure of
the Servicer to make any Advance as required by this Agreement,
failure of the Servicer to purchase any Loan as required pursuant to
Article III or Section 6.10(b) or failure of Servicer to make any
other advance of funds at the time and in the manner required by this
Agreement;

(c) Any representation or warranty of the Servicer
hereunder shall be determined to have been false in any material
respect as of the time made;

(d) Failure of the Servicer duly to observe or perform in
any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of
thirty (30) days after a written notice to the Servicer from the
Master Servicer specifying such failure and requesting that it be
remedied; provided, however, if such failure stated in the notice
cannot be corrected within the applicable period, the Master Servicer,
may consent, in its sole discretion, to a reasonable extension of time
if corrective action is instituted by the Servicer within the
applicable period and the Servicer diligently pursues it until fully
corrected; provided further, that if the Master Servicer determines in
the reasonable exercise of its discretion, that such failure cannot be
corrected under any reasonable circumstances despite the Servicer's
best efforts within such period, the Master Servicer, may immediately
terminate the Servicer pursuant to this section;

(e) Issuance or entry of a decree or order of a court,
agency or supervisory authority having jurisdiction in the premises
appointing a conservator, receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities
or similar proceeding affecting the Servicer or substantially all of
its properties, or for the winding-up or liquidation of its affairs,
if such decree or order shall have remained in force undischarged or
unstayed for a period of sixty (60) days or the commencement of an
involuntary case under the federal bankruptcy laws, as now or
hereafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed
within sixty (60) days;

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<PAGE> 51
(f) Consent by the Servicer to the appointment of a
conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceeding affecting the Servicer or substantially all of its
properties;

(g) Admission in writing by the Servicer of its inability
to pay its debts generally as they mature, or the filing of a petition
to take advantage of any applicable bankruptcy or insolvency statute
or Debtor Relief Laws, the making of an assignment for the benefit of
creditors, or the voluntary suspension of payment of its obligations;

(h) Loss, suspension, or termination of the Servicer's
FHA Contract of Insurance or, as a result of any act or omission by
Servicer the loss, suspension, or termination of the Contract of
Insurance;

(i) Following instruction of the Claims Administrator,
failure to file a claim with the FHA or take any other action required
by Title I with respect to an FHA Loan within the time required by the
FHA;

(j) A claim is paid under the Policy;

(k) Termination of the Pooling and Servicing Agreement;

(l) The Annual Default Percentage (Three Month Average)
exceeds 6.5% or the 60+ Delinquency Percentage (Rolling Three Month)
exceeds 6.0%;

(m) Failure of the Servicer for a period of more than
thirty days to pay to the Master Servicer any late charges assessed
pursuant to Section 6.18 hereof after written notice thereof to
Servicer;

(n) Five occurrences of late or incomplete reporting, as
described Section 6.18, by the Servicer in the Servicer Certificate
required to be delivered to the Master Servicer under Section 6.17
hereof;

(o) The filing of any voluntary or involuntary petition
in bankruptcy with respect to the corporate parent of the Servicer,
which case is not dismissed within 60 days;

(p) The Tangible Net Worth of the Servicer is less than
$8,000,000;

then, and in each and every such case, the Master Servicer or the
Certificate Insurer (or, in the case of Section 7.02(k),

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the Trustee) may, by notice in writing to the Servicer, terminate all
of the rights and obligations of the Servicer as Servicer under this
Agreement and in and to the Loans and the proceeds thereof. On and
after the receipt by the Servicer of such written notice, and the
appointment of and acceptance of a successor subservicer, all
authority, power, obligations and responsibilities of the Servicer
with respect to the Loans shall pass to and be vested in and become
the responsibilities and obligations of such successor subservicer.
The Servicer agrees to cooperate with the successor subservicer in
effecting the termination of the responsibilities and rights of the
Servicer hereunder. The Servicer shall give written notice of the
occurrence of any event in this Section 7.02 to the Master Servicer
within five (5) days of the happening of such event.

SECTION 7.03. SERVICER'S DUTIES UPON TERMINATION; PAYMENT TO
SERVICER.

(a) From and after the receipt by the Servicer of such
written notice of its termination from the Master Servicer or the
Certificate Insurer pursuant to Section 7.02, or upon a termination
pursuant to Section 7.01 hereof:

(i) The Servicer shall cooperate with the Master
Servicer, the Certificate Insurer and the Trustee in effecting
the termination of the Servicer's responsibilities and rights
hereunder;

(ii) All authority and power of the Servicer under
this Agreement shall pass to and be vested in the Master
Servicer or its designee, and without limiting the generality
of the foregoing, the Master Servicer or such designee shall
be authorized and empowered to execute and deliver, on behalf
and at the expense of the Servicer, as attorney-in-fact or
otherwise, any and all documents and other instruments, and to
do or accomplish all other acts and things necessary or
appropriate to effect the transfer and endorsement or
assignment of the Loans and the Loan Files and related
documents, or otherwise; and

(iii) The Servicer shall promptly (and in any event
no later than ten Business Days subsequent to such notice)
provide the Master Servicer, or its designee with all
documents and records requested by it to enable it to assume
the Servicer's functions hereunder, and cooperate with the
Master Servicer or its designee in effecting the termination
of the Servicer's responsibilities and rights hereunder,

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including, without limitation, the transfer within one
Business Day to the Master Servicer or its designee for
administration by it of all cash amounts which shall at the
time be or should have been remitted pursuant to this
Agreement or thereafter be received with respect to the Loans
or any related property (provided, however, that the Servicer
shall continue to be entitled to receive all amounts accrued
or owing to it under this Agreement on or prior to the date of
such termination).

(b) The Servicer agrees to indemnify and hold the Trust,
the Trustee, the Certificate Insurer and the Master Servicer harmless
from any and all loss, damage and expenses (including reasonable
attorney's fees) that any of them may incur in connection with the
Servicer's failure to perform in compliance with this Agreement.

(c) Notwithstanding anything to the contrary herein, the
Servicer shall remain liable for all liabilities and obligations
incurred by it as Servicer hereunder prior to the time that
termination under Section 7.01 or Section 7.02 becomes effective,
including the obligation to indemnify the Master Servicer pursuant to
Section 11.12 hereof in connection with the servicing of the Loans
under this Agreement prior to such termination. In addition, the
Master Servicer may set off and deduct any amounts owed by the
terminated Servicer from any amounts payable to the terminated
Servicer. The terminated Servicer shall grant the Master Servicer
reasonable access to the terminated Servicer's premises at the
terminated Servicer's expense.

(d) The Servicer agrees to cooperate with any successor
subservicer in effecting the transfer of the Servicer's subservicing
responsibilities and rights hereunder, including, without limitation,
the transfer to such successor subservicer of all relevant records and
documents (including any Files in the possession of the Servicer and
the Servicing Record) and all amounts credited to the Servicing Record
or thereafter received with respect to the Loans and not otherwise
permitted to be retained by the Servicer pursuant to this Agreement.
In addition, the Servicer, at its sole cost and expense, shall
prepare, execute, and deliver to the successor subservicer all Files
and shall do or accomplish all other acts necessary or appropriate to
effect such termination and transfer of subservicing responsibilities,
including, without limitation, assisting in obtaining any necessary
approval under Title I from the FHA.

- 49 -
<PAGE> 54
SECTION 7.04. AGREEMENT TO PAY ATTORNEYS' FEES. If it is
determined in a judicial proceeding that any party to this Agreement has failed
to perform under any provision of this Agreement, and if one or more of the
other parties shall employ attorneys or incur other expenses to enforce the
performance, or observance of the terms of this Agreement by the nonperforming
party, or to perform such obligations itself or themselves, then such parties,
to the extent permitted by Law, shall be reimbursed by the nonperforming party,
on demand, for reasonable attorneys' fees and other out-of-pocket expenses.

ARTICLE VIII

INSURANCE COVERAGE

SECTION 8.01. FIDELITY BOND COVERAGE. At its sole cost and
expense, Servicer shall obtain and maintain at all times during the term of
this Agreement fidelity bond coverage with a responsible surety company with
respect to all of Servicer's employees as may be necessary to protect the
Trust, the Trustee, the Certificate Insurer and the Master Servicer against
losses, including, without limitation, those arising from theft, embezzlement,
fraud, or misplacement of funds, money, or documents. The issuer, policy terms
and forms and amounts of coverage, including applicable deductibles, shall be
satisfactory to the Certificate Insurer and in compliance with applicable
regulations of HUD and FHA. The Servicer shall provide to the Master Servicer
upon request written evidence of such insurance coverage. Servicer agrees to
notify the Master Servicer and the Certificate Insurer in writing within five
(5) days of the cancellation or termination of any such coverage. Servicer
further agrees to notify the Master Servicer and the Certificate Insurer in
writing within five (5) days of filing a claim under such coverage and to
assign to the Master Servicer for the benefit of the Trustee and the Trust the
proceeds of such coverage allocable to losses suffered with respect to the
property of the Trust.

SECTION 8.02. ERRORS AND OMISSIONS INSURANCE. At its sole cost and
expense, Servicer shall obtain and maintain at all times during the term of
this Agreement errors and omissions insurance coverage covering Servicer and
its employees issued by a responsible insurance company. The issuer, policy
terms and forms and amounts of coverage, including applicable deductibles,
shall be satisfactory to the Certificate Insurer and in compliance with
applicable regulations of HUD and FHA. Servicer agrees to notify the Master
Servicer and the Certificate Insurer in writing within five (5) days of the
cancellation or termination of any such errors and omissions insurance
coverage. The Servicer shall

- 50 -
<PAGE> 55
provide to the Master Servicer and the Certificate Insurer upon request written
evidence of such insurance coverage.

SECTION 8.03. LIABILITY INSURANCE. At its sole cost and expense,
Servicer shall obtain and maintain at all times during the term of this
Agreement such comprehensive general liability, automobile liability, workers'
compensation and other insurance as may be necessary to protect the interests
of Servicer, the Trust, the Trustee, the Certificate Insurer and the Master
Servicer in connection with the performance of this Agreement, and which, with
respect to property acquired by the Servicer upon foreclosure of a Loan, shall
provide for comprehensive general liability coverage in such amount and on such
terms as may be required by HUD or FHA. The Servicer shall provide to the
Master Servicer and the Certificate Insurer upon request written evidence of
such insurance coverage. Servicer agrees to notify the Master Servicer and the
Certificate Insurer in writing within five (5) days of the cancellation or
termination of any such coverage.

ARTICLE IX

NOTICE OF CLAIMS

SECTION 9.01. NOTICE OF CLAIMS. Servicer shall promptly notify the
Master Servicer and the Certificate Insurer in writing of any and all
litigation and claims made or threatened against the Trust, the Trustee, the
Certificate Insurer, the Master Servicer or Servicer in connection with this
Agreement of which the Servicer becomes aware other than those relating solely
to the foreclosure of prior liens on Property. Likewise, each of the Master
Servicer and the Trustee agrees to notify the Servicer promptly in writing of
any and all litigation and claims made or threatened against the Trust, the
Trustee, the Certificate Insurer, the Master Servicer or Servicer in connection
with this Agreement of which such party becomes aware other than those relating
solely to the foreclosure of prior liens on Property.

SECTION 9.02. USE OF COUNSEL. To the extent that legal counsel may
be required in connection with a claim made against Master Servicer, the
Certificate Insurer or the Trustee related to Servicer's or the Certificate
Insurer's performance of its duties under this Agreement, Servicer shall, at
Master Servicer's direction, use counsel selected, retained and paid directly
by Master Servicer, the Certificate Insurer or the Trustee ("Master Servicer
Counsel") in connection with all matters requiring legal counsel, and Servicer
shall cooperate with Master Servicer, the Certificate Insurer the Trustee and
Master Servicer Counsel in

- 51 -
<PAGE> 56
connection with such matters and shall do everything reasonably requested of it
in connection with such matters. Servicer's failure to use such Master
Servicer Counsel or approved counsel or to cooperate as required in this
Section 9.02 shall constitute a material breach of this Agreement. The
requirements of this Section 9.02 shall not apply to Servicer's retention, use
and payment of its own counsel to advise it with respect to its rights under
this Agreement or claims made against Servicer that are not also against any of
the Master Servicer, the Certificate Insurer or the Trustee.

ARTICLE X

[RESERVED]

ARTICLE XI

MISCELLANEOUS PROVISIONS

SECTION 11.01. AMENDMENTS, CHANGES AND MODIFICATIONS. This
Agreement may be amended, changed, modified, or altered only with written
consent of the Trust, the Trustee, the Master Servicer, the Certificate Insurer
(unless a Certificate Insurer Default exists) and the Servicer by an instrument
in writing that specifically refers to this Agreement and that is executed by
all parties adversely affected by such amendment, change, modification or
alteration. Notwithstanding the foregoing, the Servicer agrees to comply with
all applicable FHA requirements.

SECTION 11.02. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS
AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH
SUCH LAWS.

SECTION 11.03. NOTICES. All demands, notices, certificates or other
communications hereunder shall be in writing (unless otherwise specified) and
shall be deemed given when personally delivered or four (4) Business Days after
mailing by United States Postal Service Second Day Priority Mail, postage
prepaid, return receipt requested, addressed to the appropriate Notice Address.

SECTION 11.04. SEVERABILITY. In the event any provision of this
Agreement shall be held invalid or unenforceable by any court of competent
jurisdiction, such holding shall not invalidate or render unenforceable any
other provision hereof. Such invalid or unenforceable provision shall be
amended, if possible, in accordance with Section 11.01 hereof in order to
accomplish the purposes of this Agreement.

- 52 -
<PAGE> 57
SECTION 11.05. TERM OF AGREEMENT. With respect to each Loan, the
term of this Agreement shall end upon the earlier to occur of (i) termination
of all of Servicer's rights pursuant to this Agreement with respect to all
Loans as provided in Section 7.01 or 7.02, or (ii) as provided in Section 6.15.

SECTION 11.06. LIMITATION OF LIABILITY OF PARTIES. Each party to
this Agreement shall be liable under this Agreement only to the extent that
obligations are imposed upon the party against whom enforcement is sought.

SECTION 11.07. LIMITATION OF LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS OF A PARTY. No director, officer, employee or agent of
any party to this Agreement shall be individually liable to any other party for
taking of any action or for refraining to take any action in good faith
pursuant to this Agreement or for errors in judgment. In addition, in the
event any party to this Agreement is entitled to indemnification hereunder, the
officers, directors, employees, and agents of such party shall also be entitled
to indemnification hereunder to the same extent and under the same
circumstances as such party.

SECTION 11.08. SURVIVAL OF OBLIGATIONS AND COVENANTS.
Notwithstanding anything to the contrary herein, neither the expiration of this
Agreement nor the termination or resignation of Servicer under this Agreement
shall affect any obligations of Servicer under Article III or Section 6.10(b)
hereof. The representations, warranties and covenants of Servicer under
Sections 2.02, 3.01, 7.04 and 11.12 hereof shall survive the assignments
contemplated in Article IV and shall be continuing without regard to any
termination of Servicer hereunder.

SECTION 11.09. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original, provided, however,
that all such counterparts shall together constitute one and the same
Agreement.

SECTION 11.10. FORMS AND REPORTS. All forms or reports required by
this Agreement will be prescribed by the Master Servicer from time to time and
may be amended, supplemented, or replaced as the Master Servicer shall deem
appropriate.

SECTION 11.11. INDEMNIFICATION. The Servicer agrees to, and does
hereby indemnify and hold harmless the Trust, the Trustee, the Certificate
Insurer and the Master Servicer and their respective directors, officers,
employees, and agents, and their successors and assigns against, and shall
reimburse the Trust, the Trustee, the Certificate Insurer and the Master
Servicer, as applicable, for any and all liabilities, obligations, losses,

- 53 -
<PAGE> 58
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against any of such indemnified parties, in any way
related to, or arising out of, this Agreement or any of the transactions
contemplated herein, to the extent that any of the same results from or arises
out of any material breach of any representation or warranty made by the
Servicer in this Agreement or from any material breach by the Servicer of any
covenant or obligation of the Servicer under this Agreement or any schedule,
written statement, document or certificate furnished by Servicer pursuant to
this Agreement; provided, however, that no such party shall be entitled to
indemnification hereunder for any loss attributable solely to such party's own
gross negligence or willful misconduct. The indemnities contained in this
Section 11.12 shall survive the termination of this Agreement. The indemnity
obligations set forth in this Section 11.12 shall be in addition to (but not
exclusive of) any other remedies set forth in this Agreement, but in no event
shall this indemnity or any other remedy to which a party may be entitled
provide recovery for amounts already recovered under any other provision of
this Agreement or any other agreement or from any other source.

The Servicer may rely on the written instructions and directions of
the Master Servicer pursuant to the terms of this Agreement and shall not be
liable to the Trust, the Trustee or the Master Servicer for any action taken or
for refraining from the taking of any action in good faith pursuant to such
instructions and directions; provided, however, that this provision shall not
protect the Servicer against any material breach of any representation or
warranty made herein or material failure to perform its obligations in
compliance with any standard of care set forth in this Agreement, or any
liability that would otherwise be imposed by reason of any material breach of
the terms and conditions of this Agreement.

The Master Servicer agrees to, and does hereby indemnify and hold the
Servicer harmless against, and shall reimburse the Servicer for any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the
Servicer with respect to any action taken or not taken in good faith pursuant
to the instructions and directions of the Master Servicer as provided herein.

SECTION 11.12. RECITALS AND HEADINGS. The terms and phrases used in
the recitals of this Agreement have been included for convenience of reference
only and the meaning, construction, and interpretation of such words and
phrases for purposes of this

- 54 -
<PAGE> 59
Agreement shall be determined by reference to Section 1.01 hereof. The table
of contents, titles and headings of the articles and sections of this Agreement
have been inserted for convenience of reference only and are not to be
considered a part hereof and shall not in any way modify or restrict any of the
terms or provisions hereof and shall not be considered or given any effect in
construing this Agreement or any provision hereof in ascertaining intent, if
any questions of intent should arise.

SECTION 11.13. RELATIONSHIP OF THE PARTIES. In performing its
duties and obligations hereunder, Servicer shall be an independent contractor
with, and not an agent of, the Trust, the Trustee or the Master Servicer.
Nothing herein contained shall be deemed or construed to create a partnership
or joint venture among the Trust, the Trustee or the Master Servicer and the
Servicer.

SECTION 11.14. THIRD PARTY BENEFICIARY. The parties acknowledge and
agree that the Certificate Insurer is an intended third party beneficiary of
this Agreement and is entitled to enforce the terms and provisions of this
Agreement against the parties hereto. The parties further agree that the
Certificate Insurer is the only intended third party beneficiary of this
Agreement and that no Person other than a party to this Agreement or the
Certificate Insurer shall be entitled to enforce any of the provisions of this
Agreement.

[SIGNATURE PAGE FOLLOWS]

- 55 -
<PAGE> 60

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

MASTER SERVICER:

NORWEST BANK MINNESOTA, N.A.

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

SERVICER:

MEGO MORTGAGE CORPORATION

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

TRUSTEE:

FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

TRUST:

MEGO MORTGAGE FHA TITLE I LOAN
TRUST 1996-1

By: FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION,
as Trustee

By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------

<PAGE> 61

EXHIBIT A

DESIGNATED SERVICERS

1. Preferred Equities Corporation

<PAGE> 62

EXHIBIT B

FORM OF SERVICER REPORT

SERVICER CERTIFICATE
MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1

DUE PERIOD:

DISTRIBUTION AMOUNT:

<TABLE>
<S> <C>
Payments Received On Loans:

Interest:

Ending Aggregate Principal Balance
of Mortgages as of the preceding
Monthly Cutoff at ____________
Less: Total Amount of Defaulted Loans: ____________
Adjusted Beginning Aggregate Principal Balance: ____________
Net Weighted Average Interest Rate: ____________
Number of Days: ____________
Net Scheduled Interest (Less interest collected on defaulted
loans): ____________
Actual Interest Collected: ____________
____________
Interest Advanced - Regular Payments: ____________
Interest Advanced - Paid in Fulls: ____________

Principal:

Regular Installments: ____________
Adjustments to Regular Installments: ____________
Total Regular Installments: ____________
Curtailments: ____________
Adjustments to Curtailments: ____________
Total Curtailments: ____________
Paid in Fulls: ____________
Adjustments to Pain in Fulls: ____________
Total Paid in Fulls: ____________
Foreclosures/Other: Default Principal Activity ____________
Total Principal Collections: ____________

Loans Purchased By Servicer
as of the Monthly Cutoff:

100% of the Principal Balance
of Loans with Rejected Claims: ____________
Unpaid accrued interest for such
Loans with Rejected Claims: ____________

TOTAL DISTRIBUTION AMOUNT: ____________
</TABLE>

<PAGE> 63

DEFAULTED LOANS:

<TABLE>
<S> <C>
Total amount of Defaulted Loans (Cumulative): ____________
(a+b+c+d)
Loans w/Claims Submitted: $__________(a)

Loans in Foreclosure: $__________(b)

Loans 150 Days+ (5 Payments) Past Due: $__________(c)

Other: $__________(d)

Total amount of Loans which
became Defaulted Loans during
the prior Due Period (Current): $___________

Cumulative Default Percentage ____________
Cumulative Defaulted Loans ___________(a) a/b
Initial Principal Balance ___________(b)

Annual Default Percentage: ___________%

Credit Support Multiple Defaulted
Loans (principal balance): $__________

Collections Received on Defaulted Loans: $___________
(a+b+c+d+e)
Interest Received: $__________(a)

Principal Received: $__________(b)

Claim Funds: $__________(c)

Foreclosure Funds: $__________(d)

Other: $__________(e)

Remaining defaulted loan balance reflecting all
collections received (losses) $__________

Total loans to be foreclosed #______________________________________
(see attached)
</TABLE>

<PAGE> 64

DELINQUENCY INFORMATION:

<TABLE>
<S> <C> <C>
Annual Default Percentage: (Three Month Average) ____________
(m/aa)*12
Defaulted Loans: $__________(a)
Defaulted Loans: $__________(b)
Defaulted Loans: $__________(c)
Defaulted Loans: $__________(d)
Defaulted Loans: $__________(e)
Defaulted Loans: $__________(f)
Defaulted Loans: $__________(g)
Defaulted Loans: $__________(h)
Defaulted Loans: $__________(i)
Defaulted Loans: $__________(j)
Defaulted Loans: $__________(k)
Defaulted Loans: $__________(l)
Total Average Defaulted Loans: $__________(m) (a+b...+k+l)/12

Aggregate UPB: $__________(n)
Aggregate UPB: $__________(o)
Aggregate UPB: $__________(p)
Aggregate UPB: $__________(q)
Aggregate UPB: $__________(r)
Aggregate UPB: $__________(s)
Aggregate UPB: $__________(t)
Aggregate UPB: $__________(u)
Aggregate UPB: $__________(v)
Aggregate UPB: $__________(w)
Aggregate UPB: $__________(x)
Aggregate UPB: $__________(y)
Aggregate UPB: $__________(z)
Average UPB: (n+o...+y+z)/12

30 Day + Delinquency Percentage (Rolling Three Month): ____________
(a/b)
All loans 30+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
30 Day Delinquent Loans: $__________(a)

Aggregate UPB: $__________(b)
</TABLE>

<PAGE> 65

<TABLE>
<S> <C> <C> <C> <C>
60 Day + Delinquency Percentage (Rolling Three Month): _______________
(c+f+i+l+o+r)/6

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (a)
Ending Aggregate UPB $__________ (b)
Delinquency Percentage ___________ (c) (a/b)

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (d)
Ending Aggregate UPB $__________ (e)
Delinquency Percentage ___________ (f) (d/e)

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (g)
Ending Aggregate UPB $__________ (h)
Delinquency Percentage ___________ (i) (g/h)

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (j)
Ending Aggregate UPB $__________ (k)
Delinquency Percentage ___________ (l) (j/k)

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (m)
Ending Aggregate UPB $__________ (n)
Delinquency Percentage ___________ (o) (m/n)

Period:
All loans 60+ Days Delinquent: $__________
Less:
Defaulted Loans Included: $__________
60 Day Delinquent Loans: $__________ (p)
Ending Aggregate UPB $__________ (q)
Delinquency Percentage ___________ (r) (p/q)
</TABLE>

<PAGE> 66

MODIFICATIONS:

<TABLE>
<S> <C> <C>
Modifications Approved for
the subject Due Period: #__________ $__________

Percentage of Aggregate UPB
at the time of the modifications ___________ $__________

Cumulative Modifications
Approved for the Last
Twelve (12) Due Periods: #__________ $__________

Aggregate UPB and Number of
Loans as of First of Such
Due Periods: Does not include loans
securitized after initial securitization #__________ $__________
Percentage of Aggregate UPB
as of the above Due Period: ___________ ___________

FHA INSURANCE INFORMATION:

FHA Claims Pending (Beginning of Month): #__________ $__________
FHA Claims Filed in Due Period: #__________ $__________
FHA Claims Paid in Due Period: #__________ $__________
Aggregate FHA Claims Paid (End of Month): #__________ $__________
Aggregate FHA Claims Pending (End of Month): #__________ $__________

FHA PREMIUM CALCULATION:

Choose the Applicable Option:

1) Total Premiums Due Invoiced Loans: $__________

1a) Shortfall in the FHA Premium Account Deposit
in respect to Invoiced Loans:

Delinquent Invoiced Loans: $__________

2) Aggregate UPB other than FHA Invoiced
Loans (FHA Premium "Stripped"
from Interest): $__________
(.75%/12) X__________
$__________

Total FHA Premiums Collected: ____________

Payments Due to H.U.D.: ____________
</TABLE>

<PAGE> 67

ADVANCES:

<TABLE>
<S> <C> <C>
Advances made by Servicer with respect to
this Reporting Period:

Foreclosure Advanced: $__________
Interest Advances: $__________

Total Advances This Period $__________

Cumulative Advances made by Servicer:

Foreclosure Advances: $__________
Interest Advances: $__________

Total Advances: $__________

ADVANCES SERVICER ENTITLED TO REIMBURSEMENT:

Foreclosure Advances: $__________
Interest Advances: $__________

Total Advances $__________

OTHER:

Unpaid Principal Balance - Current Loans: $__________
</TABLE>

All information included in this Certificate is based on the detailed
accounting and servicing reports provided to the Master Servicer.
Additionally, all loans have been serviced and accounted for in accordance with
the applicable requirements of the Servicing Agreement.

Date:
------------------------------

Certified By: Signature:
-------------------------------------
Typed Name:
-------------------------------------
Title:
-------------------------------------

THIS SERVICER CERTIFICATE TO BE SUPPORTED BY DETAILED ACCOUNTING AND SERVICING
REPORTS AS REQUESTED BY THE MASTER SERVICER.

<PAGE> 68

EXHIBIT C

LOAN SCHEDULE

Attached

<PAGE> 1

EXHIBIT 10.12
EXECUTION COPY

FINANCIAL ASSET SECURITIES CORP.,

as Purchaser,

and

MEGO MORTGAGE CORPORATION,

as Seller,

LOAN PURCHASE AGREEMENT

Dated as of March 21, 1996
<PAGE> 2
Table of Contents

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

Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE

Section 2.1 Sale of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Obligations of Seller Upon Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Payment of Purchase Price for the Loans. . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH

Section 3.1 Seller Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE IV.
SELLER'S COVENANTS

Section 4.1 Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE V.
INDEMNIFICATION BY THE SELLER

Section 5.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.2 Limitation on Liability of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE VI.
TERMINATION

Section 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE VII.
MISCELLANEOUS PROVISIONS

Section 7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.6 Further Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.7 Intention of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.8 Successors and Assigns; Assignment of Purchase Agreement . . . . . . . . . . . . . . . 11
Section 7.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>

i
<PAGE> 3

EXHIBITS AND SCHEDULES

Schedule I Schedule of Loans

<PAGE> 4

LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as
of March 21, 1996, between Mego Mortgage Corporation ("Mego" or the "Seller")
and FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any assignee
of FASCO, the "Purchaser").

W I T N E S S E T H

WHEREAS, the Seller is the owner of a pool of fixed-rate home
improvement loans and retail installment sale contracts (the "Loans") secured
by first and junior mortgages, deeds of trust and security deeds on certain
residential and investment properties (the "Mortgaged Properties") as listed on
Schedule I hereto referred to below and the Related Documents thereto (as
defined below);

WHEREAS, all of the Loans will be partially insured under the
FHA Title I program;

WHEREAS, the parties hereto desire that the Seller sell all
its right, title and interest in and to the Loans and the Related Documents
pursuant to the terms of this Purchase Agreement; and

WHEREAS, pursuant to the terms of a Pooling and Servicing
Agreement, dated as of March 21, 1996 (the "Pooling and Servicing Agreement"),
among FASCO, as depositor (the "Depositor"), Mego, as Seller, servicer (the
"Servicer") and claims administrator (the "Claims Administrator"), Norwest Bank
Minnesota, N.A., as master servicer (the "Master Servicer"), and First Trust of
New York, National Association, as trustee (the "Trustee") and contract of
insurance holder (the "Contract of Insurance Holder"), the Purchaser will
sell, transfer, assign and otherwise convey to the Trustee for the benefit of
the Holders of the Certificates and the Certificate Insurer (each as defined
herein), all its right, title and interest in and to the Loans, and this
Purchase Agreement;

NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:

<PAGE> 5
ARTICLE I.
DEFINITIONS

Section I.1 Definitions. Capitalized terms used but not
defined herein have the meanings assigned thereto in the Pooling and Servicing
Agreement.

ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE

Section II.1 Sale of Loans. The Seller, concurrently with
the execution and delivery of this Purchase Agreement, does hereby sell,
assign, set over, and otherwise convey to the Purchaser, without recourse other
than as expressly provided herein and in the Pooling and Servicing Agreement,
and in accordance with the requirements for transfer of an insured loan under
Title I and 24 CFR Section 201.32(c), all of its right, title and interest in,
to and under the following, whether now existing or hereafter acquired and
wherever located: (i) as of the Cut-Off Date, the Loans delivered to the
Trustee on the Closing Date, including the related Principal Balance and all
payments and collections on account thereof received on or with respect to such
Loans on and after the Cut-Off Date (including amounts due prior to the Cut-Off
Date but received thereafter), (ii) the rights to the FHA Insurance reserves
attributable to the Loans as of the Cut-Off Date under Title I, (iii) the
Files, (iv) the Insurance Policies and any proceeds from any Insurance
Policies, (v) the Mortgages and security interests in Properties which secure
the Loans, (vi) any and all documents or electronic records relating to the
Loans, (vii) all proceeds of any of the foregoing.

Section II.2 [Reserved].

Section II.3 Obligations of Seller Upon Sale. In
connection with any transfer pursuant to Sections 2.1 or 2.2 hereof, the Seller
further agrees, at its own expense, on or prior to the Closing Date (a) to
indicate in its books and records that the Loans have been sold to the
Purchaser pursuant to this Purchase Agreement and (b) to deliver to the
Purchaser a computer file containing a true and complete list of all Loans
specifying for each Loan, as of the Cut-Off Date, (i) its account number and
(ii) its Principal Balance. Such file, which forms a part of Exhibit B to the
Pooling and Servicing Agreement, shall also be marked as Schedule I to this
Purchase Agreement and is hereby incorporated into and made a part of this
Purchase Agreement.

<PAGE> 6
and, the Purchaser as secured party (and indicating that such loans have been
assigned to the Trustee) all necessary continuation statements and any
amendments to the UCC-1 financing statements required to reflect a change in
the name or corporate structure of the Seller or the filing of any additional
UCC-1 financing statements due to the change in the principal officer of the
Seller, as are necessary to perfect the sale of the Trustee's interest in each
Loan and the proceeds thereof.

In connection with any conveyance by the Seller, the Seller
shall on behalf of the Purchaser deliver to, and deposit with the Trustee, as
assignee of the Purchaser, on or before the Closing Date the following
documents or instruments with respect to each Loan (the "Related Documents");
provided, that the documents or instruments listed in clause (f) below
initially may be held in the custody of the Seller on behalf of the Trustee.

With respect to each Loan:

(a) The original Note, showing a complete chain
of endorsements or assignments from the named payee to the Trustee and
endorsed without recourse to the order of the Trustee which latter
endorsement may be executed with a facsimile signature;

(b) The original Mortgage with evidence of
recording indicated thereon (except that a true copy thereof certified
by an appropriate public official may be substituted); provided,
however, that if the Mortgage with evidence of recording thereon
cannot be delivered concurrently with the execution and delivery of
this Purchase Agreement solely because of a delay caused by the public
recording office where such Mortgage has been delivered for
recordation, there shall be delivered to the Trustee a copy of such
Mortgage certified as a true copy in an Officer's Certificate, which
Officer's Certificate shall certify that such Mortgage has been
delivered to the appropriate public recording office for recordation,
and there shall be promptly delivered to the Trustee such Mortgage
with evidence of recording indicated thereon upon receipt thereof from
the public recording official (or a true copy thereof certified by an
appropriate public official may be delivered to the Trustee);

(c) An original assignment of the Mortgage to the
Trustee, in recordable form. Such assignment may be a blanket
assignment, to the extent that blanket assignments are effective under
applicable law, for Mortgages covering Properties situated in the same
county. If the assignment of Mortgage is in blanket form, an
assignment of Mortgage need not be included in the individual File;

(d) All original intermediate assignments of the

<PAGE> 7
Mortgage, with evidence of recording thereon (or true copies thereof
certified by appropriate public officials may be substituted);
provided, however, that if the intermediate assignments of mortgage
with evidence of recording thereon cannot be delivered concurrently
with the execution and delivery of this Purchase Agreement solely
because of a delay caused by the public recording office where such
assignments of Mortgage have been delivered for recordation, there
shall be delivered to the Trustee a copy of each such assignment of
Mortgage certified as a true copy in an Officer's Certificate, which
Officer's Certificate shall certify that each such assignment of
Mortgage has been delivered to the appropriate public recording office
for recordation, and there shall be promptly delivered to the Trustee
such assignments of Mortgage with evidence of recording indicated
thereon upon its receipt thereof from the public recording official
(or true copies thereof certified by an appropriate public official
may be delivered to the Trustee);

(e) An original of each assumption or
modification agreement, if any, relating to such Mortgage Loan; and

(f) (i) An original or copy of a notice signed by the
Obligor acknowledging HUD insurance, (ii) an original or copy of
truth-in-lending disclosure, (iii) an original or copy of the credit
application, (iv) an original or copy of the consumer credit report,
(v) an original or copy of verification of employment and income, or
verification of self-employment income, (vi) an original or copy of
evidence of the Obligor's interest in the Property, (vii) an original
or copy of contract of work or written description with cost
estimates, (viii) (A) an original or copy of the completion
certificate or an original or copy of notice of non-compliance, if
applicable or (B) an original or copy of report of inspection of
improvements to the Property or an original or copy of notice of
non-compliance, if applicable, (ix) to the extent not included in
(iii), an original or a copy of a written verification that the
Obligor at the time of origination was not more than 30 days
delinquent on any senior mortgage or deed of trust on the Property,
(x) with respect to each Loan for which an appraisal is required
pursuant to the applicable regulations, an original or a copy of an
appraisal of the Property as of the time of origination of the Loan,
(xi) an original or a copy of a title search as of the time of
origination with respect to the Property, and (xii) any other
documents required for the submission of a claim with respect to each
Loan to the FHA.

<PAGE> 8
clauses by the Seller if such documents are received by it or by the Purchaser
if such documents are received by it.

The Seller further hereby confirms to the Purchaser that, as
of the Closing Date it has caused the portions of the Seller's electronic
ledger relating to the Loans to be clearly and unambiguously marked to indicate
that the Loans have been sold to the Purchaser.

The Purchaser hereby acknowledges its acceptance of all right,
title and interest to the Loans and other property, now existing and hereafter
created, conveyed to it pursuant to Section 2.1 hereof.

The parties hereto intend that each of the transactions set
forth herein be a sale by the Seller to the Purchaser of all the Seller's
right, title and interest in and to the Loans and other property described
above. In the event the transactions set forth herein are deemed not to be a
sale, the Seller hereby grants to the Purchaser a security interest in all of
the Seller's right, title and interest in, to and under the Loans and other
property described above, whether now existing or hereafter created, to secure
all of the Seller's obligations hereunder; and this Purchase Agreement shall
constitute a security agreement under applicable law.

Section II.4 Payment of Purchase Price for the Loans.
(a) In consideration of the sale of the Loans from the Seller to the Purchaser
on the Closing Date, the Purchaser agrees to pay to the Seller on the Closing
Date by transfer of immediately available funds, an amount equal to [ ]
(before deducting expenses payable by the Seller to the Purchaser) (the
"Purchase Price").

(b) [Reserved]

(c) Within 60 days of the Closing Date, the Seller, at its
own expense, shall cause the Trustee to record each assignment of Mortgage in
favor of the Trustee (which may be a blanket assignment if permitted by
applicable law) in the appropriate real property or other records; provided,
however, the Trustee need not record any assignment which relates to a Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by the Seller (at the Seller's expense) to the Trustee and the
Certificate Insurer the recordation of such assignment is not necessary to
protect the Trustee's, the Certificate Insurer's and the Certificateholders'
interest in the related Loan. With respect to any assignment of Mortgage as to
which the related recording information is unavailable within 60 days following
the Closing Date such assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Trustee shall be required to retain a copy of
each assignment of Mortgage

<PAGE> 9
submitted for recording. In the event that any such assignment of Mortgage is
lost or returned unrecorded because of a defect therein, the Seller shall
promptly prepare a substitute assignment of Mortgage or cure such defect, as
the case may be, and thereafter the Trustee shall be required to submit each
such assignment of Mortgage for recording.

ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH

Section III.1 Seller Representations and Warranties.
(a) The Seller represents and warrants to the Purchaser as of the
Cut-Off Date and the Closing Date that:

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

(ii) The Seller has full power and authority to
execute, deliver and perform, and to enter into and consummate all
transactions required of it by this Purchase Agreement and each other
Transaction Document to which it is a party; has duly authorized the
execution, delivery and performance of this Purchase Agreement and
each other Transaction Document to which it is a party; has duly
executed and delivered this Purchase Agreement and each other
Transaction Document to which it is a party; when duly authorized,
executed and delivered by the other parties hereto, this Purchase
Agreement and each other Transaction Document to which it is a party
will constitute a legal, valid and binding obligation of the Seller
enforceable against it in accordance with its terms;

(iii) Neither the execution and delivery of this
Purchase Agreement or any of the other Transaction Documents to which
the Seller is a party, the consummation of the transactions required
of it herein or under any other Transaction Document, nor the
fulfillment of or compliance with the terms and conditions of this
Purchase Agreement or any of the other Transaction Documents will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's charter or by-laws or any legal restriction
or any material agreement or instrument to which the Seller is now a
party or by which it is bound, or which would adversely affect the
creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any
of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its
property is subject;

<PAGE> 10
(iv) There is no action, suit, proceeding,
investigation or litigation pending against the Seller or, to its
knowledge, threatened, which, if determined adversely to the Seller,
would materially adversely affect the sale of the Loans, the
execution, delivery or enforceability of this Purchase Agreement or
any other Transaction Document, or which would have a material adverse
affect on the financial condition of the Seller;

(v) No consent, approval, authorization or order
of any court or governmental agency or body is required for: (a) the
execution, delivery and performance by the Seller of, or compliance by
the Seller with, this Purchase Agreement, (b) the sale of the Loans or
(c) the consummation of the transactions required of it by this
Purchase Agreement;

(vi) The Seller is not in default with respect to
any order or decree of any court or any order, regulation or demand of
any federal, state, municipal or governmental agency, which default
might have consequences that would materially and adversely affect the
condition (financial or other) or operations of the Seller or its
properties or might have consequences that would materially and
adversely affect its performance hereunder;

(vii) The Seller received fair consideration and
reasonably equivalent value in exchange for the sale of the Loans to
the Purchaser;

(viii) The Seller is a non-supervised lender in good
standing under 24 CFR Section 202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR part
201; and

(ix) (_) The Seller has transferred the Loans without
any intent to hinder, delay or defraud any of its creditors.

(b) The Seller represents and warrants to the Purchaser
with respect to the Loans as of the Closing Date each of the representations
and warranties contained in Section 2.03(b) of the Pooling and Servicing
Agreement are true and correct.

It is understood and agreed that the representations and
warranties set forth in this Section 3.1(b) shall survive delivery of the
respective Files to the Trustee on behalf of the Purchaser. In the event that
(a) any of the representations and warranties of the Seller in Section 2.03(b)
of the Pooling and Servicing Agreement are determined to be untrue in a manner
that materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in any Loan with respect to which such
representation or warranty is made and (b)

<PAGE> 11
the Seller shall fail to cure such breach within the time period specified in
Section 2.04 of the Pooling and Servicing Agreement, the Seller shall be
obligated to repurchase or substitute the affected Loan(s) in accordance with
the provisions of Sections 2.04 and 3.12(b) of the Pooling and Servicing
Agreement.

With respect to representations and warranties made by Mego pursuant
to this Section 3.1 that are made to the Seller's best knowledge, if it is
discovered by any of the Depositor, the Seller, the Trustee or the Certificate
Insurer that the substance of such representation and warranty is inaccurate
and such inaccuracy materially and adversely affects the value of the related
Loan, notwithstanding the Seller's lack of knowledge, such inaccuracy shall be
deemed a breach of the applicable representation and warranty.

ARTICLE IV.
SELLER'S COVENANTS

Section IV.1 Covenants of the Seller. The Seller hereby
covenants that except for the transfer hereunder, the Seller will not sell,
pledge, assign or transfer to any other Person, or grant, create, incur, assume
or suffer to exist any lien on, any Loan, or any interest therein; and the
Seller will defend the right, title and interest of the Trust, as assignee of
the Purchaser, in, to and under the Loans, against all claims of third parties
claiming through or under the Seller.

ARTICLE V.
INDEMNIFICATION BY THE SELLER

Section V.1 Indemnification. The Seller agrees to
indemnify and hold harmless the Purchaser from and against any loss, liability,
expense, damage, claim or injury (other than those resulting solely from
defaults on the Loans) arising out of or based on this Agreement including,
without limitation, in connection with the origination or prior servicing of
the Loans by reason of any acts, omissions, or alleged acts or omissions
arising out of activities of the Seller, originator or prior servicer,
including reasonable attorneys' fees and other costs or expenses incurred in
connection with the defense of any actual or threatened action, proceeding or
claim; provided that the Seller shall not indemnify the Purchaser if such loss,
liability, expense, damage or injury is due to the Purchaser's willful
misfeasance, bad faith or negligence or by reason of the Purchaser's reckless
disregard of its obligations hereunder. The provisions of this indemnity shall
run directly to and be enforceable by an injured party subject to the
limitations hereof.

Section V.2 Limitation on Liability of the Seller.
None of the directors or trustees or officers or employees or

<PAGE> 12
agents of the Seller shall be under any liability to the Purchaser, it being
expressly understood that all such liability is expressly waived and released
as a condition of, and as consideration for, the execution of this Agreement;
provided, however, that this provision shall not protect any such Person
against any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties hereunder.
Except as expressly provided herein and in the Pooling and Servicing Agreement,
the Seller shall not be under any liability to the Trust, the Trustee or the
Certificateholders. The Seller and any director or officer or employee or
agent of the Seller may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.

ARTICLE VI.
TERMINATION

Section VI.1 Termination. The respective obligations
and responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's indemnity obligations as provided herein,
upon the termination of the Trust as provided in Article IX of the Pooling and
Servicing Agreement.

ARTICLE VII.
MISCELLANEOUS PROVISIONS

Section VII.1 Amendment. This Purchase Agreement may be
amended from time to time by the Seller and the Purchaser, with the consent of
the Certificate Insurer, by written agreement signed by the Seller and the
Purchaser.

Section VII.2 Governing Law. This Purchase Agreement
shall be governed by and construed in accordance with the laws of the State of
New York and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws.

Section VII.3 Notices. All demands, notices and
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered at or mailed by registered mail, postage
prepaid, addressed as follows:

(a) if to the Seller:

Mego Mortgage Corporation
210 Interstate North Pkwy.
Atlanta, Georgia 30339
Attention: Jeff S. Moore

or, such other address as may hereafter be furnished to the

<PAGE> 13
Purchaser in writing by the Seller.

(b) if to FASCO

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes

or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.

Section VII.4 Severability of Provisions. If any one or
more of the covenants, agreements, provisions of terms of this Purchase
Agreement shall be held invalid for any reason whatsoever, then such covenants,
agreements, provisions or terms shall be deemed severable from the remaining
covenants, agreements, provisions or terms of this Purchase Agreement and shall
in no way affect the validity of enforceability of the other provisions of this
Purchase Agreement.

Section VII.5 Counterparts. This Purchase Agreement may
be executed in one or more counterparts and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed to be
an original and such counterparts, together, shall constitute one and the same
agreement.

Section VII.6 Further Agreements. The Purchaser and the
Seller each agree to execute and deliver to the other such amendments to
documents and such additional documents, instruments or agreements as may be
necessary or appropriate to effectuate the purposes of this Purchase Agreement
or in connection with the offering of securities representing interests in the
Loans.

Without limiting the generality of the foregoing, as a further
inducement for the Purchaser to purchase the Loans from the Seller, the Seller
will cooperate with the Purchaser in connection with the sale of any of the
securities representing interests in the Loans. In that connection, the Seller
will provide to the Purchaser any and all information and appropriate
verification of information, whether through letters of its auditors and
counsel or otherwise, as the Purchaser shall reasonably request and will
provide to the Purchaser such additional representations and warranties,
covenants, opinions of counsel, letters from auditors, and certificates of
public officials or officers of the Seller as are reasonably required in
connection with such transactions and the offering of securities rated "Aaa"
and "AAA" by Moody's Investors Service, Inc. and Standard & Poor's Rating
Services, respectively.

Section VII.7 Intention of the Parties. It is the
intention of the parties that the Purchaser is purchasing, and the

<PAGE> 14
Seller is selling, the Loans rather than pledging the Loans to secure a loan by
the Purchaser to the Seller. Accordingly, the parties hereto each intend to
treat the transaction for federal income tax purposes and all other purposes as
a sale by the Seller, and a purchase by the Purchaser, of the Loans. The
Purchaser will have the right to review the Loans and the related Files to
determine the characteristics of the Loans which will affect the federal income
tax consequences of owning the Loans and the Seller will cooperate with all
reasonable requests made by the Purchaser in the course of such review.

Section VII.8 Successors and Assigns; Assignment of
Purchase Agreement. The Agreement shall bind and inure to the benefit of and
be enforceable by the Seller, the Purchaser and the Trustee. The obligations
of the Seller under this Purchase Agreement cannot be assigned or delegated to
a third party without the consent of the Purchaser, which consent shall be at
the Purchaser's sole discretion, except that the Purchaser acknowledges and
agrees that the Seller may assign its obligations hereunder to any Person into
which the Seller is merged or any corporation resulting from any merger,
conversion or consolidation to which the Seller is a party or any Person
succeeding to the business of the Seller. The parties hereto acknowledge that
FASCO is acquiring the Loans for the purpose of contributing them to the Trust
that will issue the Certificates representing undivided interests in such
Loans. As an inducement to FASCO to purchase the Loans, the Seller
acknowledges and consents to the assignment by FASCO to the Trustee of all of
FASCO's rights against the Seller pursuant to this Purchase Agreement and to
the enforcement or exercise of any right or remedy against the Seller pursuant
to this Purchase Agreement by the Trustee under the Pooling and Servicing
Agreement. Such enforcement of a right or remedy by the Trustee shall have the
same force and effect as if the right or remedy had been enforced or exercised
by FASCO directly.

Section VII.9 Survival. The representations and
warranties set forth in Article III and the provisions of Article V shall
survive the purchase of the Loans hereunder.

Section VII.10 Third-Party Beneficiaries. This Purchase
Agreement shall inure to the benefit of and be binding upon the parties hereto
and their respective successors and permitted assigns. Except as otherwise
provided in this Section 7.10 no other Person shall have the right or
obligation hereunder. Upon issuance of the Policy (as defined in the Pooling
and Servicing Agreement), this Purchase Agreement shall also inure to the
benefit of the Certificate Insurer. Without limiting the generality of the
foregoing, all covenants and agreements in this Purchase Agreement which
expressly confer rights upon the Certificate Insurer shall be for the benefit
of and run directly to the Certificate Insurer, and the Certificate Insurer
shall be entitled to rely on and enforce such covenants to the same extent as
if it were a party to this Purchase Agreement. The

<PAGE> 15
Certificate Insurer may disclaim any of its rights and powers under this
Purchase Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Trustee.

<PAGE> 16
IN WITNESS WHEREOF, the Seller and the Purchaser have caused this Loan
Purchase Agreement to be duly executed on their behalf by their respective
officers thereunto duly authorized as of the day and year first above written.

FINANCIAL ASSET SECURITIES CORP.,
as Purchaser

By: ____________________________________
Name: Kari Skilbred
Title: Vice President

MEGO MORTGAGE CORPORATION,
as Seller

By: ____________________________________
Name: James L. Belter
Title: Vice President
<PAGE> 17

STATE OF )
) ss.:
COUNTY OF )

On the _______ day of March, 1996 before me, a Notary Public in and
for said State, personally appeared _________________________, known to me to
be a _____________________ of FINANCIAL ASSET SECURITIES CORP., the corporation
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.

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

_____________________________________
Notary Public

<PAGE> 18

STATE OF )
) ss.:
COUNTY OF )

On the _______ day of March, 1996 before me, a Notary Public in and
for said State, personally appeared _________________________, known to me to
be a _____________________ of MEGO MORTGAGE CORPORATION, the company that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.

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

______________________________________
Notary Public
<PAGE> 19

SCHEDULE I

Loan Schedule

See Exhibit B to Pooling and Servicing Agreement

<PAGE> 1
EXHIBIT 10.14

POOLING AND SERVICING AGREEMENT, dated as of March 21, 1996,
among MEGO MORTGAGE CORPORATION ("Mego", the "Seller", the "Servicer" and the
"Claims Administrator", as applicable), FINANCIAL ASSET SECURITIES CORP., as
Depositor (the "Depositor"), FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as
Trustee and Contract of Insurance Holder (in each respective capacity, the
"Trustee" and the "Contract of Insurance Holder") and NORWEST BANK MINNESOTA,
N.A., as Master Servicer (the "Master Servicer").

W I T N E S S E T H:

In consideration of the mutual agreements herein contained,
Mego, as Seller, Servicer and Claims Administrator, the Depositor, the Master
Servicer, the Trustee, and the Contract of Insurance Holder agree as follows for
the benefit of each of them, the Certificate Insurer and for the benefit of the
Holders from time to time of the FHA Title I Loan Asset-Backed Certificates,
Series 1996-1 issued hereunder:
<PAGE> 2
ARTICLE I

Definitions

Section I.01. Defined Terms. Whenever used in this Agreement,
the following words and phrases, unless the context otherwise requires, shall
have the meanings specified in this Article.

Accountant's Report. As defined in Section 3.05(a).

Accounts. The Distribution Account, the FHA Premium Account
and the Collection Account.

Acquisition Date. With respect to any Foreclosed Property, the
first day on which such Foreclosed Property is considered to be acquired by the
Trust within the meaning of Treasury Regulation Section 1.856-6(b)(1) (i.e., the
first day on which the Trust is treated as the owner of such Foreclosed Property
for federal income tax purposes).

Aggregate Class A Certificate Balance. With respect to any
date of determination, the aggregate of the Class A Certificate Balances as of
such date for all Classes of Class A Certificates.

Aggregate Principal Balance. With respect to any date of
determination, the sum of the Principal Balances for all Loans.

Aggregate Senior Interest Distribution. With respect to any
Distribution Date, the aggregate of the Class Interest Distributions for each
Class of Outstanding Senior Certificates.

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

Amount Available. With respect to any Distribution Date and
the related Determination Date, an amount equal to the sum of (i) the
Distribution Amount for such Distribution Date, plus (ii) Insured Payments, if
any, received by the Trustee with respect to such Distribution Date.

Annual Default Percentage (Three Month Average). With respect
to any Determination Date, the average of the percentage equivalents of the
fractions for each of the three immediately preceding Due Periods, the numerator
of which is the product of (i) the aggregate of the Principal Balances of all
Loans that became Credit Support Multiple Defaulted Loans during such Due Period
immediately prior to such Loans becoming Credit Support Multiple Defaulted Loans
and (ii) 12, and the denominator of which is the Aggregate Principal Balance as
of the end of such Due Period.

2
<PAGE> 3
Anticipated Termination Date. The Distribution Date next
following the Monthly Cut-Off Date specified in a Notice of Termination
delivered to the Trustee pursuant to Section 9.01(d), or the Distribution Date
specified in a Notice of Termination delivered to the Trustee by the Master
Servicer pursuant to Section 9.01(e), as the case may be.

BIF. The Bank Insurance Fund, as from time to time
constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Bank Insurance Fund is not existing and performing duties now
assigned to it, the body performing such duties on such date.

Book-Entry Certificate. Any of the Class A Certificates, which
shall be registered in the name of the Depository or its nominee, the ownership
of which is reflected on the books of the Depository or on the books of a person
maintaining an account with such Depository (directly or as an indirect
participant in accordance with the rules of such Depository).

Business Day. Any day other than a Saturday, a Sunday or a day
on which banking institutions in the City of New York or the City in which the
Corporate Trust Office is located or the city in which the Master Servicer's or
Servicer's servicing operations are located are authorized or obligated by law,
executive order or government decree to be closed.

Calendar Month. The period from and including the first day of
a calendar month to and including the last day of such calendar month.

Certificate. Any one of the FHA Title I Loan Asset-Backed
Certificates, Series 1996-1 executed by the Trustee on behalf of the Trust and
countersigned by the Trustee.

Certificate Insurer. MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State of New York,
and any successors thereto.

Certificate Insurer Default. The existence and continuance of
any of the following:

(a) the Certificate Insurer fails to make a payment
required under the Policy in accordance with its terms; or

(b) (i) the entry by a court having jurisdiction in
the premises of (A) a decree or order for relief in

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respect of the Certificate Insurer in an involuntary case or proceeding
under any applicable United States federal or state bankruptcy,
insolvency, rehabilitation, reorganization or other similar law or (B)
a decree or order adjudging the Certificate Insurer a bankrupt or
insolvent, or approving as properly filed a petition seeking
reorganization, rehabilitation, arrangement, adjustment or composition
of or in respect of the Certificate Insurer under any applicable United
States federal or state law, or appointing a custodian, receiver,
liquidator, rehabilitator, assignee, trustee, sequestrator or other
similar official of the Certificate Insurer or of any substantial part
of its property, or ordering the winding-up or liquidation of its
affairs, and the continuance of any such decree or order for relief or
any such other decree or order unstayed and in effect for a period of
60 consecutive days; or

(ii) the commencement by the Certificate Insurer of a
voluntary case or proceeding under any applicable United States federal
or state bankruptcy, insolvency, reorganization or other similar law or
of any other case or proceeding to be adjudicated a bankrupt or
insolvent, or the consent by the Certificate Insurer to the entry of a
decree or order for relief in respect of the Certificate Insurer in an
involuntary case or proceeding under any applicable United States
federal or state bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case
or proceeding against the Certificate Insurer, or the filing by the
Certificate Insurer of a petition or answer or consent seeking
reorganization or relief under any applicable United States federal or
state law, or the consent by the Certificate Insurer to the filing of
such petition or to the appointment of or the taking possession by a
custodian, receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Certificate Insurer or of any substantial part
of its property, or the making by the Certificate Insurer of an
assignment for the benefit of its creditors, or the failure by the
Certificate Insurer to pay debts generally as they become due, or the
admission by the Certificate Insurer in writing of its inability to pay
its debts generally as they become due, or the taking of corporate
action by the Certificate Insurer in furtherance of any such action.

Certificate Owner. With respect to any Class A

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<PAGE> 5
Certificate held in book-entry form, the Person who is the beneficial owner of
such Certificate, as reflected on the books of the Clearing Agency (directly as
a Depository Participant or as an indirect participant, in each case in
accordance with the rules of such Clearing Agency).

Certificate Rate. As to each Class of Senior Certificates, the
per annum rate set forth as follows: Class A-1: 6.55%; Class A-2: 6.90%; Class
A-3: 7.50%; Class and Class S: 1.00%; provided, however, with respect to any
Distribution Date and each Class of Class A Certificates, if the Maximum Rate
for such Distribution Date is less than the rate designated to such Class in the
immediately preceding clause, the Certificate Rate for such Distribution Date
shall be the Maximum Rate.

Certificate Register and Certificate Registrar. The register
established, and the registrar appointed, pursuant to Section 5.02.

Certificateholder or Holder. The Person in whose name a
Certificate of any Class is registered in the Certificate Register.

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

Civil Relief Act Interest Shortfall. With respect to any
Distribution Date, for any Loan as to which there has been a reduction in the
amount of interest collectible thereon for the most recently ended Due Period as
a result of the application of the Civil Relief Act, the amount by which (i)
interest collectible on such Loan during such Due Period is less than (ii) one
month's interest on the Principal Balance of such Loan at the Loan Rate for such
Loan before giving effect to the application of the Civil Relief Act.

Claims Administrator. Mego Mortgage Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.

Class. With respect to each of the Class A-1, Class A-2, Class
A-3, Class S and Class R, all of the Certificates of such Class.

Class A Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-1 and designated as a Class A Certificate pursuant
to Section 5.01.

Class A Certificate Balance. With respect to a Class of the
Class A Certificates as of any date of determination, the Initial Class A
Certificate Balance for such Class, reduced by all

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Class A Principal Distributions previously distributed with respect to such
Class.

Class A-1 Certificate. Any Certificate substantially in the
form attached hereto as Exhibit C-1 and designated as a Class A-1 Certificate
pursuant to Section 5.01.

Class A-2 Certificate. Any Certificate substantially in the
form attached hereto as Exhibit C-1 and designated as a Class A-2 Certificate
pursuant to Section 5.01.

Class A-3 Certificate. Any Certificate substantially in the
form attached hereto as Exhibit C-1 and designated as a Class A-3 Certificate
pursuant to Section 5.01.

Class A Guaranteed Principal Distribution Amount. With respect
to any Distribution Date, the positive excess, if any, of (i) the Aggregate
Class A Certificate Balance as of such Distribution Date (taking into account
distributions on such Distribution Date pursuant to clauses (viii) and (x) of
Section 4.05(a)) over (ii) the Aggregate Principal Balance as of the end of the
related Due Period; provided, that on the Final Scheduled Distribution Date, the
Class A Guaranteed Principal Distribution Amount shall equal the amount referred
to in clause (i) of this definition for such Distribution Date.

Class A Monthly Principal Amount. With respect to any
Distribution Date, the amount equal to the sum of the following amounts (without
duplication) with respect to the immediately preceding Due Period: (i) that
portion of all Payments allocable to principal, including all full and partial
principal prepayments (excluding such payments in respect of Loans that became
Defaulted Loans on or prior to the end of the preceding Due Period), (ii) the
Principal Balance as of the end of the immediately preceding Due Period of each
Loan that became a Defaulted Loan for the first time during the such Due Period,
(iii) the portion of the Purchase Price allocable to principal of all Defective
Loans with respect to such Due Period, (iv) any Substitution Adjustments
deposited to the Distribution Account pursuant to Section 2.04(d) on the
previous Determination Date, and (v) the amount of Distributable Excess Spread,
if any, in respect of such Distribution Date.

Class A Principal Distribution. With respect to any
Distribution Date (other than the Final Scheduled Distribution Date), the sum of
the Class A Monthly Principal Amount for such Distribution Date and any
outstanding Class A Principal Shortfall as of the close of business on the
preceding Distribution Date; provided, however, that the Class A Principal
Distribution shall not exceed the Aggregate Class A Certificate Balance. The
"Class A Principal Distribution" on the Final Scheduled Distribution Date

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<PAGE> 7
will equal the Aggregate Class A Certificate Balance as of such Distribution
Date.

Class A Principal Shortfall. As of the close of any
Distribution Date, the excess of the sum of the Class A Monthly Principal Amount
and any outstanding Class A Principal Shortfall from the preceding Distribution
Date, over the amount in respect of principal that is actually distributed to
the Class A Certificateholders on such preceding Distribution Date.

Class Interest Distribution. With respect to any Distribution
Date and each Class of Senior Certificates, the sum of (i) the applicable Class
Monthly Interest Amount for such Class on such Distribution Date and (ii) the
applicable Class Interest Shortfall for such Class on such Distribution Date.

Class Interest Shortfall. With respect to any Class of Senior
Certificates and any Distribution Date, the sum of (a) the excess of the related
Class Monthly Interest Amount for the preceding Distribution Date and any
outstanding Class Interest Shortfall with respect to such Certificates on such
preceding Distribution Date, over the amount in respect of interest that is
actually distributed to the related Class of Senior Certificateholders on such
preceding Distribution Date plus (b) interest on such excess, to the extent
permitted by law, at the applicable Certificate Rate from such preceding
Distribution Date through the current Distribution Date.

Class Monthly Interest Amount. With respect to any
Distribution Date and each Class of Senior Certificates, either 30 days of
interest or, with respect to the first Distribution Date, 10 days of interest,
in either case at the applicable Certificate Rate for such Class, on, with
respect to the Class A Certificates, the related Class A Certificate Balance as
of the close of business on the immediately preceding calendar month, or, with
respect to the Class S Certificates, the Class S Notional Amount for such
Distribution Date, in each case reduced by an amount equal to such Class' pro
rata share (based on the amount of interest to which such Class would have
otherwise been entitled) of the sum of (i) the Civil Relief Act Interest
Shortfall and (ii) the Net Prepayment Interest Shortfall, if any, for such
Distribution Date.

Class R Certificate. Any Certificate substantially in the form
attached hereto as Exhibit D and designated as a Class R Certificate pursuant to
Section 5.01.

Class S Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-2 and designated as Class S pursuant to Section
5.01.

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Class S Notional Amount. As to any Distribution Date and the
Class S Certificates, the Aggregate Principal Balance as of the opening of
business on the first day of the calendar month preceding the calendar month of
such Distribution Date (i.e., if the Distribution Date is June 25, the first day
of the calendar month preceding the calendar month of such Distribution Date is
May 1), or in the case of the first Distribution Date, the Aggregate Loan
Balance as of the Cut-Off Date.

Class Vote. As long as Certificates of any Class of Senior
Certificates is Outstanding, a determination by the Holders of Outstanding
Certificates of such Class representing more than 50% of the aggregate of the
Voting Rights of such Class (or such higher percentage for such Classes as shall
be specified in the applicable provisions hereunder) with respect to which votes
are cast on the issue on or prior to 30 days after receipt of notice given as
provided in Section 10.05(b), and after all the Classes of Senior Certificates
are no longer Outstanding, by the Holders of Outstanding Class R Certificates
representing more than 50% of the Residual Interests of such Class R
Certificates; provided, that the Certificate Insurer shall be deemed to have
100% of the Voting Rights so long as no Certificate Insurer Default exists.

Clearing Agency. An organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.

Closing Date. March 29, 1996.

Code. The Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor statutes thereto.

Collateral Performance Percentages. The Annual Default
Percentage (Three Month Average), the 30+ Delinquency Percentage (Rolling Three
Month), the 60+ Delinquency Percentage (Rolling Three Month) and the Cumulative
Default Percentage.

Collected Amount. With respect to any Determination Date and
the related Distribution Date, the sum of the amount on deposit in the
Distribution Account on such Determination Date plus the amount required to be
deposited into the Distribution Account pursuant to Section 4.03(b) in respect
of the related Distribution Date.

Collection Account. The account or accounts denominated as a
Collection Account and maintained or caused to be maintained by the Trustee as
described in Section 4.03.

Contract of Insurance. The contract of insurance under Title I
covering the Loans held under the name First Trust of New York, National
Association, or any successor thereto, as Contract

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of Insurance Holder hereunder.

Contract of Insurance Holder. First Trust of New York,
National Association, its successors in interest, and any successor thereto
pursuant to the terms of this Agreement.

Corporate Trust Office. The office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, located on the Closing Date at First Trust of New York, National
Association, 180 East 5th Street, St. Paul, Minnesota 55101, Attention:
Structured Finance.

Credit File. With respect to any Loan, all of the related
documents listed in Section 2.01(b)(A)(vi) and any additional documents required
to be added thereto pursuant to this Agreement.

Credit Support Multiple Defaulted Loan. A Loan with respect to
which (a) a claim has been submitted to the FHA in respect of such Loan pursuant
to the Contract of Insurance, (b) foreclosure proceedings have been commenced on
the related Property, (c) any portion of a Monthly Payment is 150 days or more
past due; or (d) the Servicer has determined in accordance with customary
servicing practices, that the Loan is uncollectible.

Cumulative Default Percentage. As of any Determination Date,
the aggregate of the Principal Balances of all Credit Support Multiple Defaulted
Loans (immediately prior to such Loans becoming Credit Support Multiple
Defaulted Loans) as of the prior Monthly Cut-Off Date since the Closing Date,
plus all accrued and unpaid interest on such Credit Support Multiple Defaulted
Loans to such date, divided by the aggregate of the Initial Principal Balances
of all Loans.

Custodial Agreement. Any agreement entered into between the
Trustee and a Custodian pursuant to Section 8.11.

Custodian. As of the Closing Date, the Trustee, and as of any
subsequent date of determination, any Person (other than Mego, the Depositor,
the Master Servicer or any of their respective affiliates) with whom the Trustee
has entered into a Custodial Agreement pursuant to Section 8.11 in effect as of
the date of determination.

Cut-Off Date. March 21, 1996.

Defaulted Loan. A Loan with respect to which: (i) a claim has
been paid or rejected pursuant to the Contract of Insurance, (ii) the Property
has been repossessed and sold, or (iii) any portion of a Monthly Payment is more
than 150 days past

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due (without giving effect to any grace period).

Defective Loan. A Loan required to be purchased or repurchased
pursuant to Section 2.04.

Deficiency Amount. As to any Distribution Date, an amount
equal to the sum of (a) the amount by which the Aggregate Senior Interest
Distribution exceeds the amount on deposit in the Distribution Account available
to be distributed therefor on such Distribution Date and (b) the Class A
Guaranteed Principal Distribution Amount for such Distribution Date.

Denomination. With respect to each Class of Class A
Certificates, the portion of the Initial Class A Certificate Balance for such
Class represented by such Certificate as specified on the face thereof.

Depository. The initial Depository shall be The Depository
Trust Company, the nominee of which is CEDE & Co., as the registered Holder of
the Book-Entry Certificates. The Depository shall at all times be a "clearing
corporation" as defined in Section 8-102(3) of the Uniform Commercial Code of
the State of New York.

Depository Agreement. The agreement entered among the
Depositor, the Trustee, and the Depository, in connection with the issuance of
the Class A Certificates, substantially in the form of Exhibit M.

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

Determination Date. With respect to any Distribution Date, the
fifth Business Day preceding such Distribution Date.

Directly Operate. With respect to any Foreclosed Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such Foreclosed Property, the holding of such Foreclosed Property
primarily for sale, the performance of any construction work thereon, or any use
of such Foreclosed Property in a trade or business conducted by the Trust, in
each case other than through an Independent Contractor; provided, however, that
the Trustee (or the Master Servicer on behalf of the Trustee) shall not be
considered to Directly Operate a Foreclosed Property solely because the Trustee
(or the Master Servicer on behalf of the Trustee) establishes rental terms,
chooses tenants, enters into or renews leases, deals with taxes and

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insurance, or makes decisions as to repairs or capital expenditures with respect
to such Foreclosed Property.

Distributable Excess Spread. As to any Distribution Date the
lesser of (i) the amount of Excess Spread for such Distribution Date and (ii)
the portion of Excess Spread required to be distributed pursuant to 4.05(a)(x)
such that the Overcollateralization Amount for such Distribution Date is equal
to the Required OC Amount for such Distribution Date.

Distribution Account. The account established and maintained
by the Trustee pursuant to Section 4.04.

Distribution Amount. With respect to any Distribution Date and
the related Determination Date, the sum of (i) the Collected Amount, plus (ii)
the amounts, if any, deposited into the Distribution Account pursuant to
Section 4.03(e) or Section 2.04(d).

Distribution Date. The twenty-fifth (25th) day of the month
or, if such twenty-fifth (25th) day is not a Business Day, the immediately
following Business Day. The first such Distribution Date will be April 25, 1996.

Due Date. With respect to any Monthly Payment, the date on
which such Monthly Payment is required to be paid pursuant to the related Note.

Due Period. With respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such Determination
Date or Distribution Date, as the case may be, except with respect to the first
Determination Date, a Distribution Date, the period commencing March 22, 1996
and ending on the close of business on March 31, 1996.

Early Termination Notice Date. Any date on which the Aggregate
Principal Balance is less than 10% of the sum of the Aggregate Principal Balance
as of the Cut-Off Date.

Eligible Account. (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution
acceptable to the Certificate Insurer (so long as an Certificate Insurer Default
shall not have occurred and be continuing), or (ii) a segregated direct deposit
account maintained with a depository institution or trust company organized
under the laws of the United States of America, or any of the States thereof, or
the District of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's
and (so long as a Certificate Insurer Default shall not have occurred and be
continuing)

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acceptable to the Certificate Insurer.

Eligible Investments. Any one or more of the following types
of investments:

(a) Direct obligations of the United States of America
(including obligations issued or held in book-entry form on the books of the
Department of the Treasury, and interests in such direct obligations) or
obligations the principal of and interest on which are unconditionally
guaranteed by the United States of America.

(b) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following federal agencies and provided such
obligations are backed by the full faith and credit of the United States of
America (stripped securities are only permitted if they have been stripped by
the agency itself):

1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or fully guaranteed
certificates of beneficial ownership

2. Farmers Home Administration (FmHA)
A. Certificates of beneficial ownership

3. Federal Financing Bank

4. FHA Debentures (FHA)

5. General Services Administration
A. Participation certificates

6. U.S. Maritime Administration
A. Guaranteed Title XI financing

7. HUD

A. Project Notes

B. Local Authority Bonds

C. New Communities Debentures - U.S. government
guaranteed debentures

D. U.S. Public Housing Notes and Bonds - U.S.
government guaranteed public housing notes and
bonds

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(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies (stripped securities are only permitted if they have been
stripped by the agency itself):

1. Federal Home Loan Bank System
A. Senior debt obligations

2. FHLMC
A. Participation Certificates
B. Senior debt obligations

3. FNMA
A. Mortgage-backed securities and senior debt
obligations

4. Student Loan Marketing Association
A. Senior debt obligations

5. Resolution Funding Corp. obligations

6. Farm Credit System
A. Consolidated systemwide bonds and notes

(d) Money market funds registered under the Investment Company
Act of 1940, as amended, whose shares are registered under the Securities Act,
and having a rating by Standard & Poor's of AAAm-G; AAAm; or AAm.

(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks. The
collateral must be held by a third party and the Certificateholders must have a
perfected first security interest in the collateral.

(f) Certificates of deposit, savings accounts, deposit
accounts or money market deposits which are fully insured by FDIC, including BIF
and SAIF.

(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Certificate Insurer.

(h) Commercial paper rated, at the time of purchase, "Prime -
1" by Moody's and "A-1" or better by Standard & Poor's.

(i) Bonds or notes issued by any state or municipality which
are rated by Moody's and Standard & Poor's in one of the two highest rating
categories assigned by such agencies.

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(j) Federal funds or bankers acceptances with a maximum term
of one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" or "A3" or better by Moody's and "A-1" or "A"
or better by S&P.

(k) Repurchase agreements provide for the transfer of
securities from a dealer bank or securities firm (seller/borrower) to a
municipal entity (buyer/lender), and the transfer of cash from a municipal
entity to the dealer bank or securities firm with an agreement that the dealer
bank or securities firm will repay the cash plus a yield to the municipal entity
in exchange for the securities at a specified date.

Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Certificate Insurer.

1. Repos must be between the municipal entity and a dealer
bank or securities firm

A. Primary dealers on the Federal Reserve reporting
dealer list which are rated A or better by Standard &
Poor's and Moody's, or

B. Banks rated "A" or above by Standard & Poor's and
Moody's.

2. The written repo contract trust must include the following:

A. Securities which are acceptable for transfer are:

(1) Direct U.S. governments, or

(2) Federal agencies backed by the full faith and
credit of the U.S. government (or FNMA or FHLMC)
other than mortgage backed securities.

B. The term of the repo may be up to 30 days

C. The collateral must be delivered to the municipal
entity, trustee (if trustee if not supplying the
collateral) or third party acting as agent for the
trustee (if the trustee is supplying the collateral)
before/simultaneous with payment (perfection by
possession of certificated securities).

D. Valuation of Collateral

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(1) The securities must be valued weekly,
marked-to-market at current market price plus
accrued interest.

(a) The value of collateral must be equal to 104% of
the amount of cash transferred by the municipal
entity to the dealer bank or security firm under
the repo plus accrued interest. If the value of
securities held as collateral slips below 104% of
the value of the cash transferred by
municipality, then additional cash and/or
acceptable securities must be transferred. If,
however, the securities used as collateral are
FNMA or FHLMC, then the value of collateral must
equal 105%.

3. Legal opinion which must be delivered to the municipal entity:

a. Repo meets guidelines under state law for legal
investment of public funds.

Eligible Servicer. A Person that (i) is servicing a portfolio of Title
I mortgage loans, (ii) is legally qualified to service, and is capable of
servicing, the Loans and has all licenses required to service Title I mortgage
loans, (iii) has demonstrated the ability professionally and competently to
service a portfolio of FHA insured mortgage loans similar to the Loans with
reasonable skill and care, (iv) has a net worth calculated in accordance with
generally accepted accounting principles of at least $500,000 and (v) if other
than Mego, is acceptable to the Certificate Insurer.

Excess Claim Amount. With respect to any Distribution Date, an amount
equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the Loans over (y) the Trust Designated Insurance Amount
less (B) the amount deposited to the Reserve Fund on previous Distribution
Dates.

Excess Spread. With respect to any Distribution Date, the positive
excess, if any, of (x) the Distribution Amount with respect to such Distribution
Date over (y) the amount required to be distributed pursuant to priorities (i)
through (ix) of Section 4.05(a) on such Distribution Date.

Exemption. An individual Prohibited Transactions Exemption granted to
an underwriter by the Department of Labor

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which provides relief from certain of the prohibited transaction provisions of
ERISA with respect to the purchase, holding, and subsequent resale by an ERISA
Plan of certificates in pass-through trusts that meet the conditions and the
requirements of such exemption.

FDIC. The Federal Deposit Insurance Corporation and any
successor thereto.

FHA. The Federal Housing Administration and any successor
thereto.

FHA Insurance. Insurance issued by FHA pursuant to Title I of
the National Housing Act of 1934, as amended.

FHA Insurance Coverage Insufficiency. At the time of a
prospective claim for reimbursement under the Contract of Insurance for a Loan
pursuant to Section 3.12, the amount by which the sum of all claims previously
paid by the FHA in respect of the Loans and the amount expected to be received
in respect of such prospective claim for such Loan exceeds the Trust Designated
Insurance Amount.

FHA Insurance Coverage Reserve Account. The account
established by the FHA pursuant to the Contract of Insurance which is adjusted
and maintained under Title I (see 24 C.F.R. 201.32(a)).

FHA Insurance Payment Amount. With respect to any Distribution
Date and with respect to any Loan for which an insurance claim has been made by
the Contract of Insurance Holder or the Claims Administrator and paid by the FHA
or rejected, in part, by the FHA, an amount equal to the sum of such of the
following as are appropriate: (i) the amount, if any, received from the FHA,
(ii) with respect to claims rejected in part, the amount, if any, received from
Mego or the Master Servicer pursuant to Section 3.12 and (iii) the amount
received from the sale of FHA Pending Claims sold pursuant to Section 9.01(d).

FHA Pending Claims. As defined in Section 9.01(d).

FHA Premium Account. The account established and maintained by
the Trustee pursuant to Section 4.06(a).

FHA Premium Account Deposit. With respect to any Distribution
Date an amount equal to the greater of (i) 1/12 times .75% times the aggregate
Principal Balance of all Loans other than Invoiced Loans as of the first day of
the calendar month preceding the month of such Distribution Date (or the Cut-Off
Date with respect to the first Distribution Date) and (ii) the positive excess,
if any, of (A) the projected amount of premium and other charges due under the
Contract of Insurance for the next succeeding

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Due Period and (B) the balance in the FHA Premium Account as of the related
Determination Date.

FHA Reserve Amount. As to each Loan, 10% of the Initial
Principal Balance thereof.

File. With respect to any Loan, the related documents listed
in Section 2.01(b)(A) and any additional documents required to be added thereto
pursuant to this Agreement.

Final Date. The later of:

(i) two years after the last insurance claim with
respect to a Loan filed with the FHA was certified for payment
by FHA, or

(ii) the final settlement date with respect to any
insurance claim for a Loan rejected by the FHA.

Final Residual Distribution Amount. With respect to the
Distribution Date which coincides with the Termination Date, all amounts, if
any, remaining in the Distribution Account and the FHA Premium Account and all
other assets, if any, held by the Trust after all payments required to be made
pursuant to Section 4.05(a)(i) through (xiv) have been made or provided for on
such Distribution Date.

Final Scheduled Distribution Date. The Distribution Date in
September, 2017.

FHLMC. The Federal Home Loan Mortgage Corporation.

FNMA. The Federal National Mortgage Association.

Foreclosed Loan. As of any date of determination, any Loan,
other than a Loan for which a claim is pending under the Contract of Insurance,
that has been discharged as a result of (i) the completion of foreclosure or
comparable proceedings; (ii) the Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or other
comparable proceeding; or (iii) the acquisition by the Trustee of title to the
related Property by operation of law.

Foreclosed Property. Any Property acquired by the Trust as a
result of:

(i) the completion of foreclosure or comparable
proceedings with respect to the related Loan;

(ii) the Trustee's acceptance of the deed or other

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evidence of title to the related Property in lieu of
foreclosure or other proceeding with respect to the related
Loan; or

(iii) the acquisition by the Trustee of title thereto
by operation of law.

Foreclosure Advances. As defined in Section 3.08(b).

GNMA. The Government National Mortgage Association.

HUD. The United States Department of Housing and Urban
Development and any successor thereto.

Indemnification Agreement. The Indemnification Agreement
dated March 29, 1996, among the Certificate Insurer, the Underwriter and Mego,
as the same may be amended from time to time.

Independent. When used with respect to any specified
Person, such Person (i) is in fact independent of Mego, the Master Servicer, the
Depositor or any of their respective affiliates, (ii) does not have any direct
financial interest in or any material indirect financial interest in any of
Mego, the Master Servicer, the Depositor or any of their respective affiliates
and (iii) is not connected with any of Mego, the Master Servicer, the Depositor
or any of their respective affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of Mego, the
Master Servicer, the Depositor or any of their respective affiliates merely
because such Person is the beneficial owner of 1% or less of any class of
securities issued by Mego, the Master Servicer, the Depositor or any of their
respective affiliates, as the case may be.

Independent Accountants. A firm of nationally recognized
certified public accountants which is Independent.

Independent Contractor. Either (i) any Person (other than
the Master Servicer) that would be an "independent contractor" with respect to
the Trust within the meaning of Section 856(d)(3) of the Code if the Trust were
a real estate investment trust except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35 percent or more of any Class of Certificates), provided that the
Trust does not receive or derive any income from such Person and the
relationship between such Person and the Trust is at arm's length, all within
the meaning of Treasury Regulation section 1.856-4(b)(5) or (ii) any other
Person (including the Master Servicer) if the Master Servicer has delivered to
the Trustee an Opinion of Counsel to the effect that the taking of any

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<PAGE> 19
action in respect of any Foreclosed Property by such Person, subject to any
conditions therein specified, that is otherwise herein contemplated to be taken
by an Independent Contractor will not cause such Foreclosed Property to cease to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (determined without regard to the exception applicable for purposes of
Section 860D(a) of the Code), or cause any income realized in respect of such
Foreclosed Property to fail to qualify as rents from real property within the
meaning of Section 856(d) of the Code.

Initial Class A Certificate Balance. With respect to the Class
A-1 Certificates, $45,430,000; Class A-2 Certificates, $21,580,000; and Class
A-3 Certificates, $16,763,000.

Initial Principal Balance. With respect to any Loan, the
outstanding principal balance thereof at the opening of business on the Cut-Off
Date, as applicable, after giving effect to all payments of principal received
prior thereto.

Insurance Agreement. The Insurance Agreement, dated as of
March 21, 1996, as supplemented and amended from time to time among the
Certificate Insurer, the Trustee, the Contract of Insurance Holder, the
Depositor, the Master Servicer, the Servicer, the Seller and Claims
Administrator.

Insurance Policies. With respect to any Property, any related
title or other insurance policy other than the Contract of Insurance or the
Policy.

Insurance Proceeds. With respect to any Property, all amounts
collected in respect of Insurance Policies and not required to be applied to the
restoration of the related Property or paid to the related Obligor.

Insurance Record. The record established and maintained by the
Master Servicer (in a manner consistent with the Title I provisions set forth in
24 C.F.R. Section 201.32) setting forth the FHA insurance coverage attributable
to the Loans hereunder. To the extent consistent with adjustments pursuant to
Title I to the FHA Insurance Coverage Reserve Account, the Insurance Record
shall be reduced by the amount of claims approved for payment by the FHA with
respect to any Loan or Related Series Loan after the date of transfer of the
related FHA reserve account to the Contract of Insurance.

Insured Payment. As defined in the Policy.

Interest Advance. As defined in Section 3.08(a).

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<PAGE> 20
Interested Person. As of any date of determination, the Master
Servicer, the Depositor, Mego, or any registered Holder of a Class R Certificate
on the date of determination, or any of their respective affiliates.

Investment Order. With respect to amounts on deposit in an
Account, a written order with respect to the Eligible Investments in which the
amounts in such Account are to be invested, signed in the name of Mego by a
Responsible Officer of Mego.

Invoiced Loan. A Loan with respect to which the related
Obligor is required to pay the premium on FHA Insurance with respect to such
Loan.

Late Payment Rate. For any Distribution Date, the lesser of
(i) the rate of interest, as it is publicly announced by Citibank, N.A., as its
prime rate (any change in such prime rate of interest to be effective on the
date such change is announced by Citibank, N.A.) plus 2% and (ii) the maximum
rate permissible under any applicable law limiting interest rates. The Late
Payment Rate shall be computed on the basis of a year of 365 days calculating
the actual number of days elapsed.

Legal File. With respect to any Loan, the related documents
listed in Section 2.01(b)(A)(i)-(v) and any additional documents required to be
added thereto pursuant to this Agreement.

Loan. As of any date of determination, each of the mortgage
loans transferred and assigned to the Trustee pursuant to Section 2.01(a) or in
accordance with Section 2.04(c).

Loan Rate. With respect to any Loan, the fixed rate of
interest per annum set forth in the related Note (not including any amounts
payable as premium for FHA Insurance with respect to Invoiced Loans).

Loan Schedule. The schedule of Loans included in the Trust as
of the Cut-Off Date, specifying with respect to each such Loan the information
set forth on Exhibit B attached hereto.

Master Servicer. Norwest Bank Minnesota, N.A., a national
banking association, its successors in interest or any successor master servicer
appointed as herein provided.

Master Servicer Certificate. As defined in Section 4.01(c).

Master Servicer Fee. With respect to any Distribution Date,
1/12 times 0.08% times the Aggregate Principal Balance as of

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<PAGE> 21
the opening of business on the first day of the month preceding the month of
such Distribution Date (or the Cut-Off Date, in the case of the first
Distribution Date).

Master Servicer Termination Event. Any event specified in
Section 7.01.

Master Servicing Officer. Any officer of the Master Servicer
responsible for the administration and servicing of the Loans whose name and
specimen signature appears on a list of servicing officers furnished to the
Trustee by the Master Servicer, as such list may from time to time be amended.

Maturity Date. With respect to any Loan and as of any date of
determination, the date on which the last payment of principal is due and
payable under the related Note.

Maximum Rate. With respect to any Distribution Date a rate
equal to the quotient of (a) the excess of (i) the aggregate of the Monthly
Payments allocable to interest due during the related Due Period net of the
portion thereof allocable to Master Servicer Fees and Servicer Fees over (ii)
the sum of the amounts required to be distributed for such Distribution Date
pursuant to subsections (i), (iv)-(vi) of Section 4.05(a) and (b) one-twelfth of
the Aggregate Class A Certificate Balance (prior to giving effect to
distributions made on such Distribution Date).

Monthly Cut-Off Date. The last day of any calendar month, and
with respect to any Distribution Date, the last day of the calendar month
immediately preceding such Distribution Date.

Monthly Payment. With respect to any Loan and any Due Period,
the payment of principal and interest due in such Due Period pursuant to the
related Note (as amended or modified, if applicable, pursuant to Section 3.10).
The Monthly Payment related to a Determination Date or a Distribution Date shall
be the Monthly Payment due in the next preceding Due Period.

Moody's. Moody's Investors Service, Inc., or any successor
thereto.

Mortgage. With respect to any Loan, the mortgage, deed of
trust or other instrument creating a mortgage lien (and in a title theory state
the document conveying title to the Property as security for the related Loan)
on the related Property.

Mortgagee. With respect to any Loan as of any date of
determination, the holder of the related Note and Mortgage as of such date.

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<PAGE> 22
Mortgagor. With respect to any Loan, the obligor(s) on the
related Note.

Net Loan Rate. With respect to each Loan, the related Loan
Rate less the applicable Servicer Fee per annum.

Net Prepayment Interest Shortfall. As to any Distribution
Date, the amount by which aggregate Prepayment Interest Shortfalls during the
preceding Due Period exceed the sum of (a) the Servicer Fee for such
Distribution Date and (b) the amount otherwise available for distribution
pursuant to Section 4.05(a)(xvi) on such Distribution Date.

Nonrecoverable Advances. With respect to any Loan, (i) any
Interest Advance previously made and not reimbursed pursuant to Section
4.05(a)(iii), or (ii) an Interest Advance proposed to be made in respect of a
Loan which, in the good faith business judgment of the Master Servicer, as
evidenced by an Officer's Certificate delivered to the Certificate Insurer, Mego
and the Trustee no later than the Business Day following such determination,
would not be recoverable ultimately from the Payments in respect of that Loan.

Note. With respect to any Loan, the note (or notes), retail
installment sales contract or other instrument evidencing the indebtedness under
such Loan.

Notice of Termination. Notice given to the Trustee by the
Master Servicer pursuant to Section 9.01(e), or by Mego pursuant to Section
9.01(d).

Obligee. A Mortgagee.

Obligor. A Mortgagor.

OC Floor. The product of 1% and the Aggregate Principal
Balance as of the Cut-Off Date, which product is equal to $841,937.

OC Multiple. As to any Distribution Date, the highest OC
Multiple based upon the data set forth in the Master Servicer's Certificate for
such Distribution Date as set forth in the following chart:

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<PAGE> 23
<TABLE>
<CAPTION>
=========================================================================================================
Annual Default
30+ Day 60+ Day %
Delinquency Delinquency (3 Month Average)
OC Percentage Percentage
Multiple (Rolling 3 Month) (Rolling 3 Month)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
- ---------------------------------------------------------------------------------------------------------
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
- ---------------------------------------------------------------------------------------------------------
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
- ---------------------------------------------------------------------------------------------------------
2.50 greater than or =12.00% greater than or =7.00% greater than or =7.00%
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Cumulative Default Percentage
- ---------------------------------------------------------------------------------------------------------
Months* Months 0 Months -
0-12 0-24 Maturity
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2.50 greater than 5.0% greater than 8.0% greater than 12.0%
=========================================================================================================
</TABLE>

_______________________

* Month 0 is March, 1996.

OC Reduction Date. shall be the later of (i) the Distribution
Date occurring in March, 1999 and (ii) the Distribution Date on which the
Aggregate Principal Balance for such Distribution Date is equal to or less than
one-half of the aggregate of the Initial Principal Balances of all Loans.

Officer's Certificate. A certificate signed by (i) any Master
Servicing Officer or (ii) the Chairman of the Board, the Vice Chairman of the
Board, the President, a Vice President, an Assistant Vice President, the
Treasurer, the Secretary or one of the Assistant Treasurers or Assistant
Secretaries of the Depositor or Mego, as the case may be, as required by this
Agreement.

Opinion of Counsel. A written opinion of counsel (who is
acceptable to the Certificate Insurer and the Rating Agencies), who may be
employed by Mego, the Master Servicer, the Depositor or any of their respective
affiliates.

Other Fees. With respect to any Distribution Date, amounts in
respect of fees and expenses due to any provider of services to the Trust,
except the Trustee, the Master Servicer, the Servicer, the Claims Administrator,
the Contract of Insurance Holder and also except any Person, the fees of which
are required

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<PAGE> 24
by this Agreement to be paid by the Master Servicer, the Servicer, the Claims
Administrator, the Contract of Insurance Holder or the Trustee, but including
such amounts payable to the successor Master Servicer pursuant to Section
7.03(c).

Outstanding. With respect to any Class of Certificates as of
any date of determination, all Certificates of such Class theretofore executed,
countersigned and delivered pursuant to this Agreement except:

(i) Certificates theretofore cancelled by the
Certificate Registrar or delivered to the Certificate
Registrar for cancellation;

(ii) Certificates or portions thereof for which the
amount of the final distribution to be made thereon has been
previously deposited with the Trustee in trust for the Holders
of such Certificates;

(iii) Certificates in exchange for or in lieu of
which other Certificates have been executed, countersigned and
delivered pursuant to this Agreement; and

(iv) Certificates alleged to have been destroyed,
lost or stolen for which replacement Certificates have been
issued as provided for in Section 5.03;

provided, however, that, in determining whether the Holders of the requisite
percentage of any Class of Certificates have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Certificates
owned by Mego, the Depositor, any Holder of a Class R Certificate or any
affiliate of any of the foregoing shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent, or waiver, only Certificates which the Trustee knows to be so owned
shall be so disregarded; provided further that in the event that 100% of any
Class of Senior Certificates are owned by Mego, the Depositor or any affiliate
of any of the foregoing, such certificates shall be deemed to be Outstanding;
provided, further, that Certificates to which payments are made under the Policy
shall be deemed to be Outstanding and the Certificate Insurer shall be deemed to
be the Holder of such Certificate to the extent so paid.

Overcollateralization Amount. As of any Distribution Date the
amount, if any, by which the sum of the Aggregate Principal Balance as of the
end of the related Due Period exceeds the Aggregate Class A Certificate Balance
after giving effect to distributions of principal to be made on such
Distribution Date.

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<PAGE> 25
Ownership Interest. Any record or beneficial ownership
interest in any Class R Certificate.

Payment. With respect to any Loan or the related Foreclosed
Property and any Determination Date, all amounts received or collected by or on
behalf of the Master Servicer during the preceding Due Period in respect of such
Loan or Foreclosed Property from whatever source, including without limitation,
amounts received or collected from, or representing:

(i) the related Obligor;

(ii) the application to amounts due on such Loan (or,
in the case of any Foreclosed Property, to amounts previously
due on the related Foreclosed Loan) of any related Insurance
Proceeds, any related condemnation awards or settlements or
any payments made by any related guarantor or third-party
credit-support provider;

(iii) FHA Insurance Payment Amounts with respect to
such Loan;

(iv) the operation or sale of the related Foreclosed
Property;

(v) the Purchase Price with respect to such Loan; or

(vi) amounts deposited into the Distribution Account
pursuant to Section 9.01(d).

Percentage Interest. As to any Class A Certificate, the
percentage interest obtained by dividing the Denomination of such Certificate by
the aggregate of the Initial Class A Certificate Balance of all Certificates of
such Class. As to any Class S Certificate or Class R Certificate, the percentage
interest set forth on the face of such Certificate.

Permitted Transferee. Any Person other than (i) the United
States, any state or any political subdivision thereof, any possession of the
United States, or any agency or instrumentality of any of the foregoing (other
than an instrumentality that is a corporation if all of its activities are
subject to tax and a majority of its board of directors is not selected by any
such governmental unit), (ii) a foreign government, international organization
or any agency or instrumentality of either of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit),

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<PAGE> 26
(iii) an organization (except certain farmers' cooperatives described in Code
Section 521) exempt from tax imposed by Chapter 1 of the Code (including the tax
imposed by Section 511 of the Code on unrelated business taxable income) on any
excess inclusions (as defined in Code Section 860E(c)(1)) with respect to any
Class R Certificate, (iv) rural electric and telephone cooperatives described in
Code Section 1381(a)(2)(c), (v) any other Person so designated by the Trustee
based upon an Opinion of Counsel that the holding of an ownership interest in a
Class R Certificate by such Person may cause the Trust or any Person having an
ownership interest in any Class R Certificate, other than such Person, to incur
a liability for any tax imposed under the Code that would not otherwise be
imposed but for the transfer of an ownership interest in a Class R Certificate
to such Person and (vi) a Person that is not a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source unless such person provides the Trustee with a
duly completed Internal Revenue Service Form 4224. The terms "United States,"
"state" and "international organization" shall have the meanings set forth in
Code Section 7701 or successor provisions.

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

Plan of Complete Liquidation. A written plan adopted by the
Trustee, as attorney-in-fact for the Certificateholders, authorizing and
instructing the Trustee to liquidate the REMIC Pool within the meaning of
Section 860F(a)(4) of the Code by (i) selling all the Loans and Foreclosed
Properties then held by the REMIC Pool on the terms specified therein, and (ii)
making a final distribution to Certificateholders of the cash proceeds of such
sale and of all other cash then held by the REMIC Pool (less amounts retained to
meet any expenses of, and any claims against, the REMIC Pool), all in accordance
with the provisions of Section 9.01.

Policy. The certificate guaranty insurance policy number 20742
dated as of the Closing Date, as set forth in Exhibit N, issued by the
Certificate Insurer to the Trustee for the benefit of Senior Certificateholders.

Preference Amount. As defined in the Policy.

Premium. The premium payable to the Certificate Insurer

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<PAGE> 27
in accordance with Section 3.02 of the Insurance Agreement.

Prepayment Interest Shortfall. As to any Loan and Principal
Prepayment, the amount by which one month's interest at the related Loan Rate
(or such lower rate as may be in effect from a Loan because of the application
of the Civil Relief Act) minus the rate at which the Servicing Fee is calculated
on such Principal Prepayment exceeds the amount of interest paid by the
Mortgagor in connection with such Principal Prepayment.

Principal Balance. With respect to any Loan, and for any date
of determination, the Initial Principal Balance of such Loan reduced by all
amounts previously received or collected in respect of principal on such Loan on
or subsequent to the Cut-Off Date; provided, that with respect to any Defaulted
Loan, the Principal Balance shall be zero immediately after the Due Period in
which such Loan becomes a Defaulted Loan.

Principal Prepayment. Any payment or other receipt of
principal in full due on a Loan made by an Obligor which is received in advance
of the scheduled Maturity Date of such Loan.

Priority Expenses. With respect to any Distribution Date: (i)
any taxes assessed against the Trust; (ii) fees and expenses of Mego incurred
pursuant to Section 8.12; (iii) fees of the Independent Accountants incurred
during the one year period beginning on each anniversary of the Closing Date in
connection with the reports required by Section 3.05(b), Section 3.05(d)(2) and
Section 3.05(d)(3), and up to $20,000 of the fees of the Independent Accountants
in connection with the reports required by Section 3.05(d)(l); (iv) the
reasonable transition expenses of a successor Master Servicer incurred in acting
as successor Master Servicer and (v) expenses of either the Trustee or the
Master Servicer incurred pursuant to Section 8.01(e).

Property. With respect to any Loan, any fee interest in the
residential property subject to the lien of the related Mortgage.

Prospectus Supplement. The prospectus supplement, dated March
28, 1996, relating to the Class A Certificates.

Purchase Agreement. The loan purchase agreement entered into
between Mego, as Seller, and the Depositor, as purchaser, dated as of March 21,
1996.

Purchased Loan. As of any Monthly Cut-Off Date, any Loan
(including any Defaulted Loan) that became subject to purchase or repurchase
pursuant to Section 2.04(b) or Section 3.12, and in each case, as to which the
Purchase Price has been deposited in the

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<PAGE> 28
Distribution Account by Mego or the Master Servicer, as applicable.

Purchase Price. With respect to a Loan, means the Principal
Balance of such Loan as of the date of purchase, plus unpaid accrued interest at
the related Loan Rate to the last day of the month in which such purchase occurs
(without regard to any Interest Advance that may have been made with respect to
such Loan).

Rating Agency. Each of Moody's and Standard & Poor's, so long
as such Person maintains ratings on any of the Senior Certificates; and if
either Moody's or Standard & Poor's no longer maintains ratings on the Senior
Certificates, such other nationally recognized statistical rating organization
specified by Mego and (so long as a Certificate Insurer Default shall not have
occurred and be continuing) acceptable to the Certificate Insurer.

Record Date. With respect to any Distribution Date, the end of
the day on the related Monthly Cut-Off Date, except with respect to the Record
Date for the first Distribution Date, the Record Date shall be the Closing Date.

Reimbursement Amount. As of any Distribution Date, the sum of
(x) (i) Insured Payments previously received by the Trustee and not previously
re-paid to the Certificate Insurer pursuant to Section 4.05(a)(ix) hereof plus
(ii) interest accrued on such Insured Payment not previously repaid calculated
at the Late Payment Rate from the date the Trustee received such Insured Payment
and (y) (i) the amount of any Premium not paid on the date due and (ii) interest
on such amount at the Late Payment Rate. The Certificate Insurer shall notify
the Trustee and Depositor of the amount of any Reimbursement Amount.

Rejected Claim. A claim for payment made to the FHA under the
Contract of Insurance that has been finally rejected after all appeals with FHA
have been exhausted for any reason (including a rejection of a previously paid
claim and a demand by the FHA of a return of the FHA Insurance Payment Amount
for the related Loan) other than a refusal or rejection due to clerical error in
computing the claim amount or because the amount of the FHA Insurance Coverage
Reserve Account as shown in the Insurance Record is zero.

Related Documents. The Certificates, the Policy, the Purchase
Agreement and the Insurance Agreement.

Related Series. Means each of the subsequent series of trusts,
of which the Trustee is the trustee and the Certificate Insurer is the
certificate insurer, to which Related Series Loans are sold directly or
indirectly by Mego, established pursuant to

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<PAGE> 29
pooling and servicing agreements.

Related Series Loans. Means FHA Title I loans related to a
Related Series which: (i) are sold by Mego, directly or indirectly, to a trust,
(ii) the Title I insurance coverage attributable to which is made available to
cover claims with respect to the Loans and the Related Series Loans in each
other Related Series by virtue of terms relating to the administration of the
FHA Insurance Coverage Reserve Account substantially similar to the terms
hereof.

REMIC. A "real estate mortgage investment conduit," as defined
in the REMIC Provisions.

REMIC Pool. The pool of assets consisting of the Trust
Property for which an election shall be made to be treated as a REMIC under the
REMIC Provisions.

REMIC Provisions. Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Sections
860A through 860G of Subchapter M of Chapter 1 of the Code, and related
provisions, and regulations (either proposed, temporary or final) and related
revenue rulings and procedures, as the foregoing may be in effect from time to
time.

Required OC Amount. With respect to each Distribution Date,
the greater of (a) the OC Floor or (b) the product of (i) the OC Multiple for
such Distribution Date and (ii) if such Distribution Date is prior to the OC
Reduction Date, the product of 3.50% and (x) the Initial Principal Balance, or
(y) if such Distribution Date is on or after the OC Reduction Date, the lesser
of (A) the product of 3.50% and the Initial Principal Balance and (B) the
product of 7.00% and the Aggregate Principal Balance as of such Distribution
Date, or such lower amount as may be established by the Certificate Insurer in
its sole discretion after notice to and written approval by the Rating Agencies.

Reserve Fund. The account denominated as the Reserve Fund to
be established by the Trustee pursuant to Section 4.03(e) hereof.

Residual Interest. The fractional undivided interest evidenced
by a Class R Certificate in all amounts distributable to Holders of Class R
Certificates pursuant to Section 4.05(a).

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<PAGE> 30
knowledge of and familiarity with the particular subject. When used with respect
to any other Person that is not an individual, the President, any Vice-President
or Assistant Vice-President or the Controller of such Person, or any other
officer or employee having similar functions.

SAIF. The Savings Association Insurance Fund, as from time to
time constituted, created under the Financial Institutions Reform, Recovery and
Enhancement Act of 1989, or if at any time after the execution of this
instrument the Savings Association Insurance Fund is not existing and performing
duties now assigned to it, the body performing such duties on such date.

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

Senior Certificate. Any of the Class A-1, Class A-2, Class A-3
or Class S Certificates.

Servicer. Mego or any other Eligible Servicer with whom the
Master Servicer has entered into a Servicing Agreement pursuant to Section 3.02.

Servicer Fee. With respect to any Distribution Date, 1/12
times 1.25% times the Aggregate Principal Balance as of the opening of business
on the first day of the month preceding the month of such Distribution Date (or
the Cut-Off Date, in the case of the first Distribution Date), reduced by the
aggregate Prepayment Interest Shortfall for the related Due Period.

Servicer Review Report. As defined in Section 3.05(d).

Servicer Termination Event. With respect to the Servicing
Agreement, the events specified in Section 7.02 therein.

Servicing Agreement. The servicing agreement dated as of March
21, 1996, between Mego, as Servicer, the Master Servicer, the Trustee and the
Trust and any other agreement entered into in accordance with Section 3.02.

Servicing Record. The record maintained by the Master Servicer
pursuant to Section 3.03.

Servicing Standard. The standard set forth in Section 3.01(a).

60+ Day Delinquent Loan. With respect to any Determination
Date or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 61 days or more past due (without giving effect
to any grace

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<PAGE> 31
period).

60+ Delinquency Percentage (Rolling Three Month). With respect
to any Determination Date, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods the
numerator of each of which is equal to the aggregate Principal Balance of 60+
Day Delinquent Loans as of the end of such Due Period and the denominator of
which is the Aggregate Principal Balance as of the end of such Due Period.

Standard & Poor's. Standard & Poor's Rating Services, or any
successor thereto.

Start-up Day. The day designated as such in Section 8.12(a).

Substitute Loan. A Loan: (i) having characteristics such that
the statements made pursuant to Section 2.03(b) are true and correct as of the
date of substitution with respect to such Loan; (ii) each Monthly Payment with
respect to such Loan shall be greater than or equal to the Monthly Payments due
in the same Due Period on the Loan for which such Substitute Loan is being
substituted; (iii) the Maturity Date with respect to such Loan shall be no later
than the Maturity Date of the Loan for which such Substitute Loan is being
substituted; (iv) as of the date of substitution, the Principal Balance of such
Loan is less than or equal to (but not more than 1% less than) the Principal
Balance of the Loan for which such Substitute Loan is being substituted; and (v)
the Loan Rate with respect to such Loan is at least equal to the Loan Rate of
the Loan for which such Substitute Loan is being substituted; provided however
in the event more than one Substitute Loan is being substituted for one or more
Defective Loans on any date, in which case (i) the weighted average Loan Rate
for such Substitute Loans must equal or exceed the weighted average Loan Rate of
the Defective Loans immediately prior to giving effect to the substitution, in
each case weighted on the basis of the outstanding Principal Balance of such
loans as of such day, (ii) the sum of the Monthly Payments with respect to such
Substitute Loans shall be greater than or equal to the Monthly Payments due in
the same Due Period on the Defective Loans for which a substitution is being
made, and (iii) as of the date of substitution, the aggregate Principal Balances
of such Substitute Loans are less than or equal to (but not more than 1% less
than) the aggregate Principal Balances of the Defective Loans for which such a
substitution is being made.

Substitution Adjustment Amount. The meaning assigned to such
term in Section 2.04(d).

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<PAGE> 32
Tax Return. The federal income tax return on Internal Revenue
Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust due to its classification as a REMIC under
the REMIC Provisions, together with any and all other information, reports or
returns that may be required to be furnished to the Certificateholders or filed
with the Internal Revenue Service or any other governmental taxing authority
under any applicable provisions of federal, state or local tax laws.

Termination Date. The earlier of (a) the Distribution Date in
September, 2017 and (b) the Distribution Date next following the Monthly Cut-Off
Date coinciding with or next following the date of the liquidation or
disposition of the last asset held by the Trust pursuant to Section 3.13,
9.01(d) or 9.01(e).

30+ Day Delinquent Loan. With respect to any Determination
Date or related Distribution Date, a Loan, other than a Credit Support Multiple
Defaulted Loan, with respect to which any portion of a Monthly Payment is, as of
the prior Monthly Cut-Off Date, 31 days or more past due (without giving effect
to any grace period).

30+ Delinquency Percentage (Rolling Three Month). With respect
to any Determination Date, the average of the percentage equivalents of the
fractions determined for each of the three immediately preceding Due Periods the
numerator of which is equal to the aggregate Principal Balance of 30+ Day
Delinquent Loans as of the end of such Due Period, and the denominator of which
is the Aggregate Principal Balance as of the end of such Due Period.

Title Document. The evidence of title to or ownership of the
Property required by Title I. (See 24 C.F.R. 201.26(a)(1) and 201.20).

Title I. Section 2 of Title I of the National Housing Act of
1934, as amended, and the rules and regulations promulgated thereunder as each
may be amended from time to time and any successor statute, rules or regulations
thereto.

Transaction Documents. This Agreement, the Purchase Agreement,
the Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement.

Transfer. Any direct or indirect purchase, transfer, sale,
assignment or other form of disposition of any Ownership Interest in a
Certificate other than any pledge of such Certificate

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for security.

Transferee. Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.

Trust. The trust established hereby and evidenced by the FHA
Title I Loan Asset-Backed Certificates, Series 1996-1, designated as the "Mego
Mortgage FHA Title I Loan Trust 1996-1."

Trust Designated Insurance Amount. $8,419,374 or such greater
amount approved in advance in writing by the Certificate Insurer.

Trust Property. The property and proceeds of every kind
conveyed pursuant to Section 2.01 hereof or in accordance with Section 2.04(c)
hereof, together with the Policy and the Accounts (including all cash and
Eligible Investments therein and all proceeds thereof).

Trustee. First Trust of New York, National Association, its
successors in interest or any successor trustee appointed as herein provided.

Trustee Fee. With respect to any Distribution Date, the
greater of (a) one-twelfth of 0.04% times the Aggregate Principal Balance as of
the opening of business on the first day of the calendar month preceding the
calendar month of such Distribution Date (or the Cut-Off Date, in the case of
the first Distribution Date) and (b) $9,000.

Underwriter. Greenwich Capital Markets, Inc.

Voting Rights. The portion of the aggregate voting rights of
all the Certificates evidenced by a Class of Certificates. At all times during
the term of this Agreement, 99% of all of the Voting Rights shall be allocated
among Holders of the Class A Certificates and the Holders of the Class S
Certificates shall be entitled to 1% of all of the Voting Rights. Voting Rights
allocated to a Class of Certificates shall be allocated among the Certificates
of each such Class in accordance with their respective Percentage Interests.

Section I.02. Rules of Interpretation.I.02. Rules of
Interpretation. The terms "hereof," "herein" or "hereunder," unless otherwise
modified by more specific reference, shall refer to this Agreement in its
entirety. Unless otherwise indicated in context, the terms "Article,"
"Section ," "Exhibit" or "Schedule" shall refer to an Article or Section of, or
Exhibit or Schedule to, this Agreement. The definition of a term shall include
the singular, the plural, the past, the present, the future, the active and the
passive forms

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of such term.

ARTICLE II

Transfer and Assignment of Loans;
Issuance of Certificates

Section II.01. Transfer and Assignment of Loans.

(a) The Depositor as of the Closing Date does hereby, sell,
transfer, assign and otherwise convey to the Trustee for the benefit of the
Holders of the Certificates, in accordance with their terms and the terms
hereof, and the Certificate Insurer, without recourse other than as expressly
provided herein, and in accordance with the requirements for transfer of an
insured loan in Title I and 24 C.F.R. Section 201.32(c), all the right, title
and interest of the Depositor in and to (a) as of the Cut-Off Date, the Loans
delivered to the Trustee on the Closing Date, including the related Principal
Balance and all payments and collections on account thereof received on or with
respect to such Loans after the Cut-Off Date (including amounts due prior to the
Cut-Off Date but received thereafter), the rights to FHA Insurance reserves
attributable to the Loans as of the Cut-Off Date under Title I, the Files, the
Insurance Policies and any proceeds from any Insurance Policies, the Mortgages
and security interests in Properties which secure the Loans and any and all
documents or electronic records relating to the Loans, and all proceeds of any
of the foregoing, and (b) the Purchase Agreement.

It is the intention of the parties hereto that the transfers
and assignments contemplated by this Agreement shall constitute a sale of the
Loans and the other property specified in Section 2.01(a) from the Depositor to
the Trust and such property shall not be property of the Depositor. After the
Closing Date the Depositor shall each account for the transfer of the Loans in
its financial statements as a sale of the Loans. If the assignment and transfer
of the Loans and the other property specified in this Section 2.01(a) to the
Trustee pursuant to this Agreement or the conveyance of the Loans or any of such
other property to the Trustee is held or deemed not to be a sale or is held or
deemed to be a pledge of security for a loan, the Depositor intends that the
rights and obligations of the parties shall be established pursuant to the terms
of the Agreement and that, in such event, (i) the Depositor shall be deemed to
have granted and does hereby grant to the Trustee a first priority security
interest in the entire right, title and interest of the Depositor in and to the
Loans and all other property conveyed to the Trustee pursuant to this Section
2.01(a) and all proceeds thereof, and (ii) this Agreement shall constitute a
security agreement under applicable law. Within five

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<PAGE> 35
days of the Closing Date, the Depositor shall cause to be filed UCC-1 financing
statements naming the Trustee as "secured party" and describing the Loans being
sold by the Depositor to the Trust with the office of the Secretary of State of
the State in which the Depositor is located.

(b) In connection with the sale, transfer, assignment and
conveyance pursuant to Section 2.01(a), the Depositor hereby delivers to, and
deposits with, the Trustee the following documents or instruments with respect
to each Loan so sold, transferred, assigned and conveyed (provided that the
Credit Files shall be held in the custody of Mego as custodian on behalf of the
Trustee). Notwithstanding anything herein to the contrary, the Credit Files are
hereby conveyed to the Trustee and are, and shall at all times hereinafter be,
held in the custody of Mego, as custodian on behalf of the Trustee:

(A) With respect to each Loan:

(i) The original Note, showing a complete chain
of endorsements or assignments from the named payee to the
Trust and endorsed without recourse to the order of the
Trustee which latter endorsement may be executed with a
facsimile signature;

(ii) The original Mortgage with evidence of
recording indicated thereon (except that a true copy thereof
certified by an appropriate public official may be
substituted); provided, however, that if the Mortgage with
evidence of recording thereon cannot be delivered concurrently
with the execution and delivery of this Agreement solely
because of a delay caused by the public recording office where
such Mortgage has been delivered for recordation, there shall
be delivered to the Trustee a copy of such Mortgage certified
as a true copy in an Officer's Certificate, which Officer's
Certificate shall certify that such Mortgage has been
delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the
Trustee such Mortgage with evidence of recording indicated
thereon upon receipt thereof from the public recording
official (or a true copy thereof certified by an appropriate
public official may be delivered to the Trustee);

(iii) The original assignment of Mortgage to the
Trustee, in recordable form. Such assignments may be blanket
assignments, to the extent such assignments are effective
under applicable law, for Mortgages covering Properties
situated within the same county. If the assignment of Mortgage
is in blanket form an

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assignment of Mortgage need not be included in the individual
File;

(iv) All original intermediate assignments of
the Mortgage, showing a complete chain of assignments from the
named mortgagee to the assignor to the Trustee, with evidence
of recording thereon (or true copies thereof certified by
appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with
evidence of recording thereon cannot be delivered concurrently
with the execution and delivery of this Agreement solely
because of a delay caused by the public recording office where
such assignments of Mortgage have been delivered for
recordation, there shall be delivered to the Trustee a copy of
each such assignment of Mortgage certified as a true copy in
an Officer's Certificate, which Officer's Certificate shall
certify that each such assignment of Mortgage has been
delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the
Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the
public recording official (or true copies thereof certified by
an appropriate public official may be delivered to the
Trustee);

(v) An original of each assumption or
modification agreement, if any, relating to such Loan;

(vi) (A) An original or copy of notice signed
by the Obligor acknowledging HUD insurance, (B) an original or
copy of truth-in-lending disclosure, (C) an original or copy
of the credit application, (D) an original or copy of the
consumer credit report, (E) an original or copy of
verification of employment and income, or verification of
self-employment income, (F) an original or copy of evidence of
the Obligor's interest in the Property, (G) an original or
copy of contract of work or written description with cost
estimates, (H) (a) an original or copy of the completion
certificate or an original or copy of notice of
non-compliance, if applicable or (b) an original or copy of
report of inspection of improvements to the Property or an
original or copy of notice of non-compliance, if applicable,
(I) to the extent not included in (C), an original or a copy
of a written verification that the Mortgagor at the time of
origination was not more than 30 days delinquent on any senior
mortgage or deed of trust on the Property, (J) with respect to
each Loan for

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<PAGE> 37
which an appraisal is required pursuant to the applicable
regulations, an original or a copy of an appraisal of the
Property as of the time of origination of the Loan, (K) an
original or a copy of a title search as of the time of
origination with respect to the Property, and (L) any other
documents required for the submission of a claim with respect
to each Loan to the FHA.

With respect to any documents referred to clauses (A)(ii) and
(A)(iv) above that are not delivered to the Trustee because of a delay caused by
the public recording office such documents shall be delivered to the Trustee in
accordance with the terms of such clauses by Mego if such documents are received
by it or by the Depositor if such documents are received by it.

(c) Mego, at the direction of the Depositor, concurrently with
the execution and delivery hereof, has delivered to the Trustee cash in an
amount equal to at least an aggregate amount representing (i) the accrued annual
FHA premium due on each Loan to the Cut-Off Date, and (ii) the amount collected
in respect of the Loans after the Cut-Off Date. The Trustee shall distribute the
amount referred to in clause (i) of the previous sentence into the FHA Premium
Account and shall distribute the amount referred to in clause (ii) of the
previous sentence into the Distribution Account.

(d) Except as provided in Section 8.11 hereof, the Trustee
shall take and maintain continuous physical possession of the Files (except with
respect to the Credit Files) in the State of Minnesota, and in connection
therewith, shall act solely as agent for the holders of the Certificates and the
Certificate Insurer in accordance with the terms hereof and not as agent for
Mego or any other party.

(e) In addition to the documents delivered to the Trustee
pursuant to Section 2.01(b), on or prior to the Closing Date, the Policy will be
delivered to the Trustee for the benefit of the Holders of the Senior
Certificates.

(f) Within 60 days of the Closing Date, Mego, at its own
expense, shall cause the Trustee to record each assignment of Mortgage in favor
of the Trustee (which may be a blanket assignment if permitted by applicable
law) in the appropriate real property or other records; provided, however, the
Trustee need not cause to be recorded any assignment which relates to a Loan in
any jurisdiction under the laws of which, as evidenced by an Opinion of Counsel
delivered by Mego (at Mego's expense) to the Trustee, the Certificate Insurer
and the Rating Agencies, the recordation of such assignment is not necessary to
protect the Trustee's interest

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<PAGE> 38
in the related Loan. With respect to any assignment of Mortgage as to which the
related recording information is unavailable within 60 days following the
Closing Date, such assignment of Mortgage shall be submitted for recording
within 30 days after receipt of such information but in no event later than one
year after the Closing Date. The Trustee shall be required to retain a copy of
each assignment of Mortgage submitted for recording. In the event that any such
assignment of Mortgage is lost or returned unrecorded because of a defect
therein, Mego shall promptly prepare a substitute assignment of Mortgage or cure
such defect, as the case may be, and thereafter the Trustee shall be required to
submit each such assignment of Loan for recording.

Section II.02. Acceptance by Trustee

(a) The Trustee hereby acknowledges conveyance of the Note,
the Mortgage, if applicable, and the other documents included in the Legal File
relating to each Loan listed on the Loan Schedule, receipt of such Legal Files
(the contents of which are subject to the Trustee's review pursuant to Section
2.02(b)), receipt of the Policy and receipt of the cash delivered to the Trustee
pursuant to Section 2.01(c), and declares that it holds and will hold each such
Loan, each related Legal File, the Policy, such cash, all proceeds of any of the
foregoing and all other rights, titles or interests of the Trustee in any asset
included in the Trust Property from time to time, in trust for the use and
benefit of all present and future Holders of the Certificates of each Class and
the Certificate Insurer. The Trustee hereby agrees to maintain possession of the
Notes in the State of Minnesota.

(b) The Trustee agrees for the benefit of the Certificate
Insurer and the Certificateholders to review each Legal File within 45 Business
Days following the Closing Date, to confirm that all the documents and
instruments required to be included in each Legal File pursuant to Section
2.01(b) (i)-(v), are so included and have been executed (and that documents
which are required to be originals bear original signatures) and that such
documents and instruments relate to the Loans identified in the Loan Schedule
and are what they purport to be on their face. Promptly upon completion of such
review, the Trustee shall prepare and deliver a list of the Legal Files which
are incomplete as described in this paragraph and deliver such list to the
Certificate Insurer, the Master Servicer, the Depositor and Mego.

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deliver such list to the Certificate Insurer, the Master Servicer, the
Depositor and Mego and Mego shall be obligated to cure such incomplete File in
accordance with Section 2.04.

In performing the review required by this Section 2.02(b), the
Trustee may presume the due execution (unless no signature appears thereon) and
genuineness of any such document and the genuineness of any signature thereon.
The Trustee shall have no responsibility for reviewing any File except as
expressly provided in this Section 2.02(b). Without limiting the effect of the
preceding sentence, in reviewing any File pursuant to such Subsection, the
Trustee shall have no responsibility for determining whether any document is
valid and binding, whether the text of any assignment or endorsement is in
proper form (except, with respect to each Loan, to determine if the Trustee is
the assignee or endorsee and to determine if there is a complete chain of title
from the Person who is the initial payee and initial Mortgagee), whether the
recordation of any document is in accordance with the requirements of any
applicable jurisdiction, whether any person who has executed any document is
authorized to do so, whether each assumption or modification agreement, if any,
relating to a Loan has been delivered to it, whether a blanket assignment is
permitted or effective in any applicable jurisdiction or whether the
requirements for transfer of an insured loan specified in Title I, 24 C.F.R.
Section 201.32(c) or elsewhere have been complied with.

(c) The Credit File shall be held in the custody of Mego for
the benefit of, and as agent for, the Certificateholders and the Trustee as the
owner thereof and the Certificate Insurer. It is intended that by Mego's
agreement pursuant to this Section 2.02(c) the Trustee shall be deemed to have
possession of the Credit File for purposes of Section 9-305 of the Uniform
Commercial Code of the State in which such documents or instruments are located.
Mego shall promptly report to the Trustee and the Certificate Insurer any
failure by it to hold the Credit File as herein provided and shall promptly take
appropriate action to remedy any such failure. In acting as custodian of such
documents and instruments, Mego agrees not to assert any legal or beneficial
ownership interest in the Loans or such documents or instruments. Mego agrees to
indemnify the Certificateholders, the Certificate Insurer and the Trustee for
any and all liabilities, obligations, losses, damages, payments, costs, or
expenses of any kind whatsoever which may be imposed on, incurred by or asserted
against the Certificateholders, the Certificate Insurer or the Trustee as the
result of any act or omission by Mego relating to the maintenance and custody of
such documents or instruments which have been delivered to Mego; provided,
however, that Mego will not be liable for any portion of any such amount
resulting from the negligence or misconduct of any Certificateholder, the
Certificate

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Insurer or the Trustee and provided, further, that Mego will not be liable for
any portion of any such amount resulting from Mego's compliance with any
instructions or directions consistent with this Agreement issued to Mego by the
Trustee. The Trustee shall have no duty to monitor or otherwise oversee Mego's
performance as custodian hereunder.

Section II.03. Representations and Warranties of Mego.

(a) Mego hereby represents and warrants to the Depositor, the
Master Servicer, the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date:

(i) Mego is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Mego is duly qualified to do business, is in good standing and has
obtained all necessary licenses, permits, charters, registrations and
approvals (together, "approvals") necessary for the conduct of its
business as currently conducted and the performance of its obligations
under the Transaction Documents, in each jurisdiction in which the
failure to be so qualified or to obtain such approvals would render any
Transaction Document unenforceable in any respect or would have a
material adverse effect upon the Transaction.

(ii) Mego has full power and authority to execute,
deliver and perform, and to enter into and consummate all transactions
required of it by this Agreement and each other Transaction Document to
which it is a party; has duly authorized the execution, delivery and
performance of this Agreement and each other Transaction Document to
which it is a party; has duly executed and delivered this Agreement and
each other Transaction Document to which it is a party; when duly
authorized, executed and delivered by the other parties hereto, this
Agreement and each other Transaction Document to which it is a party
will constitute a legal, valid and binding obligation of Mego
enforceable against it in accordance with its terms, except as such
enforceability may be limited by general principles of equity (whether
considered in a proceeding at law or in equity);

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<PAGE> 41
legal restriction or any material agreement or instrument to which Mego
is now a party or by which it is bound, or which would adversely affect
the creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any of
the foregoing, or result in the violation of any law, rule, regulation,
order, judgment or decree to which Mego or their respective property is
subject;

(iv) There is no action, suit, proceeding, investigation
or litigation pending against Mego or, to its knowledge, threatened,
which, if determined adversely to Mego, would materially adversely
affect the sale of the Loans, the issuance of the Certificates, the
execution, delivery or enforceability of this Agreement or any other
Transaction Document, or which would have a material adverse affect on
the financial condition of Mego;

(v) No consent, approval, authorization or order of any
court or governmental agency or body is required for: (a) the
execution, delivery and performance by Mego of, or compliance by Mego
with, this Agreement, (b) the transfer of all FHA insurance reserves
relating to the Loans to the Contract of Insurance Holder, (c) the
issuance of the Certificates, (d) the sale of the Loans or (e) the
consummation of the transactions required of it by this Agreement,
except: (A) such as shall have been obtained before the Closing Date,
(B) the transfer of the FHA insurance reserves by FHA to the Contract
of Insurance Holder with respect to Loans as to which an FHA case
number has not been assigned as of the Closing Date, and (C) such as
may be required under state securities or "Blue Sky" laws in connection
with the sale of the Certificates by the Placement Agent;

(vi) Mego is not in default with respect to any order or
decree of any court or any order, regulation or demand of any federal,
state, municipal or governmental agency, which default might have
consequences that would materially and adversely affect the condition
(financial or other) or operations of Mego or its properties or might
have consequences that would materially and adversely affect its
performance hereunder;

(vii) Mego received fair consideration and reasonably
equivalent value in exchange for the sale of the Loans to the
Depositor;

(viii) HUD has approved in writing the transfer to the
Contract of Insurance of the FHA Reserve Amount relating

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<PAGE> 42
to each Loan and all actions have been taken by Mego (other than the
filing of the Transfer of Note Report Form 27030 with HUD) and all
required consents have been obtained (other than approval upon HUD's
receipt of such Transfer of Note Report), in either case, necessary to
effect transfer to the Contract of Insurance Holder of the FHA Reserve
Amount relating to each Loan (except for Loans with respect to which a
case number has not been assigned as of the Closing Date). The FHA
Reserve Amounts with respect to the Loans transferred to the Contract
of Insurance Holder both prior to and following the transfer of the
Loans to the Trustee will be available to satisfy claims with respect
to such Loans. The amount in the FHA Insurance Coverage Reserve
Account, together with all amounts to be requested for transfer with
respect to the Loans, will equal $8,419,374, which is the sum of
approximately 10% of the aggregate of the Aggregate Principal Balance
as of the Cut-off Date;

(ix) Mego is a non-supervised lender in good standing
with HUD under 24 CFR Section 202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR Part 201
pursuant to a valid contract of insurance, Number 70497-00003; and

(x) Mego has transferred the Loans without any intent to
hinder, delay or defraud any of its creditors.

(b) Mego hereby agrees for the benefit of the Depositor, the
Master Servicer and the Trustee for the benefit of the Certificateholders and
the Certificate Insurer, that the failure of any of the following
representations and warranties to be true and correct (as to each Loan and the
related Note and Mortgage, if applicable) as of the Cut-Off Date, or such later
date if so specified in such representation and warranty, gives rise to the
remedy specified in Section 2.04:

(i) The information pertaining to each Loan set forth in
the Loan Schedule was true and correct in all material respects as of
the Cut-Off Date;

(ii) As of the Closing Date at least 98.64% of the Loans
(by aggregate Initial Principal Balance) are not more than 30 days and
the remaining 1.36% of the Loans (by aggregate Initial Principal
Balance) are not more than 60 days past due (without giving effect to
any grace period); Mego has not advanced funds, induced, solicited or
knowingly received any advance of funds from a party other than the
Obligor, directly or indirectly, for the payment of any amount required
by the Loan;

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(iii) The terms of the Note and any related Mortgage
have not been impaired, waived, altered or modified in any respect,
except by written instruments reflected in the related File and
recorded, if necessary, to maintain the lien priority of the related
Mortgage; the substance of each such waiver, alteration and
modification has been approved by the FHA to the extent required under
Title I; no instrument of waiver, alteration or modification has been
executed, and no Obligor has been released, in whole or in part, except
in connection with an assumption agreement approved by the FHA to the
extent required under Title I, which assumption agreement is part of
the related File and the payment terms of which are reflected in the
related Loan Schedule;

(iv) The Note and any related Mortgage are not subject
to any set-off, counterclaim or defense, including the defense of usury
or of fraud in the inducement, nor will the operation of any of the
terms of the Note and any related Mortgage, or the exercise of any
right thereunder, render such Mortgage unenforceable, in whole or in
part, or subject to any right of rescission, set-off, counterclaim or
defense, including the defense of usury, and no such right of
rescission, set-off, counterclaim or defense has been asserted with
respect thereto;

(v) Any and all requirements of any federal, state or
local law applicable to the Loan (including any law applicable to the
origination, servicing and collection practices with respect thereto)
have been complied with;

(vi) The related Mortgage has not been satisfied,
cancelled, rescinded or subordinated, in whole or part, and Mego has
not waived the performance by the Mortgagor of any action, if the
Mortgagor's failure to perform such action would cause the Loan to be
in default; and the Property has not been released from the lien of the
Mortgage, in whole or in part, nor has any instrument been executed
that would effect any such satisfaction, subordination, release,
cancellation or rescission;

(vii) The related Mortgage is a valid, subsisting and
enforceable lien on the Property, including the land and all buildings
on the Property;

(viii) The Note and the related Mortgage are genuine and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights in general and by general principles
of

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equity;

(ix) To Mego's best knowledge, all parties to the Note
and the related Mortgage had legal capacity at the time to enter into
the Loan and to execute and deliver the Note and the related Mortgage,
and the Note and the related Mortgage have been duly and properly
executed by such parties;

(x) As of the Cut-Off Date, the proceeds of the Loan
have been fully disbursed and there is no requirement for future
advances thereunder, and any and all applicable requirements set forth
in the Loan documents have been complied with; the Mortgagor is not
entitled to any refund of any amounts paid or due under the Note or
Mortgage;

(xi) Immediately prior to the sale, transfer and
assignment to the Depositor, Mego will have good and indefeasible legal
title to the Loan, the related Note and the related Mortgage and the
full right to transfer such Loan, the related Note and the related
Mortgage, and Mego will have been the sole owner thereof, subject to no
liens, pledges, charges, mortgages, encumbrances or rights of others,
except for such liens as will be released simultaneously with the
transfer and assignment of the Loans to the Depositor; and immediately
upon the sale, transfer and assignment contemplated by the Purchase
Agreement, the Depositor will hold good title to, and be the sole owner
of each Loan, the related Note and the related Mortgage, subject to no
liens, pledges, charges, mortgages, encumbrances or rights of others;

(xii) Except for those Loans referred to in Section
2.03(b)(ii) above that are delinquent as of the Closing Date, there is
no default, breach, violation or event of acceleration existing under
the Loan, the related Note and the related Mortgage and there is no
event which, with the passage of time or with notice and the expiration
of any grace or cure period, would constitute a default, breach,
violation or event of acceleration and neither Mego nor its
predecessors have waived any default, breach, violation or event of
acceleration;

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

(xiv) Each Loan is an FHA Title I property

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<PAGE> 45
improvement loan (as defined in 24 C.F.R. Section 201.2) underwritten
and originated by Mego in accordance with FHA requirements for the
Title I Loan program as set forth in 24 C.F.R. Parts 201 and 202, and
Mego has transmitted a loan report with respect to such Loan to FHA so
that such Loan will be included in the Title I program;

(xv) The Loan is a fixed rate loan; the Note shall
mature within not more than 20 years and 32 days from the date of
origination of the Loan; the Note is payable in substantially equal
Monthly Payments, with interest payable in arrears, and requires a
Monthly Payment which is sufficient to fully amortize the original
principal balance over the original term and to pay interest at the
related Loan Rate; interest on each Loan is calculated on the basis of
a 360 day year consisting of twelve 30-day months, and the Note does
not provide for any extension of the original term;

(xvi) The related Note is not and has not been secured
by any collateral except the lien of the corresponding Mortgage;

(xvii) If the related Mortgage constitutes a deed of
trust, a trustee, duly qualified under applicable law to serve as such,
has been properly designated and currently so serves and is named in
the Mortgage, or a valid substitution of trustee has been recorded, and
no extraordinary fees or expenses are or will become payable to the
trustee under the deed of trust, except in connection with default
proceedings and a trustee's sale after default by the Mortgagor;

(xviii) Mego has no knowledge of any circumstances or
conditions not reflected in the representations set forth herein, or in
the Loan Schedule, or in the related File with respect to the related
Mortgage, the related Property or the Obligor which could reasonably be
expected to materially and adversely affect the value of the related
Property, or the marketability of the Loan or to cause the Loan to
become delinquent or otherwise in default;

(xix) Assuming no material change to the applicable law
or regulations in effect as of the Closing Date, after the consummation
of the transactions contemplated by this Agreement, the Trustee or its
designee on behalf of the Trust will have the ability to foreclose or
otherwise realize upon a Property or to enforce the provisions of the
related Loan against the Obligor thereunder, if the foreclosure upon
any such Property or enforcement of the provisions of the related Loan
against the Obligor are undertaken as set forth in Section 3.12;

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(xx) If required pursuant to Title I (see 24 C.F.R.
Section 201.40(c)), the improvements to the Property relating to each
Loan, have been or shall be completed and inspected by the Servicer
within the time period and to the extent required under the applicable
Title I regulations, and evidence of such inspection shall have been
delivered to the Trustee or, if not, a letter of non-compliance or
shall be delivered to the Trustee promptly upon the completion of such
inspection;

(xxi) Each Loan has been originated in compliance with
the provisions of 24 C.F.R. Section 201.20, no fraud or
misrepresentation was committed by any Person in connection therewith
and, if required by Title I, the market value of the related Property
has been ascertained in accordance with the procedures established by
HUD;

(xxii) There exists a File relating to each Loan and
such File contains all of the original or certified documentation
listed in Section 2.01(b)(A). Each Legal File has been delivered to the
Trustee and each Credit File is being held in trust by Mego for the
benefit of, and as agent for, the Certificateholders, the Certificate
Insurer and the Trustee as the owner thereof. Each document included in
the File which is required to be executed by the Obligor has been
executed by the Obligor in the appropriate places. Each assignment of
Mortgage to the Trustee is in recordable form and is acceptable for
recording under the laws of the jurisdiction in which the Property is
located. All blanks on any form required to be completed have been so
completed;

(xxiii) Each Loan is in respect of a home improvement
loan or a retail installment sale contract, and each Property with
respect thereto is improved by a residential dwelling and is not a Loan
in respect of a manufactured home or mobile home or the land on which a
manufactured home or mobile home has been placed;

(xxiv) Each Loan was originated by Mego in accordance
with the applicable underwriting criteria established by the FHA and
HUD;

(xxv) Each Property is covered by any insurance required
by Title I; if the Property is in an area identified by the Federal
Emergency Management Agency ("FEMA") as having special flood hazards,
unless the community in which the area is situated is participating in
the National Flood Insurance Program and the regulations thereunder or
less than a year has passed since FEMA notification regarding such
hazards, a flood insurance policy is in effect with respect to such
Property

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with a generally acceptable carrier which complies with Section 102(a)
of the Flood Disaster Protection Act of 1973;

(xxvi) No Loan was selected from among Mego's assets in
a manner which would cause them to be adversely selected as to credit
risk from the pool of home improvement loans owned by Mego;

(xxvii) All costs, fees and expenses incurred in
originating and closing the Loan and in recording the Mortgage were
paid and the Mortgagor is not entitled to any refund of any amounts,
paid or due to the Mortgagee pursuant to the Note or Mortgage;

(xxviii) Except for the related FHA Premium Amount,
there is no obligation on the part of Mego or any other party other
than the Obligor to make payments with respect to the Loan;

(xxix) At the time of origination of the Loan, each
related prior lien, if any, was not 30 or more days delinquent and at
the time of origination, the Mortgagor was not a debtor in any
bankruptcy proceeding;

(xxx) All parties which have had any interest in the
Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest,
were) (i) in compliance with any and all applicable licensing
requirements of the laws of the state wherein the Property is located,
and (ii) (A) organized under the laws of such state, or (B) qualified
to do business in such state, or (C) federal savings and loan
associations or national banks having principal offices in such state,
or (D) not doing business in such state;

(xxxi) Any related Mortgage contains an enforceable
provision requiring the consent of the Mortgagee to assumption of the
related Loan upon sale of the Property;

(xxxii) With respect to any Loan, there is no homestead
or other exemption available to the Mortgagor which would materially
interfere with the right to sell the related Property at a trustee's
sale or the right to foreclose the Mortgage; no relief has been
requested or allowed to the Mortgagor under the Civil Relief Act;

(xxxiii) Subject to Section 2.04(b), each Loan has been
submitted to the FHA for insurance pursuant to the FHA Title I loan
program and each Loan has been or will be assigned a case number by the
FHA for the FHA Title I loan program;

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<PAGE> 48
(xxxiv) Subject to Section 2.04(b), the FHA Reserve
Amount with respect to each Loan, has been or will be transferred to
the FHA Insurance Coverage Reserve Account;

(xxxv) The related File contains a Title Document with
respect to each Loan reflecting that title to the related Property is
vested at least 50% in the Obligor under such Loan;

(xxxvi) The Property (including each residential
dwelling improvement thereon) is free of damage which materially and
adversely affects the value thereof and which impairs the ability to
insure the related Loan under the Title I program;

(xxxvii) Each Loan is a "qualified mortgage" under
Section 860G(a)(3) of the Code;

(xxxviii) Each Loan was originated in compliance with
all applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or in the application of any insurance required by Title 1 in relation
to such Loan;

(xxxix) Each Loan has been serviced in accordance with
all applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;

(xl) The transfer, assignment and conveyance of the
Notes and the Mortgages by Mego to the Depositor were not subject to
the bulk transfer laws or any similar statutory provisions in effect in
any applicable jurisdiction;

(xli) Any Loan originated in the State of Texas, was
originated pursuant to Chapter 6 of the Texas Consumer Credit Code;

(xlii) As of the Cut-Off Date, no Mortgagor is a debtor
under proceedings under the Bankruptcy Code, and no such Mortgagor has
defaulted in payments on a Loan after the filing of such bankruptcy
case, whether under a plan or reorganization or otherwise;

(xliii) Mego has not advanced funds, or induced,
solicited or knowingly received any advance of loan payments from a
party other than the owner of the Property subject to the Mortgage;

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<PAGE> 49
(xliv) Mego originated the Loans through its network of
dealers and correspondents and the Loans were underwritten in
conformance with the underwriting standards of the Seller;

(xlv) Each Loan conforms, and all such Loans in the
aggregate conform, to the description thereof set forth in the
Prospective Supplement;

(xlvi) The representations and warranties of the
Mortgagor in each mortgage loan application and in connection with the
related Loan are true and correct in all material respects (and it
shall be deemed that a breach is material only if a claim for payment
made to the FHA under the Contract of Insurance in respect of such Loan
is a Rejected Claim as a result of such breach);

(xlvii) Each Loan either complies with the Home
Ownership and Equity Protection Act of 1994 or is not subject to such
act;

(xlviii) The Seller has caused to be performed or shall
cause to be performed within 15 Business Days of the Closing Date any
and all acts required to preserve the rights and remedies of the
Trustee in any insurance policies applicable to the Loans and required
by Title I, including, without limitation, any necessary notifications
of insurers, assignments of policies or interests therein, and
establishment of coinsured, joint loss payee and mortgagee rights in
favor of the Trustee;

(xlix) To the best of the Seller's knowledge, there
exists no violation of any environmental law (either local, state or
federal), rule or regulation in respect of the Property which violation
has or could have a material adverse effect on the market value of such
Property. The Seller has no knowledge of any pending action or
proceeding directly involving the related Property in which compliance
with any environmental law, rule or regulation is in issue; and, to the
best of the Seller's knowledge, nothing further remains to be done to
satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to the use and enjoyment of such Property;
and

(1) Not more than 3% of the Loans (by aggregate Initial
Principal Balance) are secured by Mortgages on non-owner occupied
Properties.

(c) The representations and warranties set forth in Section
2.03 (together with the remedies with respect thereto): (i) shall survive
delivery of the related Legal Files to

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the Trustee and the delivery of and payment for the Certificates and shall be
continuing (but shall speak as of their respective dates) as long as any
Certificate is Outstanding or this Agreement has not been terminated, and (ii)
are made exclusively to Mego, the Master Servicer, the Depositor, the
Certificate Insurer and the Trustee for the benefit of Certificateholders. No
representation or warranty made in this Section 2.03 shall constitute a waiver
of any right, claim or defense of the obligee with respect to any Obligor, Note,
Mortgage, or Property.

Section II.04. Defective Loans

(a) Upon determination by the Master Servicer, the
Certificate Insurer, the Depositor, Mego or the Trustee that:

(i) any document constituting a part of any File was not
delivered to the Trustee or, with respect to any document constituting
the Credit File, to Mego, as custodian for the Trustee and
Certificateholders, by the time required hereby (which in the case of
(A) a failure to deliver a recorded mortgage or recorded assignment
pursuant to Section 2.01(b)(A)(ii) or (A)(iv) (only under the
circumstances in which a delay is caused by the public recording office
and an Officer's Certificate is required to be provided thereunder)
shall be the 20 month anniversary of the Closing Date, (B) failure to
deliver a completion certificate or inspection report pursuant to
Section 2.01(b)(A)(vi)(H) shall be the 14 month anniversary of the
Closing Date, (C) a failure to deliver each other document constituting
a part of any Legal File shall be the Closing Date and (D) a failure to
deliver each document (other than those described in clause (B) above)
specified in Section 2.01(b)(A)(vi) shall be 45 Business Days after the
Closing Date) to be so delivered or was defective in any material
respect when delivered to the Trustee; or

(ii) any of the statements made by Mego in Section 2.03
shall prove to have been untrue in a manner that materially and
adversely affects the interests of Certificateholders or the
Certificate Insurer in the Loan with respect to which such statement is
made or in the Loans;

the party identifying any of the foregoing shall give prompt written notice to
the other parties and the Certificate Insurer. Nothing contained herein shall
require the Trustee to undertake any independent investigation or to make any
review of any File other than as provided for in Section 2.02.

(b) Except with respect to a breach of the representations
made by Mego pursuant to Section 2.03(b)(xxxiii) and (xxxiv), in the event of a
determination referred to in Section

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2.04(a) and a failure within sixty Business Days of discovery or receipt of
notice of such failure to effect a cure of the circumstances giving rise to such
defect, Mego shall be obligated, on the Monthly Cut-Off Date next succeeding the
expiration of such sixty-day period, to repurchase (or substitute for, to the
extent permitted by subsection (c) below) the affected Loan. The Certificate
Insurer and the Trustee on behalf of the Certificateholders agree that if a Loan
is a Defective Loan because a document is not included in the Credit File as of
the 90th Business Day after the discovery or receipt of notice thereof, such
defect shall be deemed to be cured if the Trustee shall have received during the
ninety-day period after such date a written statement addressed to it from the
Director of HUD Title I Insurance Division that such document would not be
required in connection with a claim for FHA Insurance with respect to such Loan.
It is understood and agreed that the obligation of Mego to repurchase or
substitute any such Loan pursuant to this Section shall constitute the sole
remedy against it with respect to such breach of the foregoing representations
or warranties or the existence of the foregoing conditions. For purposes of
calculating 90 Business Days from the discovery of a Defective Loan because a
document is not included in the Credit File in this Section 2.04(b), a Business
Day shall not include any day on which the FHA is officially closed for reasons
other than as specified in the definition of Business Day. With respect to
representations and warranties made by Mego pursuant to Section 2.03 that are
made to Mego's best knowledge, if it is discovered by any of the Depositor,
Mego, the Trustee or the Certificate Insurer that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Loan, notwithstanding Mego's lack of
knowledge, such inaccuracy shall be deemed a breach of the applicable
representation and warranty.

With respect to a breach of the representations made by Mego
pursuant to Section 2.03(b)(xxxiii) or (xxxiv) if the FHA has not assigned a
case number under the Contract of Insurance to a Loan to indicate that such Loan
is eligible for Title I Insurance coverage under the Contract of Insurance on or
before the 120th day after the Closing Date, Mego shall be obligated, on the
Monthly Cut-Off Date next succeeding such 120th day, to repurchase such Loan. If
the FHA Reserve Amount with respect to a Loan has not been transferred to the
FHA Insurance Coverage Reserve Account on or before the 150th day after the
Closing Date, Mego shall be obligated, on the Monthly Cut-Off Date next
succeeding such 150th day, to repurchase such Loan. The Claims Administrator
shall give notice in writing to each of the Master Servicer, the Certificate
Insurer, the Depositor, Mego and the Trustee of (i) any Loan with respect to
which there has not been assigned a case number under the Contract of Insurance
on or before the 120th day after the Closing Date and (ii) any Loan that has not
been transferred to the

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FHA Insurance Coverage Reserve Account on or before the 150th day after the
Closing Date. For purposes of calculating either 120 or 150 days from the
Closing Date in this Section 2.04(b), any day on which the FHA is officially
closed for reasons other than such day being a Saturday, Sunday or a day on
which banking institutions in Washington, D.C. are authorized or obligated by
law, executive order or governmental decree to be closed, shall not be counted
in making such calculation.

If Mego is required to repurchase any Loan on a Monthly
Cut-Off Date that is not a Business Day, such repurchase shall be made on the
last Business Day preceding such Monthly Cut-Off Date. Any Loan required to be
purchased or repurchased pursuant to this Section 2.04(b) is referred to as a
"Defective Loan."

(c) Mego shall be obligated to repurchase a Defective Loan for
the Purchase Price, payable to the Trustee in cash on the Monthly Cut-Off Date
specified in Section 2.04(b) for deposit in the Distribution Account.
Notwithstanding the foregoing, within two years of the Closing Date, Mego may
elect in lieu of the purchase or repurchase of a Defective Loan as provided in
this Section 2.04, to substitute, as of the Monthly Cut-off Date specified in
Section 2.04(b), a Substitute Loan for the Defective Loan in accordance with the
provisions of this Section 2.04.

(d) Mego shall notify the Servicer, the Trustee and the
Certificate Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 2.04(b) of its
intention to effect a substitution under this Section . On such Determination
Date (the "Substitution Date"), Mego shall deliver to the Trustee and the
Certificate Insurer (1) a list of the Loans to be substituted for by such
Substitute Loans, and attaching as an exhibit a supplemental Loan Schedule (the
"Supplemental Loan Schedule") setting forth the same type of information
appearing on the Loan Schedule and representing as to the accuracy thereof and
(2) an Opinion of Counsel to the effect set forth below. In connection with any
substitution pursuant to this Section 2.04, to the extent that the aggregate
Principal Balance of any Substitute Loan or Loans is less than the aggregate
Principal Balance of the corresponding Loan or Loans as of the Determination
Date on which the substitution is being made, Mego shall deposit such difference
(a "Substitution Adjustment Amount") to the Distribution Account on such date.

(e) Concurrently with the satisfaction of the conditions set
forth in this Section 2.04 and the grant of such Substitute Loans to the Trustee
pursuant to Section 2.04(c), Exhibit B to this Agreement shall be deemed to be
amended to exclude all Loans being replaced by such Substitute Loans and to

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include the information set forth on the Supplemental Loan Schedule with respect
to such Substitute Loans, and all references in this Agreement to Loans shall
include such Substitute Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Substitute Loans.

In connection with any Loan for which Mego elects to
substitute a Substitute Loan, Mego shall deliver to the Trustee and the
Certificate Insurer an Opinion of Counsel to the effect that such actions will
not cause (x) any federal tax to be imposed on the Trust, including without
limitation, any Federal tax imposed on "prohibited transactions" under Section
860F(a)(1) of the Code or on "contributions after the start-up day" under
Section 860G(d)(1) of the Code or (y) any portion of the Trust to fail to
qualify as a REMIC at any time that any Certificate is outstanding. In the event
that such opinion indicates that such substitution will result in the imposition
of a prohibited transaction tax, give rise to net taxable income or be deemed a
contribution to the REMIC after the "start-up day", Mego shall not be permitted
to substitute for such Loan but shall repurchase such Loan in accordance with
this Section 2.04.

(f) Notwithstanding the provisions of Section 2.04(b), the
Certificate Insurer, in its sole discretion, may extend, by not more than 150
days from the date of the notice described in Section 2.04(b), the sixty-day
period available, pursuant to Section 2.04(b), to Mego to cure the circumstances
giving rise to a defect with respect to any Loan described in Section 2.04(a).

(g) With respect to all Defective Loans or other Loans
repurchased by Mego pursuant to this Agreement, upon the deposit of the Purchase
Price therefor to the Distribution Account, the Trustee shall assign to Mego,
without recourse, representation or warranty, all the Trustee's right, title and
interest in and to such Defective Loans, which right, title and interest were
conveyed to the Trustee pursuant to Section 2.01, including, without limitation,
the rights to the FHA Insurance reserves attributable to such Defective Loans.
The Trustee shall take any actions as shall be reasonably requested by Mego to
effect the repurchase of any such Defective Loans.

Section 2.05. Representations and Warranties of the
DepositorRepresentations and Warranties of the Depositor. The Depositor hereby
represents and warrants to Mego, the Master Servicer and the Trustee for the
benefit of the Certificateholders and the Certificate Insurer, that, as of the
Closing Date:

(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware with full power and authority to own its

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properties and conduct its business as such properties are presently
owned and such business is presently conducted;

(ii) The Depositor has full power and authority to
execute, deliver and perform, and to enter into and consummate all
transactions required of it by this Agreement and each other
Transaction Document to which it is a party; has duly authorized the
execution, delivery and performance of this Agreement and each other
Transaction Document to which it is a party; has duly executed and
delivered this Agreement and each other Transaction Document to which
it is a party; when duly authorized, executed and delivered by the
other parties hereto, this Agreement and each other Transaction
Document to which it is a party will constitute a legal, valid and
binding obligation of the Depositor enforceable against it in
accordance with its terms, except as such enforceability may be limited
by general principles of equity (whether considered in a proceeding at
law or in equity);

(iii) Immediately prior to the sale, transfer and
assignment by the Depositor to the Trustee of each Loan, the Depositor
had good and indefeasible title to each Loan and the related Note and
Mortgage (insofar as such title was conveyed to it by Mego) subject to
no prior lien, claim, participation interest, mortgage, security
interest, pledge, charge or other encumbrance or other interest of any
nature;

(iv) As of the Closing Date, the Depositor has
transferred all right, title and interest in the Loans to the Trustee;

(v) The Depositor has not transferred the Loans to the
Trustee with any intent to hinder, delay or defraud any of its
creditors;

(vi)Neither the execution and delivery of this Agreement
or any of the other Transaction Documents to which the Depositor is a
party, the consummation of the transactions required of it herein or
under any other such Transaction Document, nor the fulfillment of or
compliance with the terms and conditions of this Agreement or any of
the other Transaction Documents to which the Depositor is a party, will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Depositor's charter or by-laws or any legal
restriction or any material agreement or instrument to which the
Depositor is now a party or by which it is bound, or which would
adversely affect the creation and administration of the Trust as
contemplated hereby, or constitute a material default or result in an
acceleration under any of the foregoing, or result in the violation of
any

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law, rule, regulation, order, judgment or decree to which the
Depositor is subject;

(vii) There is no action, suit, proceeding, investigation or
litigation pending against the Depositor or, to its knowledge,
threatened, which, if determined adversely to the Depositor, would
materially adversely affect the sale of the Loans, the issuance of the
Certificates, the execution, delivery or enforceability of this
Agreement or any other Transaction Document to which the Depositor is a
party, or which would have a material adverse affect on the financial
condition of the Depositor; and

(viii) The Depositor received fair consideration and
reasonably equivalent value in exchange for the sale of the interest in
the Loans evidenced by the Certificates.

Section 2.06. Execution, Countersignature and Delivery of
CertificatesExecution, Countersignature and Delivery of Certificates.
Concurrently with, and in consideration for, the sale, transfer, assignment and
conveyance by the Depositor of the Loans listed in the Loan Schedule on the
Closing Date, the delivery by the Depositor of the related Files pursuant to
Section 2.01(b), the delivery of the cash required by Section 2.01(c) to be
deposited in the Distribution Account and the FHA Premium Account, the Trustee
has executed, authenticated and delivered to or upon the order of the Depositor,
Class A Certificates, the Class S Certificates and the Class R Certificates
specified in Section 5.01(a).

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III ARTICLE III

Administration and Servicing of Loans;
Claims Administration

Section III.01. Servicing Standard

(a) The Master Servicer is hereby authorized to act as agent
for the Trust and in such capacity shall manage, service, administer and make
collections on the Loans, and perform the other actions required by the Master
Servicer under this Agreement. In performing its obligations hereunder the
Master Servicer shall at all times act in good faith in a commercially
reasonable manner in accordance with all requirements of the FHA applicable to
the servicing of the Loans and otherwise in accordance with applicable law and
the Notes and Mortgages. The Master Servicer shall at all times service and
administer the Loans in accordance with Title I, and shall have full power and
authority, acting alone and/or through the Servicer as provided in Section 3.02,
subject only to this Agreement, the respective Loans, and the specific
requirements and prohibitions of Title I, to do any and all things in connection
with such servicing and administration which are consistent with the manner in
which prudent servicers service FHA Title I home improvement mortgage loans and
which are consistent with the ordinary practices of prudent mortgage lending
institutions, but without regard to:

(i) any relationship that the Master Servicer, the
Servicer or any affiliate of the Master Servicer or any Servicer may
have with the related Obligor:

(ii) Mego's obligations to repurchase or substitute for
a Defective Loan pursuant to Section 2.04(c) or Section 3.12(b);

(iii) the ownership of any Certificate by the Master
Servicer or any affiliate of the Master Servicer;

(iv) the Master Servicer's obligation to make Interest
Advances pursuant to Section 3.08(a), to make Foreclosure Advances
pursuant to Section 3.08(b), or repurchase Loans pursuant to Section
3.12; or

(v) the Master Servicer's right to receive compensation
for its services hereunder pursuant to Section 4.05.

The Master Servicer may take any action hereunder, including
exercising any remedy under any Loan, retaining counsel in connection with the
performance of any of its obligations

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hereunder and instigating litigation to enforce any obligation of any Obligor,
without the consent or approval of the Trustee or the Certificate Insurer,
unless any such consent or approval is expressly required hereunder or under
applicable law.

(b) The Trustee shall execute and return to the Master
Servicer or the Servicer designated in a written instruction from the Master
Servicer to the Trustee, within 5 days of the Trustee's receipt any and all
documents or instruments necessary to maintain the lien created by any Mortgage
on the related Property or any portion thereof, and, within 5 days of request by
the Master Servicer or the Servicer therefor a power of attorney in favor of the
Servicer with respect to any modification, waiver, or amendment to any document
contained in any File and any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Loans and with respect to the
related Properties prepared and delivered to the Trustee by the Master Servicer
or any Servicer, all in accordance with the terms of this Agreement.

(c) The Trustee shall furnish the Master Servicer within 5
days of request of a Master Servicing Officer therefor any powers of attorney
and other documents necessary and appropriate to carry out its servicing and
administrative duties hereunder, including any documents or powers of attorney
necessary to foreclose any Loan. The forms of any such powers or documents shall
be appended to such requests.

(d) Nothing in this Agreement shall preclude the Master
Servicer, in its individual capacity, from entering into other mortgage loans or
other financial transactions with any Obligor or from refinancing any Loan.

(e) The Servicer hereby incorporates by reference the
representations, warranties and covenants made by it in Section 2.02 of the
Servicing Agreement.

Section III.02. Servicing Arrangements

(a) On or prior to the date hereof, the Master Servicer has
entered into a Servicing Agreement with respect to all of the Loans, in
substantially the form of the Form of the Servicing Agreement attached hereto as
Exhibit A with Mego, as Servicer. So long as no Certificate Insurer Default
shall have occurred and be continuing, upon the termination of the Servicing
Agreement, the Master Servicer may only appoint or consent to the appointment or
succession of a successor Servicer under the Servicing Agreement and may only
enter into a substitute servicing agreement which is in form and substance as
the Servicing Agreement attached hereto as Exhibit A (which, with the consent of
the Certificate Insurer, may

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differ in material respects from the Form of Servicing Agreement attached hereto
as Exhibit A) and with a Person acceptable to the Certificate Insurer. So long
as no Certificate Insurer Default exists, the Master Servicer shall not consent
to any material amendment, modification or waiver of the provisions of a
Servicing Agreement without the consent of the Certificate Insurer.

(b) No provision of this Agreement or the Servicing Agreement
shall be deemed to relieve the Master Servicer of any of its duties and
obligations to the Trustee on behalf of Certificateholders and the Certificate
Insurer with respect to the servicing and administration of the Loans; it being
understood that the Master Servicer shall be obligated with respect thereto to
the same extent and under the same terms and conditions as if it alone were
performing all duties and obligations set forth in this Agreement in connection
with the collection, servicing and administration of such Loans.

(c) Without limitation of the provisions of Section 3.02(b),
the Master Servicer shall (i) review the servicing reports prepared by the
Servicer in order to ensure the accuracy thereof, (ii) review the reports
submitted by the Servicer to confirm that the Servicer is collecting and
appropriately accounting for Obligor payments of premium on FHA Insurance on
Invoiced Loans, (iii) otherwise monitor the performance by the Servicer under
the Servicing Agreement and notify the Trustee and the Certificate Insurer of
any Servicer Termination Event, and (iv) be liable for the deposit by the
Servicer of Payments into the Collection Account to the same extent as if such
amounts were received or collected directly by the Master Servicer.

(d) The Master Servicer agrees that it shall at all times be
prepared (and shall take all steps reasonably required by the Certificate
Insurer to ensure such preparation), to perform the obligations of the Servicer
if the Servicer fails to perform its duties and obligations under the Servicing
Agreement.

(e) The Servicing Agreement may provide that the Servicer may
retain, as additional compensation, prepayment penalties, assumption and
processing fees paid by any Obligor and all similar fees customarily associated
with the servicing of the Loans, including, but not limited to late charges,
paid by any Obligor.

(f) At the direction of the Certificate Insurer, so long as no
Certificate Insurer Default exists, the Master Servicer shall terminate the
Servicer upon the occurrence and continuance of a Servicer Termination Event
pursuant to the terms of the Servicing Agreement.

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(g) Mego, as Servicer, shall provide information to the Master
Servicer monthly in a mutually agreeable format in order to enable the Master
Servicer to independently reconfirm the loan-by-loan reconciliation of the
outstanding Principal Balance of each Loan included in such information. The
Master Servicer shall prepare exception reports, if necessary, showing all
Principal Balance differences between the information provided by the Servicer
and the confirmations prepared by the Master Servicer and shall furnish such
reports to the Trustee for distribution to the Certificate Insurer. If requested
by the Certificate Insurer, the Servicer shall provide to the Certificate
Insurer all information provided to the Master Servicer pursuant to
this Section 3.02(g).

Section III.03. Servicing Record

(a) The Master Servicer shall establish and maintain books and
records (the "Servicing Record") in which the Master Servicer shall record: (i)
all Payments received or collected by or on behalf of the Master Servicer
(through the Servicer or otherwise) or received by the Trustee in respect of
each Loan and each Foreclosed Property and (ii) all amounts owing to the Master
Servicer in compensation for services rendered by the Master Servicer hereunder
or in reimbursement of costs and expenses incurred by the Master Servicer
hereunder. In addition, the Master Servicer shall establish and maintain records
for the Insurance Record (which shall be part of such Servicing Record) in which
the Master Servicer shall record all claims made under the Contract of
Insurance, all payments received by or on behalf of the Contract of Insurance
Holder from the FHA for each such claim and the amount of insurance coverage
available in the Insurance Record.

(b) Except as otherwise provided herein, amounts received or
collected by or on behalf of the Master Servicer or the Trustee from or on
behalf of any Obligor or in respect of any Foreclosed Property or from FHA with
respect to a claim made under the Contract of Insurance shall be credited to the
Servicing Record:

(i) promptly following direct receipt or direct collection
by the Master Servicer;

(ii) in the case of a Loan directly serviced by a
Servicer, promptly following deposit of the receipt or collection in
the related Collection Account; or

(iii) in the case of any amount received directly by the
Trustee, promptly following the Master Servicer's actual knowledge of
receipt by the Trustee pursuant to the notice required by Section
3.12(e) or otherwise;

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but in any event not later than the Determination Date next following the date
of receipt or collection by or on behalf of the Master Servicer (through the
Servicer or otherwise) or receipt by the Trustee. Amounts received or collected
by the Master Servicer in connection with the purchase or repurchase of any Loan
or any Foreclosed Property shall be so recorded on and as of the date of
receipt. The Servicing Record shall separately reflect amounts so received or
collected by the Master Servicer in each Due Period. All Obligor Payments
received from or on behalf of an Obligor shall be allocated in accordance with
Title I.

(c) The Master Servicer shall credit to the Servicing Record
relating to each Due Period, on a Loan-by-Loan basis, each of the following
Payments collected or received by or on behalf of the Master Servicer (through
the Servicer or otherwise) or received by the Trustee in respect of each Loan
and each Foreclosed Property:

(i) all payments on account of principal;

(ii) all payments on account of interest;

(iii) all proceeds of the purchase or repurchase of any
Loan pursuant to Section 2.04(b) or Section 3.12(b) and all
Substitution Adjustment Amounts;

(iv) all amounts paid by or on behalf of the related
Obligor in respect of Foreclosure Advances previously advanced by the
Master Servicer or the Servicer;

(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 3.13;

(vi) all proceeds of the sale of the Loans and any
Foreclosed Properties pursuant to Section 9.01;

(vii) all FHA Insurance Payment Amounts; and

(viii) all Insurance Proceeds, any condemnation awards or
settlements or any payments made by any related guarantor or
third-party credit-support provider and any and all other amounts
received in respect of Loans and not specified above.

(d) Notwithstanding anything to the contrary herein, the
Master Servicer shall not be required to credit to the Servicing Record, and
neither the Master Servicer nor any Certificateholder shall have any right or
interest in any amount due or received with respect to any Loan or any related
Foreclosed

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Property subsequent to the date of repurchase of such Loan or Foreclosed
Property from the Trust.

(e) The Master Servicer shall separately record in the
Servicing Record the items required to be included in the Master Servicer
Certificate and additionally the following items to the extent not included
therein:

(i) on or before each Determination Date, the unpaid
Master Servicer Fee due the Master Servicer on the next Distribution
Date;

(ii) on or before each Determination Date, all
amounts retained by the Servicer in respect of the preceding Due Period
in respect of amounts due Independent Contractors hired by the Master
Servicer to operate and manage a Foreclosed Property pursuant to
Section 3.14(c);

(iii) on or before each Determination Date, the
amount of unreimbursed Interest Advances in respect of prior
Distribution Dates and the amount which the Master Servicer or the
Servicer is entitled to be reimbursed therefor in accordance with
Section 3.08;

(iv) on or before each Determination Date, all
amounts due as of the preceding Monthly Cut-Off Date in reimbursement
of Foreclosure Advances previously advanced by the Master Servicer or
the Servicer (separately identifying the type and amount of each then
due);

(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Trustee, all
Priority Expenses required to be distributed pursuant to Section
4.05(a)(v) on the next succeeding Distribution Date;

(vi) promptly following each Distribution Date, the
aggregate amount of the Master Servicer Fee and Servicer Fee paid to
the Master Servicer or Servicer, respectively, on such Distribution
Date pursuant to Section 4.05(a)(ii);

(vii) promptly following each Distribution Date, the
aggregate amount of Interest Advances and Foreclosure Advances
reimbursed to the Master Servicer or the Servicer on such Distribution
Date;

(viii) on or prior to each Determination Date, all
unpaid Trustee Fees due the Trustee as of the preceding Monthly Cut-Off
Date pursuant to Section 8.05;

(ix) on or prior to each Determination Date, the

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Principal Balance of Loans that became Defaulted Loans during the prior
Due Period;

(x) on or before each Determination Date, each
Collateral Performance Percentage,

(xi) on or before each Determination Date, the amount
deposited into the Collection Account representing payments by Obligors
on Invoiced Loans in respect of premium on FHA Insurance;

(xii) on or before each Determination Date, the
amount remaining in the FHA Insurance Coverage Reserve Account with
respect to the Loans and the Related Series Loans, if any;

(xiii) on or before each Determination Date,
identification by loan number, Obligor name, address of Property and
Principal Balance of each Loan with respect to which the Master
Servicer has requested that the Trustee obtain the environmental report
required by Section 3.12 in connection with deciding pursuant to
Section 3.12 to foreclose on or otherwise acquire title to the related
Property;

(xiv) on or before each Determination Date, the
Principal Balance of each Loan with respect to which the Master
Servicer has determined under the circumstances described in the
penultimate sentence of Section 3.12(a) that in good faith in
accordance with customary mortgage loan servicing practices that all
amounts which it expects to receive with respect to such Loan have been
received; and

(xv) on or before each Determination Date, any other
information with respect to the Loans reasonably required by the
Trustee or the Certificate Insurer to determine the amount of required
distributions pursuant to Section 4.05(a) and determinable by the
Master Servicer without undue burden from the Servicer or the items
otherwise required to be maintained in the Servicing Record.

(f) On or before each Distribution Date, the Master Servicer
will determine, based on the date of origination of the Loans as set forth in
the Loan Schedule, the amount of FHA insurance premium, if any, due on or prior
to the next succeeding Distribution Date with respect to each Loan. On or before
such Distribution Date, the Master Servicer will compare such amounts with
respect to each Loan against amounts invoiced by FHA with respect to the
Contract of Insurance as due on or prior to such next succeeding Distribution
Date and report all discrepancies to the Trustee. Mego will assist the Trustee
with the transfer of FHA Insurance with respect to each Loan to the Contract of
Insurance

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Holder. The Master Servicer is not responsible for the transfer of FHA Insurance
or the payment of any premium for FHA Insurance.

Section III.04. Annual Statement as to Compliance; Notice of
Master Servicer Termination Event.

(a) The Master Servicer will deliver to the Trustee and the
Certificate Insurer on or before May 31 of each year an Officer's Certificate
signed by two Responsible Officers of the Master Servicer stating with respect
to the Trust created hereunder, that:

(i) a review of the activities of the Master Servicer
during the preceding calendar year (or in connection with the first
such Officer's Certificate the period from the Closing Date through the
end of 1996) and of the Master Servicer's performance under this
Agreement with respect to such Trust has been made under the
supervision of the signer of such Officer's Certificate; and

(ii) to the best of such signer's knowledge, based on
such review, the Master Servicer has fulfilled all its obligations
under this Agreement throughout such year (or such portion of such
year), or there has been a default in the fulfillment of any such
obligation, in which case such Officer's Certificate shall specify each
such default known to such signer and the nature and status thereof and
what action the Master Servicer proposes to take with respect thereto.

(b) The Master Servicer shall deliver to the Trustee, the
Certificate Insurer and the Depositor, promptly after having obtained knowledge
thereof, but in no event later than 2 Business Days thereafter, written notice
in an Officer's Certificate of any event which with the giving of notice or
lapse of time, or both, would become a Master Servicer Termination Event under
Section 7.01. Each of Mego, the Depositor, the Certificate Insurer, the Trustee
and the Master Servicer shall deliver to the other of such Persons promptly
after having obtained knowledge thereof, but in no event later than 2 Business
Days thereafter, written notice in an Officer's Certificate of any event which
with the giving of notice or lapse of time, or both, would become a Master
Servicer Termination Event under any other clause of Section 7.01.

Section III.05. Annual Independent Accountants' Report;
Servicer Review Report.

(a) The Master Servicer shall cause a firm of Independent
Accountants, who may also render other services to the Master Servicer, to
deliver to the Trustee and the Certificate Insurer on or before May 31 (or 150
days after the end of the

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Master Servicer's fiscal year) of each year, beginning on the first May 31 (or
other applicable date) after the date that is six months after the Closing Date,
with respect to the twelve months ended the immediately preceding December 31
(or other applicable date) (or such other period as shall have elapsed from the
Closing Date to the date of such certificate) a report (the "Accountant's
Report") including: (i) an opinion on the financial position of the Master
Servicer at the end of its most recent fiscal year, and the results of
operations and changes in financial position of the Master Servicer for such
year then ended on the basis of an examination conducted in accordance with
generally accepted auditing standards, and (ii) a statement to the effect that,
based on an examination of certain specified documents and records relating to
the servicing of the Master Servicer's mortgage loan portfolio or the affiliate
of the Master Servicer principally engaged in the servicing of mortgage loans
conducted in compliance with the audit program for mortgages serviced for FNMA,
the United States Department of Housing and Urban Development Mortgagee Audit
Standards or the Uniform Single Attestation Program for Mortgage Bankers (the
"Applicable Accounting Standards") such firm is of the opinion that such
servicing has been conducted in compliance with the Applicable Accounting
Standards except for such exceptions as such firm shall believe to be immaterial
and such other exceptions as shall be set forth in such statement.

(b) In addition, the Master Servicer will provide a report of
a firm of Independent Accountants which shall state that (1) a review in
accordance with agreed upon procedures (determined by the Certificate Insurer)
was made of such number of Master Servicer Certificates which the Independent
Accountants deem necessary to carry out their review of Master Servicer
performance, but in no case less than two and (2) except as disclosed in the
Accountant's Report, no exceptions or errors in the Master Servicer Certificates
so examined were found. The Accountant's Report shall also indicate that the
firm is independent of the Master Servicer within the meaning of the Code of
Professional Ethics of the American Institute of Certified Public Accountants.

(c) The Master Servicer shall mail a copy of the Servicer
Review Report and any report or statement of the Servicer prepared pursuant to
Section 6.04 of the Servicing Agreement to the Trustee.

(d) (1) The Master Servicer shall, unless otherwise directed
by the Certificate Insurer, cause a firm of Independent Accountants chosen with
the consent of the Certificate Insurer to review, annually within 90 days after
each anniversary of the Closing Date, in accordance with agreed upon procedures
(determined by the Certificate Insurer) the performance of the Servicer under
the Servicing Agreement in order to confirm that the records of the

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Servicer accurately reflect collections, delinquencies and other relevant data
with respect to the Loans reported to the Master Servicer for the purpose of
preparation of the Servicing Record, and that such data is accurately reported
to the Master Servicer for reflection in the Servicing Record. Any exceptions or
errors disclosed by such procedures shall be included in a report delivered to
the Master Servicer, the Trustee and the Certificate Insurer (the "Servicer
Review Report").

(2) If the Certificate Insurer, upon receipt and review of the
Servicer Review Report, determines in its sole discretion that the errors or
exceptions disclosed by the Servicer Review Report warrant further review of the
performance of the Servicer, then the Certificate Insurer may, so long as no
Certificate Insurer Default exists, direct the Master Servicer to cause such
firm of Independent Accountants to perform such further review with respect to
the performance of Servicer as is reasonably requested by the Certificate
Insurer.

(3) In addition to the foregoing, the Certificate Insurer may
at any time and from time to time, so long as no Certificate Insurer Default
exists, direct the Master Servicer to cause such firm of Independent Accountants
to conduct such additional reviews and prepare such additional reports with
respect to the performance of any Servicer as the Certificate Insurer deems
appropriate.

Section III.06. Access to Certain Documentation and
Information Regarding Loans. The Master Servicer shall provide to
representatives of the Trustee or the Certificate Insurer reasonable access to
(a) the documentation regarding the Loans and to those employees of the Master
Servicer who are responsible for the performance of the Master Servicer's duties
hereunder and (b) the books of account, records, reports and other papers of the
Master Servicer and to discuss its affairs, finances and accounts with its
employees and Independent accountants for the purpose of reviewing or evaluating
the financial condition of the Master Servicer. The Master Servicer shall
provide such access to any Certificateholder only in such cases where the Master
Servicer is required by applicable statutes or regulations (whether applicable
to the Master Servicer or to such Certificateholder) to permit such
Certificateholder to review such documentation. In each case, such access shall
be afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation of
the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Master Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section. Any Certificateholder, by its
acceptance of a Certificate (or by

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acquisition of its beneficial interest therein), shall be deemed to have agreed
to keep confidential and not to use for its own benefit any information obtained
by it pursuant to this Section, except as may be required by applicable law or
by any applicable regulatory authority.

Section III.07. [Reserved]

Section III.08. Advances.

(a) With respect to the Loans (other than Defaulted Loans) and
each Distribution Date, the Master Servicer shall advance from its own funds and
deposit into the Distribution Account or from funds on deposit in the Collection
Account in respect of amounts available for distribution on future Distribution
Dates, no later than the related Determination Date, the excess, if any, of (i)
the aggregate of the portions of the Monthly Payments due with respect to all
Loans in the related Due Period allocable to interest (calculated at a rate
equal to the Net Loan Rate) over (ii) the aggregate amount deposited into the
Distribution Account with respect to all Loans and such Distribution Date and
allocated in accordance with Section 3.03(c) to interest (such amounts,
"Interest Advances"). Any funds so applied from funds on deposit in the
Collection Account in respect of amounts available for distribution on future
Distribution Dates shall be reimbursed by the Master Servicer on or before any
future Distribution Date to the extent that funds on deposit in the Collection
Account applied in the order of priority set forth in such Section 4.05 would be
less than the amount required to be distributed pursuant to Section 4.05 on such
dates as a result of such Interest Advances.

Notwithstanding anything herein to the contrary, no Interest
Advance shall be required to be made hereunder if the Master Servicer determines
that such Interest Advance would, if made, constitute a Nonrecoverable Advance.

(b) The Master Servicer shall advance from its own funds the
following amounts in respect of any Loan or Foreclosed Property, as applicable
(collectively, "Foreclosure Advances"):

(i) all third party costs and expenses (including
legal fees and costs and expenses relating to bankruptcy or insolvency
proceedings in respect of any Obligor) associated with the institution
of foreclosure or other similar proceedings in respect of any Loan
pursuant to Section 3.12;

(ii) all insurance premiums due and payable in
respect of each Foreclosed Property, prior to the date on which the
related Insurance Policy would otherwise be

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terminated;

(iii) all real estate taxes and assessments in
respect of each Foreclosed Property that have resulted in the
imposition of a lien thereon, other than amounts that are due but not
yet delinquent;

(iv) all costs and expenses necessary to maintain
each Foreclosed Property;

(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property pursuant
to Section 3.14(c); and

(vi) all fees and expenses of any Independent
appraiser or other real estate expert retained by the Trustee pursuant
to Section 3.13(a).

The Master Servicer shall advance the Foreclosure Advances described in clauses
(i) through (v) above if, but only if, it has approved the foreclosure or other
similar proceeding in writing and the Master Servicer would make such an advance
if it or an affiliate held the affected Loan or Foreclosed Property for its own
account and, in the Master Servicer's good faith judgment, such amounts will be
recoverable from related Payments. In making such assessment with respect to the
institution of such proceedings, the Master Servicer shall not advance funds
with respect to a Loan unless the appraised value of the related Property
exceeds the sum of (i) the amounts necessary to satisfy any liens prior to the
liens on Mortgages securing such Loan and (ii) the reasonably anticipated costs
of foreclosure or similar proceedings.

Section III.09. Reimbursement of Interest Advances and
Foreclosure Advances.

(a) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii) for previously unreimbursed Interest Advances
from its own funds or any previously unreimbursed Interest Advance by the
Servicer with respect to a Loan on Distribution Dates subsequent to the
Distribution Date in respect of which such Interest Advance was made from
Payments with respect to such Loan. If a Loan shall become a Defaulted Loan and
the Master Servicer shall not have been fully reimbursed for any such Interest
Advances with respect to such Loan, the Master Servicer shall be entitled to be
reimbursed for the outstanding amount of such Interest Advances from unrelated
Loans pursuant to Section 4.05(a)(iii). No interest shall be due to the Master
Servicer in respect of any Interest Advance for any period prior to the
reimbursement thereof.

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(b) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii) from related Payments for Foreclosure Advances
advanced on or prior to the related Monthly Cut-Off Date but only to the extent
the Master Servicer has satisfied the requirements of Section 3.08. No interest
shall be due to the Master Servicer in respect of any Foreclosure Advance for
any period prior to the reimbursement thereof.

(c) The Trustee shall offset against amounts otherwise
distributable to the Master Servicer pursuant to Section 4.05(a)(iii), amounts,
if any, which were required to be deposited in any Collection Account pursuant
to Section 4.03(a) with respect to the related Due Period but which were not so
deposited.

Section III.10. Modifications, Waivers, Amendments and
Consents.

(a) The Master Servicer shall not agree to any modification,
waiver or amendment of any provision of any Loan unless, in the Master
Servicer's good faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to such Loan,
and (ii) complies with the requirements of Title I or is required by Title I and
such Loan has experienced a payment default or a payment default is reasonably
foreseeable by the Master Servicer. The Master Servicer shall agree to
subordinate the position of the security interest in the Property which secures
any Loan upon the Master Servicer's receipt of written approval of HUD to such
subordination or written certification by the Servicer that such proposed
subordination complies with current published HUD requirements and provided such
subordination (i) would permit the Obligor to refinance a senior lien to take
advantage of a lower interest rate or (ii) would permit the Obligor to extend
the term of the senior lien. Notwithstanding the foregoing, at no time shall the
Aggregate Principal Balance of Loans modified, waived or amended without the
prior or subsequent approval of the Credit Enhancer exceed 5% of the Initial
Principal Balance.

(b) The Master Servicer shall notify the Trustee and the
Certificate Insurer of any modification, waiver or amendment of any provision of
any Loan and the date thereof, and shall deliver to the Trustee for deposit in
the related File, an original counterpart of the agreement relating to such
modification, waiver or amendment, promptly following the execution thereof.
Such notice shall state that the conditions contained in this Section 3.10 have
been satisfied.

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Section III.11. Due-On-Sale; Due-on-Encumbrance.

(a) If any Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:

(i) provides that such Loan shall (or may at the
Obligee's option) become due and payable upon the sale or other
transfer of an interest in the related Property; or

(ii) provides that such Loan may not be assumed
without the consent of the related Obligee in connection with any such
sale or other transfer,

then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to any such sale or other transfer, in a
manner consistent with the servicing standard set forth in Section 3.01.

(b) If any Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:

(i) provides that such Loan shall (or may at the
Obligee's option) become due and payable upon the creation of any lien
or other encumbrance on the related Property; or

(ii) requires the consent of the related Obligee to
the creation of any such lien or other encumbrance on the related
Property,

then, for so long as such Loan is included in the Trust, the Master Servicer, on
behalf of the Trustee, shall exercise any right the Trustee may have as the
Obligee of record with respect to such Loan (x) to accelerate the payments
thereon, or (y) to withhold its consent to the creation of any such lien or
other encumbrance, in a manner consistent with the servicing standard set forth
in Section 3.01.

(c) Nothing in this Section 3.11 shall constitute a waiver of
the Trustee's right to receive notice of any assumption of a Loan, any sale or
other transfer of the related Property or the creation of any lien or other
encumbrance with respect to such Property.

(d) Except as otherwise permitted by Section 3.10, the Master
Servicer shall not agree to modify, waive or amend any term of any Loan in
connection with the taking of, or the failure to take, any action pursuant to
this Section 3.11.

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Section III.12. Claim for FHA Insurance and Foreclosure.

(a) If any Monthly Payment due under any Loan is not paid when
the same becomes due and payable, or if the Obligor fails to perform any other
covenant or obligation under the Loan and such failure continues beyond any
applicable grace period, the Master Servicer shall take such action (consistent
with Title I, including efforts to cure the default of such Loan pursuant to 24
C.F.R. Section 201.50) as it shall deem to be in the best interest of the Trust.
If the maturity of the related Note has been accelerated pursuant to the
requirements under Title I following the Master Servicer's efforts to cure the
default of the Loan (and such Loan is not required to be purchased pursuant to
Section 2.04(b)), and (i) if an FHA Insurance Coverage Insufficiency does not
exist at the time, the Master Servicer shall initiate, on behalf of the Trust
and the Contract of Insurance Holder, a claim under the Contract of Insurance
for reimbursement for loss on such Loan pursuant to Title I (see 24 C.F.R.
Sections 201.54), or (ii) if an FHA Insurance Coverage Insufficiency exists at
the time, the Claims Administrator shall determine within 90 days in accordance
with Section 3.12(c) whether or not to proceed against the Property securing the
Loan, and if thereafter an FHA Insurance Coverage Insufficiency does not exist,
may submit a claim under the Contract of Insurance with respect to such Loan if
it has obtained the prior approval of the Secretary of HUD pursuant to 24 C.F.R.
Section 201.51.

In the event that in accordance with clause (ii) above the
Master Servicer determines not to proceed against the Property, on or before the
Determination Date following such determination the Master Servicer shall
determine in good faith in accordance with customary servicing practices that
all amounts which it expects to receive with respect to such Loan have been
received. If the Master Servicer makes such a determination, it shall give
notice to such effect pursuant to Section 3.03(e)(xiv).

(b) If the Master Servicer determines to initiate a claim for
reimbursement for loss on any Loan under this Section, the Claims Administrator
shall comply with applicable provisions of Title I and diligently pursue such
claim and, in any event, shall initiate such claim no later than the last day
permitted under Title I (see 24 C.F.R. Section 201.54(b)). For purposes of this
Agreement, the term "initiate a claim for reimbursement" shall mean the filing
of the claim application pursuant to the requirements set forth in 24 C.F.R.
Section 201.54, including the filing of all related assignments and documents
and materials required for file review. For the purposes of such filing, the
Claims Administrator shall request, and the Trustee within 5 calendar days of
request shall deliver to the Claims Administrator, the Note and the related

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Mortgage for such Loan and each other item in the related File necessary to make
such claim. Each Certificateholder hereby consents to the assignment of such
Loan for the sole purpose of initiating a claim under the Contract of Insurance
for reimbursement with respect to such Loan. Pursuant to Section 3.12(i), the
Contract of Insurance Holder shall furnish the Claims Administrator a power of
attorney to file claims under the Contract of Insurance. The Trustee and
Contract of Insurance Holder agree to execute and deliver to the Claims
Administrator, within 5 Business Days of receipt from the Claims Administrator,
all documents, if any, necessary to initiate and file a claim under the Contract
of Insurance for such Loan, which documents shall be prepared by the Claims
Administrator. If any claim to the FHA becomes a Rejected Claim, upon receipt of
the FHA's rejection notice by the Claims Administrator directly from the FHA or
from the Contract of Insurance Holder pursuant to Section 3.12(e) and a
determination by the Claims Administrator that the rejection was not due to
clerical error, then the Claims Administrator shall promptly notify the Contract
of Insurance Holder (if such notice has not already been given), the Trustee and
the Certificate Insurer of the notice of a Rejected Claim.

If the FHA indicates in writing that the claim is a Rejected
Claim due to reasons other than a failure to service the related Loan in
accordance with Title I, Mego shall repurchase the Loan on or before the Monthly
Cut-Off Date next following the date of such notice from the Claims
Administrator to repurchase such Loan, either directly from FHA or from the
Trustee, for the Purchase Price. If FHA indicates in writing that the claim is a
Rejected Claim due to a failure to service such Loan in accordance with Title I,
the Claims Administrator shall notify Mego, the Contract of Insurance Holder,
the Trustee and the Certificate Insurer of such determination, and the Master
Servicer shall on or before the later to occur of (i) the next succeeding
Monthly Cut-Off Date and (ii) ten Business Days from the date on which such
rejection notice is received by the Master Servicer, purchase such Loan either
directly from FHA or from the Trustee, for the Purchase Price. In the event that
the FHA fails to indicate in writing why the claim is a Rejected Claim the
Claims Administrator shall determine why the claim is a Rejected Claim. If the
Claims Administrator determines that the claim is a Rejected Claim for reasons
other than a servicing failure or a servicing failure that occurred prior the
Closing Date, Mego shall be obligated to repurchase such Loan for the Purchase
Price. If the Claims Administrator determines that the claim is a Rejected Claim
due to a servicing failure, the Master Servicer shall be obligated to repurchase
such Loan for the Purchase Price. Notwithstanding any provisions herein to the
contrary, neither Mego nor the Master Servicer shall be required to repurchase
or purchase, as applicable, any Loan subject to a Rejected Claim as a result of
the

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depletion of the amount of the FHA Insurance Coverage Reserve Account as shown
in the Insurance Record.

(c) With respect to a Loan that has been accelerated pursuant
to the requirements of Title I following the Master Servicer's efforts to cure
the default of the Loan, in accordance with the criteria for proceeding against
the Property set forth in Section 3.12(a), unless otherwise prohibited by
applicable law or court or administrative order, the Master Servicer, on behalf
of the Trustee, may, at any time, institute foreclosure proceedings, exercise
any power of sale to the extent permitted by law, obtain a deed in lieu of
foreclosure, or otherwise acquire possession of or title to any Property, by
operation of law or otherwise; provided, however, that the Master Servicer shall
not acquire any personal property pursuant to this Section 3.12 unless either:

(x) such personal property is incident to real property
(within the meaning of section 856(e)(1) of the Code) so acquired by
the Master Servicer; or

(y) the Trustee shall have received an Opinion of Counsel not
employed by the Master Servicer, Mego or its affiliates (with a copy to
the Certificate Insurer) to the effect that the holding of such
personal property by the Trust will not cause the imposition of a tax
on the Trust under the REMIC Provisions or cause the Trust to fail to
qualify as a REMIC at any time that any Certificate is outstanding.

The Master Servicer shall institute foreclosure proceedings,
repossess, exercise any power of sale to the extent permitted by law, obtain a
deed in lieu of foreclosure, or otherwise acquire possession of or title to any
Property, by operation of law or otherwise only in the event that in the Master
Servicer's reasonable judgement such action is likely to result in a positive
economic benefit to the Trust by creating net liquidation proceeds (after
reimbursement of all amounts owed with respect to such Loan to the Master
Servicer or the Servicer) and provided that, with respect to any Property, prior
to taking title thereto, the Master Servicer has requested that the Trustee
obtain, and the Trustee shall have obtained, an environmental review to be
performed on such Property by a company with recognized expertise, the scope of
which is limited to the review of public records and documents for information
regarding whether such Property has on it, under it or is near, hazardous or
toxic material or waste. If such review reveals that such Property has on it,
under it or is near hazardous or toxic material or waste or reveals any other
environmental problem, the Trustee shall provide a copy of the related report to
the Master Servicer and the Certificate Insurer and title shall be taken to such
Property only after obtaining the written consent of the Certificate Insurer.

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In connection with any foreclosure proceeding on a Loan, the
Master Servicer shall comply with the requirements under Title I, shall follow
such practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I loans
held in the Master Servicer's portfolio for its own account or, if there are no
such loans, FHA Title I loans serviced by the Master Servicer for others. To the
extent required by Section 3.08, the Master Servicer shall advance all necessary
and proper Foreclosure Advances until final disposition of the Foreclosed
Property and shall manage such Foreclosed Property pursuant to Section 3.14. If,
in following such foreclosure procedures, title to the Foreclosed Property is
acquired, the deed or certificate of sale shall be issued to the Trustee.

(d) In the event the Trust acquires any Foreclosed Property,
the Trustee shall elect to treat such Foreclosed Property as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code, in accordance
with such rules as are then applicable; and the Master Servicer, pursuant to
Section 3.13(b), shall sell such Foreclosed Property in its entirety prior to
the date which is two years after its Acquisition Date, unless, in any such
case, either (i) the Master Servicer on behalf of the REMIC Pool has applied for
and received an extension of such two-year period pursuant to Code Sections
856(e)(3) and 860G(a)(8)(A) in which case the Master Servicer shall sell such
Foreclosed Property within the applicable extension period or (ii) the Master
Servicer shall have provided and the Trustee shall have received an opinion of
counsel not employed by the Master Servicer, the Depositor or either of their
affiliates to the effect that the holding of such Foreclosed Property (subject
to any conditions set forth in such Opinion) for an additional specified period
will not cause such Foreclosed Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code (determined
without regard to the exception applicable for purposes of Section 860D(a) of
the Code) at any time that any Certificate is Outstanding, in which event such
two-year period shall be extended by such additional specified period, subject
to any conditions set forth in such Opinion of Counsel.

(e) Each of the Trustee and the Contract of Insurance Holder
shall deposit in the Distribution Account on the day of receipt all amounts
received from the FHA or any other Person with respect to the Loans or any other
assets of the Trust and shall transmit by facsimile, or such other method
requested by the Master Servicer, Claims Administrator or the Certificate
Insurer, to the Master Servicer, Claims Administrator and the Certificate
Insurer on each such day the letter of transmittal received from the FHA and any
other documents with respect to such receipt. Each of the

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Trustee and the Contract of Insurance Holder shall also promptly deliver to the
Claims Administrator copies of any other correspondence received from the FHA or
sent to the FHA by the Trustee or the Contract of Insurance Holder, as the case
may be, including, but not limited to, any correspondence regarding the balance
of the FHA Insurance Coverage Reserve Account, premiums due and claims rejected.

(f) If, prior to the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego, the Master Servicer or any other person is required
to repurchase such Loan under this Agreement, the Claims Administrator shall
notify the Contract of Insurance Holder of such fact and the Contract of
Insurance Holder in its capacity as Trustee shall repurchase such Loan from
funds available in the Distribution Account. The Claims Administrator shall, to
the extent possible, direct the Trustee to make all such repurchases of Loans
once a month and to repurchase any and all such Loans from the FHA in that
portion of the calendar month after each Distribution Date. If the Trustee
withdraws any amounts from the Trust for such purpose between the Determination
Date and Distribution Date of any month, the Master Servicer shall prepare the
Master Servicer Certificates provided under Section 4.01 for such Distribution
Date (or promptly revise the Master Servicer Certificate if already prepared for
such Distribution Date) to reflect such withdrawals as if made on such
Determination Date and the Trustee shall revise its determination pursuant to
Section 4.10 accordingly. To the extent allowed by FHA, Mego may repurchase
directly from FHA any Loan for which an insurance claim has been paid and later
rejected by FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than a failure to service the Loan in accordance with Title I or if the
FHA does not indicate in writing the reason for its rejection or refusal, Mego
shall be liable to reimburse the Trust for any amounts paid by the Trustee to
the FHA in order to repurchase such Loan. Subject to Section 3.12(b), if the FHA
indicates in writing, or it is agreed by the Master Servicer, in connection with
its rejection or refusal to pay a claim that such rejection or refusal is due to
a failure to service such Loan in accordance with Title I, the Master Servicer
shall be liable to reimburse the Trust or Mego for any amounts paid by the Trust
or Mego, as the case may be, to FHA in order to repurchase Loans for which the
FHA has rejected an insurance claim as a result of a failure to service such
Loan in accordance with

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Title I.

(g) If, after the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego or any other person is required to repurchase such
Loan under this Agreement, the Claims Administrator shall notify the Contract of
Insurance Holder of such fact and the Contract of Insurance Holder shall
repurchase such Loan from the FHA. If the FHA indicates in writing in connection
with its rejection or refusal to pay a claim that such rejection or refusal is
due to other than a failure to service the Loan in accordance with Title I or if
the FHA does not indicate in writing the reason for its rejection or refusal,
Mego shall be liable to reimburse the Contract of Insurance Holder for any
amounts paid by the Contract of Insurance Holder to the FHA in order to
repurchase such Loan. Subject to Section 3.12(b), if the FHA indicates in
writing, or it is agreed by the Claims Administrator, in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to a
failure to service such Loan in accordance with Title I, the Master Servicer
shall be liable to reimburse the Contract of Insurance Holder or Mego for any
amounts paid by the Contract of Insurance Holder or Mego to FHA in order to
repurchase Loans for which the FHA has rejected an insurance claim as a result
of a failure to service such Loan in accordance with Title I.

(h) The Claims Administrator shall be entitled to
reimbursement of expenses associated with the filing of any FHA Insurance claim
from and to the extent that such amounts are reimbursed by HUD.

(i) The Trustee shall furnish the Claims Administrator or the
Servicer, as applicable, within 5 days of request of the Claims Administrator or
the Servicer therefor any powers of attorney and other documents necessary and
appropriate to carry out its respective duties hereunder, including any
documents or powers of attorney necessary to foreclose or file a claim with
respect to any Loan and to file claims with the FHA under the Contract of
Insurance. The forms of any such powers or documents shall be appended to such
requests. The Contract of Insurance Holder shall furnish the Claims
Administrator or the Servicer, as applicable, within 5 days of request of the
Claims Administrator or the Servicer therefor any powers of attorney and other
documents necessary and appropriate to carry out its administrative duties
pursuant to Section 3.12.

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Section III.13. Sale of Foreclosed Properties.

(a) The Master Servicer may offer to sell to any Person any
Foreclosed Property, if and when the Master Servicer determines consistent with
the Servicing Standard and the criteria set forth in Section 3.12 that such a
sale would be in the best interests of the Trust, but shall, in any event, so
offer to sell any Foreclosed Property no later than the time determined by the
Master Servicer to be sufficient to result in the sale of such Foreclosed
Property on or prior to the date specified in Section 3.12(d). The Master
Servicer shall give the Trustee and the Certificate Insurer not less than five
days' prior notice of its intention to sell any Foreclosed Property, and shall
accept the highest bid received from any Person for any Foreclosed Property in
an amount at least equal to the sum of:

(i) the Principal Balance of the related foreclosed
Loan, unreimbursed Foreclosure Advances plus the outstanding amount of
any liens superior in priority, if any, to the lien of the foreclosed
Loan; and

(ii) all unpaid interest accrued thereon at the
related Loan Rate through the date of sale.

In the absence of any such bid, the Master Servicer shall accept the highest bid
received from any Person that is determined to be a fair price for such
Foreclosed Property by the Master Servicer, if the highest bidder is a Person
other than an Interested Person, or by an Independent appraiser retained by the
Master Servicer, if the highest bidder is an Interested Person. In the absence
of any bid determined to be fair as aforesaid, the Master Servicer shall offer
the affected Foreclosed Property for sale to any Person, other than an
Interested Person, in a commercially reasonable manner for a period of not less
than 10 or more than 30 days, and shall accept the highest cash bid received
therefor in excess of the highest bid previously submitted. If no such bid is
received, any Interested Person may resubmit its original bid, and the Master
Servicer shall accept the highest outstanding cash bid, regardless of from whom
received. No Interested Person shall be obligated to submit a bid to purchase
any Foreclosed Property, and notwithstanding anything to the contrary herein,
neither the Trustee, in its individual capacity, nor any of its affiliates may
bid for or purchase any Foreclosed Property pursuant hereto.

(b) In determining whether any bid constitutes a fair price
for any Foreclosed Property, the Master Servicer shall take into account, and
any appraiser or other expert in real estate matters shall be instructed to take
into account, as applicable, among other factors, the financial standing of any
tenant of the

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Foreclosed Property, the physical condition of the Foreclosed Property, the
state of the local and national economies and the Trust's obligation to dispose
of any Foreclosed Property within the time period specified in Section 3.12(d).

(c) Subject to the provision of Section 3.12, the Master
Servicer shall act on behalf of the Trustee in negotiating and taking any other
action necessary or appropriate in connection with the sale of any Foreclosed
Property, including the collection of all amounts payable in connection
therewith. Any sale of a Foreclosed Property shall be without recourse to the
Trustee, the Master Servicer or the Trust, and if consummated in accordance with
the terms of this Agreement, neither the Master Servicer nor the Trustee shall
have any liability to any Certificateholder with respect to the purchase price
therefor accepted by the Master Servicer or the Trustee.

Section III.14. Management of Real Estate Owned.

(a) If the Trust acquires any Foreclosed Property pursuant to
Section 3.12, the Master Servicer shall have full power and authority, subject
only to the specific requirements and prohibitions of this Agreement, to do any
and all things in connection therewith as are consistent with the manner in
which the Master Servicer manages and operates similar property owned by the
Master Servicer or any of its affiliates, all on such terms and for such period
as the Master Servicer deems to be in the best interests of Certificateholders.

(b) Notwithstanding the foregoing, the Master Servicer will
not manage, conserve, protect and operate (or cause to be managed, conserved,
protected and operated) each Foreclosed Property for disposition and sale in a
manner that causes such Foreclosed Property to fail to qualify as "foreclosure
property" within the meaning of the REMIC Provisions (determined without regard
to the exception applicable for purposes of Section 860D(a) of the Code) or
results in the receipt by the REMIC of any "income from nonpermitted assets"
within the meaning of the REMIC Provisions or any "net income from foreclosure
property" subject to taxation under the REMIC Provisions.

(c) The Master Servicer may contract with any Independent
Contractor for the operation and management of any Foreclosed Property, provided
that:

(i) the terms and conditions of any such contract may
not be inconsistent herewith;

(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor remit

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all related Payments to the Master Servicer as soon as practicable, but
in no event later than two Business Days following the receipt thereof
by such Independent Contractor;

(iii) none of the provisions of this Section 3.14(c)
relating to any such contract or to actions taken through any such
Independent Contractor shall be deemed to relieve the Master Servicer
of any of its duties and obligations to the Trustee for the benefit of
Certificateholders with respect to the operation and management of any
such Foreclosed Property; and

(iv) the Master Servicer shall be obligated with
respect thereto to the same extent as if it alone were performing all
duties and obligations in connection with the operation and management
of such Foreclosed Property.

The Master Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Master Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Master Servicer shall be solely liable for
all fees owed by it to any such Independent Contractor, but shall be entitled to
be reimbursed for all such fees advanced by it pursuant to Section 3.08(b)(v) in
the manner provided in Section 3.09(b).

Section III.15. Inspections. The Master Servicer shall inspect
or cause to be inspected each Property that secures any Loan at such times and
in such manner as are consistent with the servicing standard set forth in
Section 3.01.

Section III.16. Maintenance of Insurance.

(a) The Master Servicer shall maintain or cause to be
maintained with respect to each Property securing a Loan such insurance as is
required with respect thereto by Title I. The Master Servicer shall cause to be
maintained for each Foreclosed Property acquired by the Trust such types and
amounts of insurance coverage as the Master Servicer shall deem reasonable.

(b) Any amounts collected by the Master Servicer under any
Insurance Policies, shall be paid over or applied by the Master Servicer as
follows:

(i) In the case of amounts received in respect of any
Loan:

(A) for the restoration or repair of the
affected Property, in which event such amounts shall be
released

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to the Obligor in accordance with the terms of the related
Note, or to the extent not so used, or

(B) in reduction of the Principal Balance of
the related Loan, in which event such amounts shall be
credited to the Servicing Record,

unless the related instruments require a different application, in
which case such amounts shall be applied in the manner provided
therein; and

(ii) Subject to Section 3.14, in the case of amounts
received in respect of any Foreclosed Property, for the restoration or
repair of such Foreclosed Property, unless the Master Servicer
determines, consistent with the servicing standard set forth in Section
3.01, that such restoration or repair is not in the best economic
interest of the Trust, in which event such amounts shall be credited,
as of the date of receipt, to the Servicing Record, as a Payment
received from the operation of such Foreclosed Property.

Section III.17. Release of Files.

(a) If with respect to any Loan:

(i) the outstanding Principal Balance of such Loan
plus all interest accrued thereon shall have been paid;

(ii) the Master Servicer, or the Servicer shall have
received, in escrow, payment in full of such Loan in a manner customary
for such purposes;

(iii) such Loan has become a Defective Loan;

(iv) such Loan or the related Foreclosed Property has
been sold in connection with the termination of the Trust pursuant to
Section 9.01;

(v) the FHA has paid a claim with respect to such
Loan under the Contract of Insurance; or

(vi) the related Foreclosed Property has been sold
pursuant to Section 3.13.

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release, or cause the Custodian to release, the related File to the Servicer and
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest ownership of such Loan in the
Servicer or such other Person as may be specified in such certificate, the forms
of any such instrument to be appended to such certificate.

(b) From time to time and as appropriate for the servicing or
foreclosure of any Loan, the Trustee shall, upon request of the Servicer,
release the related File (or any requested portion thereof) to the Servicer.
Such receipt shall obligate the Servicer, to return the File (or such portion
thereof) to the Trustee when the need therefor by the Servicer, no longer exists
unless any of the conditions specified in subsection (a) above, is satisfied
prior thereto. The Trustee shall release such receipt to the Servicer (i) upon
the Servicer's return of the File (or such portion thereof) to the Trustee or
(ii) if any of the conditions specified in subsection (a) has been satisfied,
and the Servicer has not yet returned the File (or such portion thereof) to the
Trustee, upon receipt of a certificate certifying that any of such condition has
been satisfied.

Section III.18. Certain Tax Matters. The Trustee shall
maintain records as to investments and other assets of the Trust sufficient to
show compliance with the REMIC Provisions during each taxable year of the Trust.
The Master Servicer shall provide Mego with such information from the Servicing
Record as Mego shall request to prepare any Tax Returns, and any other federal,
state or local tax or information returns or reports that are required to be so
filed, or so provided to Certificateholders, by the Trust. Mego shall maintain
such records and make such information available as required by Section 8.12.

Section III.19. Filing of Continuation Statements. On or
before the fifth anniversary of the filing of any financing statements by Mego
and the Depositor, respectively, with respect to the assets conveyed to the
Trustee, Mego and the Depositor shall prepare, have executed by the necessary
parties and file in the proper jurisdictions all financing and continuation
statements necessary to maintain the liens, security interests, and priorities
of such liens and security interests that have been granted by Mego and the
Depositor, respectively, and Mego and the Depositor shall continue to file on or
before each fifth anniversary of the filing of any financing and continuation
statements such additional financing and continuation statements until the Trust
has terminated pursuant to Section 9.01. Subject to Section 8.03, the Trustee
agrees to cooperate with Mego and the Depositor in preparing, executing and
filing such statements. The Trustee agrees to notify Mego and the Depositor on
the third Distribution Date prior to each such fifth anniversary of the
requirement to

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file such financing and continuation statements. The filing of any such
statement with respect to Mego and the Depositor shall not be construed as any
indication of an intent of any party contrary to the expressed intent set forth
in Section 10.09. If Mego or the Depositor has ceased to do business whenever
any such financing and continuation statements must be filed or Mego or the
Depositor fails to file any such financing statements or continuation statements
at least one month prior to the expiration thereof, the Trustee shall perform
the services required under this Section 3.19.

Section III.20. Fidelity Bond. The Master Servicer shall
maintain a fidelity bond in such form and amount as is customary for entities
acting as custodian of funds and documents in respect of loans on behalf of
institutional investors.

ARTICLE IV

Distributions to Certificateholders

Section IV.01. General Provisions Relating to Distributions to
Certificateholders.

(a) Distributions allocable to interest and principal in
respect of each Class of the Senior Certificates shall be made, to the extent
and in the priority described in Section 4.05, to the Holders of such Class of
Certificates based on the respective Percentage Interests of the
Certificateholder of such Class, without preference or priority of any kind. Any
amounts distributed to Holders of the Senior Certificates on any Distribution
Date shall not be subject to any claim or interest of Holders of Class R
Certificates.

(b) Distributions from the Trust to Holders of Class R
Certificates shall be made on each Distribution Date in accordance with Section
4.05(a) solely from amounts available for distribution on deposit in the
Distribution Account. Distributions to the Holders of Class R Certificates shall
be made pro rata based on the respective Residual Interests, without preference
or priority of any kind. Any amount distributed to Holders of the Class R
Certificates on any Distribution Date shall not be subject to any claim or
interest of Holders of Senior Certificates.

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take into account any payments made by the Trust to FHA after the related
Determination Date and before the related Distribution Date as provided in
Section 3.12(f). The Trustee may rely on the Master Servicer Certificate with
respect to the matters set forth therein.

Section IV.02. Distributions to Certificateholders.

(a) Distributions will be made by the Trustee to each
Certificateholder of record on the preceding Record Date by:

(i) check mailed, via first class mail, postage
prepaid, to the address of such Holder as it appears on the Certificate
Register; or

(ii) Fedwire transfer of immediately available funds,
if such Certificateholder holds at least a $1,000,000 Denomination,
Class S Certificates representing at least a 30% Percentage Interest or
Class R Certificates representing at least 25% of the Residual
Interests, if notice from such Certificateholder has been received by
the Trustee at least three Business Days prior to any Distribution Date
(any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account
for receipt of distributions at a bank which has Fedwire transfer
capabilities, and providing such other information as the Trustee may
reasonably require to effect an electronic credit entry to such
account.

To the extent required by applicable law, the Trustee shall deduct and withhold
taxes due on amounts distributed to Certificateholders.

(b) Whenever the Trustee, based on a Master Servicer
Certificate, expects that the final distribution with respect to a Class of
Senior Certificates will be made on the next Distribution Date, the Trustee
shall, as soon as practicable, mail to each Holder of such Class of Senior
Certificates as of the applicable Record Date a notice to the effect that:

(i) the Trustee expects that the final distribution
with respect to such Class of Senior Certificates will be made on such
Distribution Date, and

(ii) no interest shall accrue on such Class of Senior
Certificates after such Distribution Date provided that the final
distribution occurs on such Distribution Date.

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Section IV.03. Collection Account and FHA Premium Account and
the Reserve Fund.

(a) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account denominated a Collection Account, which in each case is and shall
continue to be an Eligible Account in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage FHA Title I Loan Trust Series 1996-1, Collection Account". The
Master Servicer shall cause all Payments to be deposited by the Servicer in the
related Collection Account no later than the second Business Day following the
date of receipt thereof by the Servicer. The Trustee shall provide to the Master
Servicer and the Servicer a monthly statement of all activity in the Collection
Account.

(b) No later than the second Business Day preceding each
Distribution Date, the Trustee shall withdraw amounts from the Collection
Account in respect of Payments with respect to such Distribution Date and
deposit such amounts into the Distribution Account, and liquidate the Eligible
Investments in which such amounts are invested and distribute all net investment
earnings to the Servicer.

(c) All amounts on deposit in the Distribution Account
representing payments by Obligors on Invoiced Loans in respect of premium on FHA
Insurance shall be withdrawn by the Trustee from the Distribution Account and
deposited in the FHA Premium Account no later than the second Business Day
preceding each Distribution Date.

(d) [reserved]

(e) The Trustee has heretofore established or caused to be
established and shall hereafter maintain a cause to be maintained a separate
account denominated a Reserve Fund, in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage Trusts, Reserve Fund." The Trustee shall deposit all amounts
required to be deposited therein pursuant to Section 4.05(a)(xiv). Amounts on
deposit therein shall be withdrawn by the Trustee at the direction of the
Certificate Insurer and paid or deposited to either the Distribution Account,
the distribution account of a Related Series or the Class R Certificateholders.
Amounts on deposit in the Reserve Fund shall be invested by the Trustee pursuant
to the direction of the Certificate Insurer.

Section IV.04. Distribution Account.

(a) The Trustee has heretofore established with itself

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in its trust capacity at its corporate trust department for the benefit of all
Certificateholders and the Certificate Insurer an account referred to herein as
the "Distribution Account" for the Trust. The Trustee shall at all times
maintain the Distribution Account as an Eligible Account and shall cause such
account to be designated "First Trust of New York, National Association, as
Trustee of the Mego FHA Title I Loan Trust Series 1996-1, Distribution Account."

(b) Except for amounts deposited into the FHA Premium Account,
any and all moneys or Eligible Investments that are received by the Trustee from
any Person with respect to the Trust Property, including pursuant to Sections
2.04(c), 3.12(b), 4.03(b) or 9.01(d), together with any Eligible Investments in
which such moneys are invested or reinvested prior to the termination of the
Trust, shall be held by the Trustee in the Distribution Account, subject to
disbursement and withdrawal as herein provided.

Section IV.05. Distributions.

(a) On each Distribution Date, on the basis of the information
set forth in the Master Servicer Certificate with respect to the related
Determination Date, the Trustee shall distribute the following amounts in the
following order of priority:

(i) from the Distribution Amount, for deposit in the
FHA Premium Account, the FHA Premium Account Deposit for such
Distribution Date;

(ii) from the Distribution Amount, concurrently, to
(a) the Master Servicer, the Master Servicer Fee and (b) the Servicer,
the Servicer Fee for such Distribution Date;

(iii) from the Distribution Amount, to the Master
Servicer or Servicer, any amount in respect of reimbursement of
Interest Advances or Foreclosure Advances to which the Master Servicer
or any Servicer is entitled pursuant to Section 3.09 with respect to
such Distribution Date and to the Claims Administrator, amounts in
reimbursement of any expenses of filing of any FHA Insurance claim
pursuant to Section 3.12(h);

(iv) from the Distribution Amount, to the Trustee,
the Trustee Fee for such Distribution Date;

(v) from the Distribution Amount, to the Certificate
Insurer, the Premium for such Distribution Date;

(vi) from the Amount Available, to the Class S

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Certificateholders, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;

(vii) from the Amount Available, to each Class of
Class A Certificateholders, an amount equal to the applicable Class
Interest Distribution for such Distribution Date;

(viii) from the Distribution Amount, to the Class A
Certificateholders then entitled to distributions of principal as
provided below, subject to the second proviso following this paragraph,
the Class A Principal Distribution (other than the portion constituting
Distributable Excess Spread) for such Distribution Date;

(ix) from the Distribution Amount, to the Certificate
Insurer, the Reimbursement Amount;

(x) from the Distribution Amount, to the Class A
Certificateholders then entitled to distributions of principal as
provided below, the Distributable Excess Spread for such Distribution
Date;

(xi) from the Amount Available, to the Class A
Certificateholders then entitled to distributions of principal as
provided below, an amount equal to the Class A Guaranteed Principal
Distribution Amount, if any, for such Distribution Date;

(xii) from the Distribution Amount, to the
Certificate Insurer, any other amounts owing to the Certificate Insurer
under the Insurance Agreement;

(xiii) from the Distribution Amount, to any successor
Master Servicer, such amounts, if any, for such Distribution Date
payable in accordance with Section 7.03(c) in addition to the Master
Servicer Fee paid pursuant to Section 4.05(a)(ii);

(xiv) from the Distribution Amount, to the Reserve
Fund, any unpaid Excess Claim Amount;

(xv) from the Distribution Amount to the Person
entitled thereto, Priority Expenses and payments in respect of Other
Fees; and

(xvi) the balance of any Distribution Amount, to the
Class R Certificateholders;

provided, however, that any portion of the Amount Available that constitutes an
Insured Payment for any Distribution Date shall be applied only to payment of
the amount referred to in clause (vi),

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clause (vii), and clause (xi) above, and provided further, with respect to any
Distribution Date as to which (a) the Required OC Amount has been reduced below
the Overcollateralization Amount or (b) a full distribution of the amounts
referred to in clause 4.05(a)(viii) above would cause the Overcollateralization
Amount to exceed the Required OC Amount, the amounts to be distributed pursuant
to clause 4.05(a)(viii) shall be reduced by the amount of such reduction in the
case of clause (a) above and the amount of such excess in the case of (b) above.

(1) As to each Distribution Date, any shortfall in the amount
of interest required to be distributed pursuant to Section 4.05(a)(vii) above,
shall be allocated among the Class A Certificates, in proportion to the amount
each such Class would have been entitled to receive in the absence of such
shortfall.

(2) As to each Distribution Date, pursuant to Section
4.05(a)(viii), (x) and (xi) shall be made to the Class A Certificates as
follows:

(i) prior to the occurrence and continuance of a
Certificate Insurer Default, sequentially, to the Class A-1, Class A-2
and Class A-3 Certificates, in that order, until their respective Class
A Certificate Balances have been reduced to zero; and

(ii) upon the occurrence and continuance of a
Certificate Insurance Default, concurrently, to the Class A
Certificates then outstanding, pro rata, based upon their respective
Class A Certificate Balances immediately prior to such Distribution
Date.

(b) If any amount is deposited in the Distribution Account in
error, the Master Servicer may notify the Trustee and the Certificate Insurer
(such notice to be signed by a Master Servicing Officer) of the amount of such
deposit and in connection therewith shall be required to provide such
information to the Trustee and the Certificate Insurer as may be necessary in
the opinion of the Trustee and the Certificate Insurer to verify the accuracy of
such certification. The Trustee shall promptly withdraw the erroneous deposit
and remit the same to the Master Servicer or to such Person as the Master
Servicer shall designate.

(c) As directed by the Master Servicer (such direction to be
signed by a Master Servicing Officer), the Trustee shall withdraw on the
Business Day, the amount, designated by the Master Servicer from the
Distribution Account of funds to repurchase a Loan from FHA pursuant to Section
3.12(f). If such withdrawal is to be made between a Determination Date and the
related Distribution Date, the Master Servicer shall prepare the related

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Master Servicer Certificate (or promptly revise the Master Servicer Certificate
if already prepared) for such Distribution Date to reflect such withdrawal.

Section IV.06. FHA Premium Account.

(a) FHA Premium Account. The Trustee has heretofore
established with itself in its trust capacity at its corporate trust department
a single segregated trust account referred to herein as the "FHA Premium
Account" for the benefit of the Trust. The Trustee shall at all times maintain
the FHA Premium Account as an Eligible Account and shall cause such account to
be designated as "First Trust of New York, National Association, as Trustee for
Mego Mortgage FHA Title I Loan Trust Series 1996-1, FHA Premium Account".

(b) Any and all moneys transferred to the FHA Premium Account
pursuant to Section 4.03(c) or Section 4.05(a)(i) shall be held by the Trustee
in the FHA Premium Account subject to disbursement and withdrawal as herein
provided.

(c) All amounts deposited in the FHA Premium Account shall be
invested and reinvested by the Trustee pursuant to Section 4.07(a) in one or
more Eligible Investments.

(d) Amounts on deposit in the FHA Premium Account shall be
withdrawn by the Trustee from the FHA Premium Account, in the amounts required,
for application as follows:

(i) to payment to the FHA of any premiums due on the
Contract of Insurance, in such amounts and on such dates as directed by
the Master Servicer or Mego; the Trustee shall apply all amounts on
deposit in the FHA Premium Account to payment to the FHA of any
premiums due under the Contract of Insurance as invoiced by FHA and,
if, in connection with a Loan the FHA Insurance with respect to which
shall not yet have been transferred to the Contract of Insurance, Mego
instructs the Trustee to pay FHA insurance with respect to such Loan to
the related contract of insurance holder, the Trustee shall make such
payment, and Mego and not the Trustee shall be liable in the event of
the failure of such funds to be applied to payment of the premium with
respect to such Loan; and

(ii) on the Business Day preceding a Distribution
Date that is also the Termination Date, the Trustee shall withdraw from
the FHA Premium Account and deposit in the Distribution Account all
amounts then on deposit in the FHA Premium Account, whereupon the FHA
Premium Account shall terminate.

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Section IV.07. General Provisions Regarding the Accounts;
Eligible Accounts.

(a) All investments of funds in the Accounts shall be made by
the Trustee in accordance with an Investment Order previously delivered to the
Trustee. Eligible Investments of amounts on deposit in the Accounts, unless
payable on demand or as otherwise specified herein, shall mature no later than
the second Business Day immediately preceding the Distribution Date related to
the Due Period to which such amounts relate. Amounts on deposit in the FHA
Premium Account shall be invested in Eligible Investments which are overnight
investments for the period from the Business Day immediately preceding the
Distribution Date to the date on which the Master Servicer indicates the amount
to be withdrawn therefrom pursuant to Section 4.06(d)(i). In the event amounts
on deposit in an Account are at any time invested in an Eligible Investment
payable on demand, the Trustee shall demand that payment thereon be made on the
last day such Eligible Investment may otherwise mature hereunder.

(b) Any investment of funds in an Account shall be made in the
name of the Trustee (in its capacity as such) or in the name of a nominee of the
Trustee. The Trustee shall have sole control over each such investment, the
income thereon and the proceeds thereof. Any certificate or other instrument
evidencing any such investment shall be delivered directly to the Trustee or its
agent, together with any document of transfer necessary to transfer title to
such investment to the Trustee or its nominee. The Trustee or its agent, as the
case may be, shall take and maintain continuous physical possession of any such
certificate or other instrument and the proceeds thereof in the State of
Minnesota. The Trustee or its agent, as the case may be, shall in the case of
Eligible Investments deposited in all Accounts, act in connection therewith
solely as agent for the Trust and not as agent for Mego, the Depositor or any
other party. Any certificated security, when so delivered in registered form,
shall be issued or endorsed to the Trustee, its nominee or in blank. Any
uncertificated security shall either (i) be registered in the name of the
Trustee or its nominee on the books of the issuer thereof or (ii) be registered
in the name of a financial intermediary which is not a clearing corporation,
provided that such financial intermediary sends the Trustee written confirmation
of such purchase which also confirms that such financial intermediary has by
book-entry or otherwise identified such uncertificated securities as belonging
to the Trustee or its nominee. The proceeds of an investment at maturity or upon
demand shall be remitted by the issuer thereof or its agent directly to the
Trustee for deposit in the Account as to which such investment was made and all
earnings on investments shall be added to the corpus of the respective Account.

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(c) The Trustee shall not be in any way liable by reason of
any insufficiency in the Accounts, except for losses on investments that are
liabilities of the Trustee in its commercial capacity.

(d) Any Investment Order shall be effective upon receipt
thereof by the Trustee. Any Investment Order delivered to the Trustee with
respect to funds on deposit in an Account shall be revocable only upon written
notice delivered by the Depositor to the Trustee. Revocation of any Investment
Order pursuant to any such notice shall be effective on the later of (i) the
date of receipt thereof by the Trustee, and (ii) the date specified therein.
Revocation of an Investment Order shall not affect investments already made
pursuant thereto.

(e) In the event that any account required to be an Eligible
Account hereunder ceases to be an Eligible Account, the Trustee shall within 5
Business Days establish a new account which shall be an Eligible Account and any
cash and Eligible Investments in such original account shall be transferred to
such Eligible Account.

Section IV.08. Statements to Certificateholders.

(a) On or before the third Business Day following each
Distribution Date, the Trustee shall mail:

(i) to each Holder of a Senior Certificate (with a
copy to the Certificate Insurer and the Rating Agency) at its address
shown on the Certificate Register a statement, based on information set
forth in the Master Servicer Certificate for such Distribution Date,
substantially in the form of Trustee's Statement to Senior
Certificateholders attached hereto as Exhibit F together with a copy of
such related Master Servicer Certificate;

(ii) to each Holder of a Class R Certificate (with a
copy to the Certificate Insurer) at its address shown on the
Certificate Register a statement, based on information set forth in the
Master Servicer Certificate for such Distribution Date substantially in
the form of Trustee's Statement to Class R Certificateholders attached
hereto as Exhibit F.

(b) Promptly following preparation by Trustee of any returns
or reports described in Section 8.12(b)(i), the Trustee shall:

(i) sign such returns or reports as may be required
pursuant to the last paragraph of Section 8.12(b);

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and

(ii) mail such returns or reports as may be required
by applicable law to each Holder of a Senior Certificate and to each
Holder of a Class R Certificate, at their respective addresses shown on
the Certificate Register.

(c) The Trustee shall provide the Depositor, the Rating Agency
and the Certificate Insurer each statement called for by (a)(i) and (ii) above
and each report or return called for by (b)(i) and (ii) above at such times as
such statements, reports and returns are required to be provided to the
recipients thereof in accordance with the terms of such provisions.

Section IV.09. [Reserved]

Section IV.10. Claims Under Policy.

(a) On the Determination Date preceding each Distribution
Date, the Trustee shall determine if a Deficiency Amount exists with respect to
each Class of Senior Certificates. If a Deficiency Amount does exist with
respect to a Class of Senior Certificates, the Trustee shall promptly, but in no
event later than 12:00 noon New York City time on the second Business Day
preceding the related Distribution Date, make a claim under the Policy for such
Class in accordance with its terms.

(b) On any date on which the Trustee receives written notice
from the Holder of a Class of Senior Certificates that a Preference Amount is
payable pursuant to the terms of the Policy, the Trustee shall make a claim for
the payment of such Preference Amount and shall deliver the documents required
to be delivered under the Policy to the Certificate Insurer with respect thereto
in the manner set forth in the Policy.

(c) The Trustee shall (i) receive as attorney-in-fact of each
Holder of a Senior Certificate with respect to which a Deficiency Amount has
been determined to exist, any Insured Payment from the Certificate Insurer under
the Policy and (ii) disburse such Insured Payments to such Holders of such Class
of Senior Certificates as set forth in Section 4.05(a). Insured Payments for a
Class of Senior Certificates disbursed by the Trustee from the Policy shall not
be considered payment by the Trust with respect to such Class of Senior
Certificates, nor shall such payments discharge the obligation of the Trust,
with respect to such Class of Senior Certificates, and the Certificate Insurer
shall become the owner of such unpaid amounts due from the Trust in respect of
Insured Payments for such Class and the deemed assignee of such Holders of such
Class of Senior Certificates. The Trustee hereby agrees on behalf of each Holder
of a Class of Senior Certificates

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for the benefit of the Certificate Insurer that it recognizes that to the extent
the Certificate Insurer makes Insured Payments for such Class, either directly
or indirectly (as by paying through the Trustee), to the Holders of such Class
of Senior Certificates, the Certificate Insurer will be entitled to receive the
related Reimbursement Amount pursuant to Section 4.05(a)(ix).

(d) To the extent of any Insured Payment for a Class of Senior
Certificates under the Policy, the Certificate Insurer shall be fully subrogated
to the rights of the Holders of such Class of Senior Certificates and the
Trustee in respect of such Class of Senior Certificates, the Deficiency Amount
or Preference Amount giving rise to such Insured Payment or in any proceedings
relating thereto.

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ARTICLE V

The Certificates

Section V.01. The Certificates.

(a) Each Class A Certificate shall be substantially in the
form of Exhibit C-1 hereto, each Class S Certificate shall be substantially in
the form of Exhibit C-2 hereto and each Class R Certificate shall be
substantially in the form of Exhibit D hereto, in each case with such
appropriate insertions and substitutions as are required or permitted hereunder,
and shall, on original issue, be executed on behalf of the Trust by manual or
facsimile signature of a Responsible Officer of the Trustee having such
authority under the Trustee's seal imprinted or otherwise affixed therein and
attested on behalf of the Trustee by the manual or facsimile signature of any
other Responsible Officer of the Trustee. The maximum and initial Class A
Certificate Balance of each Class of Class A Certificates authorized to be
issued hereunder shall be equal to the related Initial Class A Certificate
Balance, and each Class of Senior Certificates shall bear interest at the
applicable Certificate Rate. Each Class of Class A Certificates shall be issued
in minimum denominations of $1,000 and integral multiples of $1,000 in excess
thereof (except that one Certificate of each Class may be issued in an amount
that is not an integral multiple of $1,000). The Class S Certificates shall be
issued in minimum denominations of a Percentage Interest equal to 10% and
integral multiples of a Percentage Interest equal to 10% in excess thereof. One
Class of residual Certificates is authorized to be issued hereunder, designated
as the "Class R Certificates." The Class R Certificates shall be issued in
minimum denominations representing a one twentieth (i.e., 5%) Residual Interest.
No Certificate shall be entitled to any benefit under this Agreement, or be
valid for any purpose, unless there appears on such Certificate a execution by
the Trustee by manual or facsimile signature, and such signature upon any
Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly executed and delivered hereunder. Each Certificate
shall be dated the date of its signature. Certificates of each Class shall be
numbered consecutively beginning with 0001 and each number shall be preceded by
an "A" for Class A Certificates, an "S" for Class S Certificates and an "R" for
Class R Certificates. The Trustee shall cause to be executed and delivered to or
upon the order of the Depositor, in exchange for the Loans and the other Trust
Property, simultaneously with the sale, assignment and transfer to the Trustee
of Loans, Files and the other Trust Property, Certificates duly executed by the
Trustee evidencing the entire ownership of the Trust.

(b) Any Certificate as to which the Trustee has made the final
distribution thereon shall be deemed cancelled and shall

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no longer be Outstanding for any purpose of this Agreement, whether or not such
Certificate is ever returned to the Trustee.

Section V.02. Registration of Transfer and Exchange of
Certificates.

(a) The Trustee shall keep or cause to be kept at an office or
agency in the city where the Corporate Trust Office is located, a Certificate
Register for each Class of Certificates in which, subject to such reasonable
regulations as it may prescribe, the Trustee shall provide for the registration
of Certificates of such Class and of transfers and exchanges of such
Certificates as herein provided. The Trustee shall also designate and cause to
be kept in the City of New York an office at and through which Certificates may
be delivered to and received from the Trustee for purposes of transfers and
exchanges as herein provided. The Trustee shall initially serve as Certificate
Registrar for the purpose of registering Certificates as herein provided. The
Trustee may appoint, by a written instrument delivered to the Master Servicer,
any other bank or trust company to act as Certificate Registrar under such
conditions as the Master Servicer may prescribe. If the Trustee shall at any
time not be the Certificate Registrar, the Trustee shall have and maintain the
right to inspect the Certificate Register or to obtain a copy thereof at all
reasonable times, to afford Certificateholders access thereto for the purposes
specified in Section 10.08, and to rely conclusively upon a certificate of the
Certificate Registrar as to the information set forth in the Certificate
Register.

(b) (1) No transfer of a Class S or Class R Certificate shall
be made unless such transfer is exempt from the registration requirements of the
Securities Act of 1933, as amended, and any applicable state securities laws or
is made in accordance with said Act and laws. In the event of any such transfer,
(i) unless such transfer is made in reliance upon Rule 144A under the 1933 Act,
the Trustee or the Depositor may require a written Opinion of Counsel (which may
be in-house counsel) acceptable to and in form and substance reasonably
satisfactory to the Trustee and the Depositor that such transfer may be made
pursuant to an exemption, describing the applicable exemption and the basis
therefor, from said Act and laws or is being made pursuant to said Act and laws,
which Opinion of Counsel shall not be an expense of the Trustee or the Depositor
and (ii) the Trustee shall require the transferee to execute an investment
letter (in substantially the form attached hereto as Exhibit I or Exhibit J)
acceptable to and in form and substance reasonably satisfactory to the Depositor
and the Trustee certifying to the Depositor and the Trustee the facts
surrounding such transfer, which investment letter shall not be an expense of
the Trustee or the Depositor. The Holder of a Class S or Class R Certificate
desiring to effect such transfer shall, and does hereby

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agree to, indemnify the Trustee and the Depositor against any liability that may
result if the transfer is not so exempt or is not made in accordance with such
federal and state laws.

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

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

If (x) (i) the Depository or the Depositor advises the Trustee
in writing that the Depository is no longer willing or able to properly
discharge its responsibilities as Depository, and (ii) the Trustee or the
Depositor is unable to locate a qualified successor, (y) the Depositor at its
option, with the consent of the Certificate Insurer, advises the Trustee in
writing that it elects to terminate the book-entry system through the Depository
or (z) after the occurrence of an Event of Master Servicing Termination, the
Certificate Insurer or Certificate Owners representing at least 51% of the
Voting Rights evidenced by the Class A Certificates, with the consent of the
Certificate Insurer, advise the Trustee and the Depository through the
Depository Participants in writing that the continuation of a book-entry system
through the Depository is

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no longer in the best interests of the Certificate Owners, the Trustee shall
notify all Certificate Owners, through the Depository, of the occurrence of any
such event and of the availability of definitive, fully-registered Class A
Certificates (the "Definitive Certificates") to Certificate Owners requesting
the same. Upon surrender to the Trustee of such Book-Entry Certificates by the
Depository, accompanied by the instructions from the Depository for
registration, the Trustee shall issue the Definitive Certificates. None of the
Seller, the Master Servicer, the Depositor, the Certificate Insurer or the
Trustee shall be liable for any delay in delivery of such instruction and each
may conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Certificates all references herein
to obligations imposed upon or to be performed by the Depository shall be deemed
to be imposed upon and performed by the Trustee, to the extent applicable with
respect to such Definitive Certificates and the Trustee shall recognize the
Holders of the Definitive Certificates as Certificateholders hereunder; provided
that the Trustee shall not by virtue of its assumption of such obligations
become liable to any party for any act or failure to act of the Depository.

Neither the Trustee nor the Certificate Registrar shall have
any responsibility to monitor or restrict the transfer of beneficial ownership
in any Certificate an interest in which is transferable through the facilities
of the Depository.

(3) No Transfer of a Class S or Class R Certificate shall be
made unless the Trustee shall have received either (i) a representation letter
from the transferee of such Certificate acceptable to and in form and substance
satisfactory to the Trustee, to the effect that such transferee is not an
employee benefit plan or arrangement subject to Section 406 of ERISA or a plan
subject to Section 4975 of the Code, nor a person acting on behalf of any such
plan or arrangement nor using the assets of any such plan or arrangement to
effect such Transfer, (ii) if the purchaser is an insurance company, a
representation that the purchaser is an insurance company which is purchasing
such Certificates with funds contained in an "insurance company general account"
(as such term is defined in Section V(e) of Prohibited Transaction Class
Exemption 95-60 ("PTCE 95-60")) and that the purchase and holding of such
Certificates are covered under PTCE 95-60 or (iii) in the case of any such Class
S or Class R Certificate presented for registration in the name of an employee
benefit plan subject to ERISA, or a plan or arrangement subject to Section 4975
of the Code (or comparable provisions of any subsequent enactments), or a
trustee of any such plan or any other person acting on behalf of any such plan
or arrangement or using such plan's or arrangement's assets, an Opinion of
Counsel satisfactory to the Trustee, which Opinion of Counsel shall not be

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an expense of either the Trustee or the Trust, addressed to the Trustee, to the
effect that the purchase or holding of such Class S or Class R Certificate will
not result in the assets of the Trust being deemed to be "plan assets" and
subject to the prohibited transaction provisions of ERISA and the Code and will
not subject the Trustee to any obligation in addition to those expressly
undertaken in this Agreement or to any liability. Notwithstanding the foregoing,
the Trustee shall waive the transfer restrictions imposed by this Section
5.02(b)(2) with respect to the Class S Certificates, if the initial transferee
of the Class S Certificates certifies in writing to the Trustee that such
transferee has a valid Exemption and all requirements for transfer of the Class
S Certificates pursuant to such Exemption are satisfied.

(c) Subject to subsection (b) of this Section and subject to
Article XI, upon surrender for registration of transfer of a Certificate of any
Class at the office or agency of the Trustee maintained for such purpose
pursuant to Section 5.02(a), the Trustee shall execute, authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Certificates of the same Class in authorized denominations of the same
Percentage Interest.

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

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

(f) All Certificates surrendered for transfer, exchange or
payment shall be disposed of by the Certificate Registrar in accordance with its
standard procedures.

(g) Transfers of Class R Certificates shall be subject to the
provisions of Article XI.

Section V.03. Mutilated, Destroyed, Lost or Stolen

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Certificates. If (a) any mutilated Certificate is surrendered to the Certificate
Registrar or the Trustee, or the Certificate Registrar and the Trustee, the
Depositor and the Certificate Insurer receive evidence to their satisfaction of
the destruction, loss or theft of any Certificate, and (b) there is delivered to
the Certificate Registrar, the Certificate Insurer and the Trustee, the
Depositor and the Certificate Insurer such security or indemnity as may be
required by them to save each of them harmless (which in the case of a
Certificateholder that is an institutional investor with a minimum net worth of
$250,000,000, will be deemed to be satisfied by a written agreement of indemnity
from such Certificateholder, then, in the absence of notice to the Certificate
Registrar or the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute on behalf of the Trust and the Trustee
shall countersign and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of the same Class and
Percentage Interest, as such mutilated, destroyed, lost or stolen Certificate,
in each case bearing a number not borne by any then Outstanding Certificate of
any Class. Upon the issuance of any new Certificate under this Section 5.03, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Certificate Registrar)
connected therewith. Any Certificate issued pursuant to this Section 5.03 shall
constitute complete and indefeasible evidence of the same interest in the Trust,
and shall be entitled to the same benefits under this Agreement, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.

Section V.04. Persons Deemed Owners. Prior to due presentation
of a Certificate for registration of transfer, the Trustee, the Certificate
Insurer, the Certificate Registrar and any agent of the Trustee, the Certificate
Insurer or the Certificate Registrar may treat the Person in whose name any
Certificate is registered (i) on any Record Date for purposes of making
distributions on the following Distribution Date, whether or not any
distribution required to be made on such Certificate shall have been made when
scheduled, and (ii) on any date for any other purpose, as the owner of such
Certificate, and neither the Trustee, the Certificate Insurer, the Certificate
Registrar nor any agent of the Trustee, the Certificate Insurer or the
Certificate Registrar shall be affected by notice to the contrary, except, with
respect to a Class R Certificate, for notice by the Master Servicer pursuant to
Section 11.02 that the record holder is not a Permitted Transferee, and in such
case the provisions of Section 11.02 shall apply.

Section V.05. Trustee to Make Payments From Trust Only. All
distributions to be made by the Trustee in respect of the

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Certificates or under this Agreement shall be made only from the Trust Property.
Each Certificateholder, by its acceptance of a Certificate, agrees that it will
look solely to the Trust Property to the extent available for distribution to it
as herein provided and that the Trustee is not personally liable to it for any
amount distributable in respect of any Certificate or for any other liability in
respect of any Certificate. This Section is intended solely to limit the
liability of the Trustee and shall have no effect on the obligations of the
Depositor, Mego or the Master Servicer under this Agreement. This Section 5.05
does not limit the liability of the Trustee set forth elsewhere in this
Agreement for violations of its representations, warranties and covenants
contained herein.

ARTICLE VI

The Master Servicer

Section VI.01. Liability of the Master Servicer.

(a) The Master Servicer shall be liable in accordance herewith
only to the extent of the obligations specifically imposed upon and undertaken
by the Master Servicer herein and the representations made by the Master
Servicer.

(b) The Master Servicer shall indemnify, defend and hold
harmless the Trust, the Trustee, Mego, the Depositor and the Certificate
Insurer, their respective officers, directors, agents and employees and the
Certificateholders from and against any and all costs, expenses, losses, claims,
damages, and liabilities to the extent that such cost, expense, loss, claim,
damage or liability arose out of, or was imposed upon the Trustee, the Trust,
Mego, the Depositor, the Certificate Insurer or the Certificateholders through
the breach of this Agreement by the Master Servicer, the negligence, willful
misfeasance, or bad faith of the Master Servicer in the performance of its
duties under this Agreement or by reason of reckless disregard of its
obligations and duties under this Agreement. Such indemnification shall include,
without limitation, reasonable fees and expenses of counsel and expenses of
litigation.

Section VI.02. Merger or Consolidation of, or Assumption of,
the Master Servicer. The Master Servicer shall not merge or consolidate with any
other person, convey, transfer or lease substantially all its assets as an
entirety to another Person, or permit any other Person to become the successor
to the Master Servicer's business unless, after the merger, consolidation,
conveyance, transfer, lease or succession, the successor or surviving entity (i)
shall be an Eligible Servicer, (ii) shall be

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capable of fulfilling the duties of the Master Servicer contained in this
Agreement and (iii) shall have a long-term debt rating which is BBB and Baa2 by
Standard & Poor's and Moody's respectively. Any corporation (i) into which the
Master Servicer may be merged or consolidated, (ii) resulting from any merger or
consolidation to which the Master Servicer shall be a party, (iii) which
acquires by conveyance, transfer or lease substantially all of the assets of the
Master Servicer, or (iv) succeeding to the business of the Master Servicer, in
any of the foregoing cases shall execute an agreement of assumption to perform
every obligation of the Master Servicer under this Agreement and, whether or not
such assumption agreement is executed, shall be the successor to the Master
Servicer under this Agreement without the execution or filing of any paper or
any further act on the part of any of the parties to this Agreement, anything in
this Agreement to the contrary notwithstanding; provided, however, that nothing
contained herein shall be deemed to release the Master Servicer from any
obligation. The Master Servicer shall provide notice of any merger,
consolidation or succession pursuant to this Section 6.02 to the Trustee, the
Certificate Insurer and each Rating Agency. Notwithstanding the foregoing, as a
condition to the consummation of the transactions referred to in clauses (i)
through (iv) above, (x) immediately after giving effect to such transaction, no
representation or warranty made pursuant to Section 6.06 shall have been
breached (for purposes hereof, such representations and warranties shall speak
as of the date of the consummation of such transaction), (y) the Master Servicer
shall have delivered to the Trustee and the Certificate Insurer an Officer's
Certificate and an Opinion of Counsel each stating that such consolidation,
merger or succession and such agreement of assumption comply with this Section
6.02 and that all conditions precedent, if any, provided for in this Agreement
relating to such transaction have been complied with, and (z) the Master
Servicer shall have delivered to the Trustee and the Certificate Insurer an
Opinion of Counsel, stating, in the opinion of such counsel, either (A) all
financing statements and continuation statements and amendments thereto have
been executed and filed that are necessary to preserve and protect the interest
of the Trustee in the Trust Property and reciting the details of the filings or
(B) no such action shall be necessary to preserve and protect such interest.

Section VI.03. Limitation on Liability of the Master Servicer
and Others. Neither the Master Servicer nor any of its directors, officers,
employees or agents shall be under any liability to the Trust or to the
Certificateholders for any action taken or for refraining from the taking of any
action in good faith pursuant to this Agreement, or for errors in judgment;
provided, however, that this provision shall not protect the Master Servicer or
any such Person against any breach of warranties, representations or covenants
made herein or any liability which

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would otherwise be imposed by reason of willful misfeasance, bad faith or
negligence in performing or failing to perform duties hereunder or by reason of
reckless disregard of obligations and duties hereunder. The Master Servicer and
any of its directors, officers, employees or agents may rely in good faith on
any document of any kind prima facie properly executed and submitted by any
Person respecting any matters arising hereunder.

Section VI.04. Master Servicer Not to Resign; Expenses;
Assignment.

(a) The Master Servicer shall not resign from the obligations
and duties hereby imposed on it except (i) with the consent of the Certificate
Insurer and the Rating Agencies or (ii) upon determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would result in a material adverse effect on the Master Servicer and the
Certificate Insurer (so long as an Certificate Insurer Default shall not have
occurred and be continuing) does not elect to waive the obligations of the
Master Servicer to perform the duties which render it legally unable to act or
to delegate those duties to another Person. Any such determination permitting
the resignation of the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered and acceptable to the Trustee and the
Certificate Insurer (unless an Certificate Insurer Default shall have occurred
and be continuing). No resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer acceptable to the Certificate Insurer
shall have assumed the Master Servicer's servicing responsibilities and
obligations in accordance with Section 7.02.

(b) Notwithstanding anything to the contrary herein, the
Master Servicer shall remain liable for all liabilities and obligations incurred
by it as Master Servicer hereunder prior to the time that any resignation or
assignment referred to in subsection (a) above or termination under Section 7.01
becomes effective, including the obligation to indemnify the Trustee pursuant to
Section 8.05(b) hereof in connection with the Trustee's administration of the
trusts created by this Agreement prior to such resignation, assignment or
termination.

(c) The Master Servicer agrees to cooperate with any successor
Master Servicer in effecting the transfer of the Master Servicer's servicing
responsibilities and rights hereunder pursuant to subsection (a), including,
without limitation, the transfer to such successor of all relevant records and
documents (including any Files in the possession of the Master Servicer and the
Servicing Record) and all amounts credited to the Servicing Record or thereafter
received with respect to the Loans and not otherwise

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permitted to be retained by the Master Servicer pursuant to this Agreement. In
addition, the Master Servicer, at its sole cost and expense, shall prepare,
execute and deliver any and all documents and instruments, deliver to the
successor Master Servicer all Files and do or accomplish all other acts
necessary or appropriate to effect such termination and transfer of servicing
responsibilities, including, without limitation, assisting in obtaining any
necessary approval under Title I from the FHA.

Section VI.05. Master Servicer May Own Certificates. Each of
the Master Servicer and any affiliate of the Master Servicer may in its
individual or any other capacity become the owner or pledgee of Certificates
with the same rights as it would have if it were not the Master Servicer or an
affiliate thereof except as otherwise specifically provided herein. Certificates
so owned by or pledged to the Master Servicer or such affiliate shall have an
equal and proportionate benefit under the provisions of this Agreement, without
preference, priority, or distinction as among all of the Certificates, provided
that any Certificates owned by the Master Servicer or any Affiliate thereof,
during the time such Certificates are owned by them, shall be without voting
rights for any purpose set forth in this Agreement. The Master Servicer shall
notify the Trustee and the Certificate Insurer promptly after it or any of its
affiliates becomes the owner or pledgee of a Certificate.

Section VI.06. Representations and Warranties of the Master
Servicer. The Master Servicer hereby represents and warrants to the Depositor,
Mego, the Certificate Insurer and the Trustee, for the benefit of the
Certificateholders as of the Closing Date:

(a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of America,
with full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted;

(b) The Master Servicer has the full power and authority to
execute, deliver and perform, and to enter into and consummate all transactions
contemplated by this Agreement and each other Transaction Document to which it
is a party, has duly authorized the execution, delivery and performance of this
Agreement and each other Transaction Document to which it is a party, has duly
executed and delivered this Agreement and each other Transaction Document to
which it is a party, and this Agreement and each other Transaction Document to
which it is a party, when duly authorized, executed and delivered by the other
parties thereto, will constitute a legal, valid and binding obligation of the
Master Servicer, enforceable against it in

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accordance with its terms;

(c) Neither the execution and delivery of this Agreement or
any other Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or any other Transaction Document to which the Master Servicer is
a party will conflict with or result in a breach of any of the terms, conditions
or provisions of the Master Servicer's charter or bylaws or any legal
restriction or any material agreement or instrument to which the Master Servicer
is now a party or by which it is bound, or which would adversely affect the
creation or administration of the Trust as contemplated hereby, or constitute a
material default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which the Master Servicer or its property is subject;

(d) The Master Servicer is not in default, and the execution
and delivery of this Agreement and each other Transaction Document to which it
is a party and its performance of and compliance with the terms hereof and
thereof will not constitute a violation of, any law, any order or decree of any
court, or any order, regulation or demand of any federal, state or local
governmental or regulatory authority;

(e) No action, suit or other proceeding or investigation is
pending or, to the Master Servicer's knowledge, threatened before any court or
any federal, state or local governmental or regulatory authority (A) asserting
the invalidity of this Agreement or any other Transaction Document to which the
Master Servicer is a party, (B) seeking to prevent the consummation of any of
the transactions contemplated by this Agreement or any other Transaction
Document to which the Master Servicer is a party, or (C) seeking any
determination or ruling that would materially and adversely affect the ability
of the Master Servicer to perform its obligations under this Agreement or any
other Transaction Document to which the Master Servicer is a party (including
any threatened or pending action, suit, proceeding or investigation which might
result in the suspension, revocation or modification of the Contract of
Insurance);

(f) No consent, approval, authorization or order of,
registration or filing with or notice to, any court or any federal, state or
local government or regulatory authority is required for the execution, delivery
and performance by the Master Servicer of this Agreement or any other
Transaction Document to which the Master Servicer is a party (other than those
that have been obtained or will be obtained prior to the Closing Date);

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(g) Neither this Agreement nor any other Transaction Document
to which the Master Servicer is a party nor any statement, report or other
document furnished or to be furnished by the Master Servicer pursuant to this
Agreement or any other Transaction Document to which the Master Servicer is a
party or in connection with the transactions contemplated hereby and thereby
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;

(h) The statements contained in the section of the Prospectus
Supplement entitled "The Master Servicer" which describe the Master Servicer are
true and correct in all material respects, and such section of the Prospectus
Supplement does not contain any untrue statement of a material fact with respect
to the Master Servicer and does not omit to state a material fact necessary to
make the statements contained therein with respect to the Master Servicer not
misleading;

(i) The Master Servicer is solvent, and the Master Servicer
will not be rendered insolvent as a result of the performance of its obligations
pursuant to this Agreement and any other Transaction Document to which the
Master Servicer is a party;

(j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;

(k) Each Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;

(l) The Servicer is an Eligible Servicer, and the Master
Servicer possesses all state and federal licenses necessary for servicing the
Loans in accordance with this Agreement;

(m) The Master Servicer has not waived any default, breach,
violation or event of acceleration existing under any Note or the related
Mortgage; and

(n) The Master Servicer has caused and will cause to be
performed any and all acts required to be performed by the Master Servicer or
Servicer to preserve the rights and remedies of the Trustee in any Insurance
Policies applicable to the Loans including, without limitation, in each case,
any necessary notifications of insurers, assignments of policies or interests
therein, and establishments of co-insured, joint loss payee and mortgagee rights
in favor of the Trustee.

It is understood and agreed that the representations and
warranties set forth in this Section 6.06 shall survive the

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issuance and delivery of the Certificates and shall be continuing as long as any
Certificate shall be outstanding or this Agreement has not been terminated.

Section VI.07. General Covenants of the Master Servicer. The
Master Servicer covenants and agrees for the benefit of the Depositor, Mego, the
Certificate Insurer and the Trustee for the benefit of the Certificateholders
that until the Termination Date:

(a) The Master Servicer shall comply with, and shall service,
or cause to be serviced, each Loan, in accordance with all applicable laws, and,
in particular, in accordance with the National Housing Act, as amended and
supplemented, all rules and regulations issued thereunder, and all
administrative publications published pursuant thereto including, in the case of
the Loans, all FHA requirements of FHA Title I loans.

(b) The Master Servicer agrees that, so long as it shall
continue to serve in the capacity contemplated under the terms of this
Agreement, it shall remain in good standing under the laws governing its
creation and existence and qualified under the laws of each state in which it is
necessary to perform its obligations under this Agreement or in which the nature
of its business requires such qualification, it shall maintain all licenses,
permits and other approvals required by any law or regulations, including,
without limitation Title I, as may be necessary to perform its obligations under
this Agreement and to retain all rights to service the Loans, and it shall not
dissolve or otherwise dispose of all or substantially all of its assets.

ARTICLE VII

Master Servicer Termination Events

Section VII.01. Master Servicer Termination Events; Waiver.
For purposes of this Agreement, each of the following shall constitute a "Master
Servicer Termination Event":

(a) (i) failure by the Master Servicer to deposit or cause the
Servicer to deposit all Payments in the related Collection Account no later than
the second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii) failure
of the Master Servicer to deposit or cause the Servicer to deposit amounts
referred to in the proviso to Section 4.03(a) within two Business Days of the
date of required deposit thereof; (iii) failure of the Master Servicer to pay
when due any amount payable by it under the Insurance Agreement, which failure
continues unremedied for two Business Days; or (iv) failure of the Master
Servicer to pay when

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due any amount payable by it under this Agreement and such failure results in a
drawing under the Policy; or

(b) failure on the part of the Master Servicer duly to observe
or perform in any material respect any of its other covenants or agreements
contained in this Agreement that continues unremedied for a period of 30 days
after the earlier of (x) the date on which the Master Servicer gives notice of
such failure to the Trustee or the Certificate Insurer pursuant to Section
3.04(b) and (y) the date on which written notice of such failure, requiring the
same to be remedied, shall have been given to the Master Servicer by the Trustee
or the Certificate Insurer, or to the Master Servicer and the Trustee pursuant
to a Class Vote; or

(c) failure by the Master Servicer to deliver to the Trustee
and (so long as a Certificate Insurer Default shall not have occurred and be
continuing) the Certificate Insurer the Master Servicer Certificate by the
fourth Business Day prior to each Distribution Date, or failure on the part of
the Master Servicer to observe its covenants and agreements set forth in Section
6.07(a); or

(d) the entry of a decree or order for relief by a court or
regulatory authority having jurisdiction in respect of the Master Servicer in an
involuntary case under the federal bankruptcy laws, as now or hereafter in
effect, or another present or future, federal or state, bankruptcy, insolvency
or similar law, or appointing a receiver, liquidator, assignee, trustee,
custodian, sequestrator or other similar official of the Master Servicer or of
any substantial part of their respective properties or ordering the winding up
or liquidation of the affairs of the Master Servicer and the continuance of any
such decree or order unstayed and in effect for a period of 60 consecutive days
or the commencement of an involuntary case under the federal bankruptcy laws, as
now or hereinafter in effect, or another present or future federal or state
bankruptcy, insolvency or similar law and such case is not dismissed within 60
days; or

(e) the commencement by the Master Servicer of a voluntary
case under the federal bankruptcy laws, as now or hereinafter in effect, or any
other present or future, federal or state bankruptcy, insolvency or similar law,
or the consent by the Master Servicer to the appointment of or taking possession
by a receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Master Servicer or of any substantial part of its
property or the making by the Master Servicer of an assignment for the benefit
of creditors or the failure by the Master Servicer generally to pay its debts as
such debts become due or the taking of corporate action by the Master Servicer
in furtherance of any of the foregoing or the admission in writing by

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the Master Servicer of an inability to pay its debts as they become due; or

(f) any representation, warranty or statement of the Master
Servicer made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Trustee or the Certificate Insurer pursuant
to Section 3.04(b) and (y) the date on which written notice thereof shall have
been given to the Master Servicer by the Trustee or the Certificate Insurer (or,
if a Certificate Insurer Default shall have occurred and be continuing, written
notice thereof shall have been given by a Class Vote), the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or

(g) failure on the part of the Master Servicer to deposit into
the Distribution Account within 3 Business Days following the related
Determination Date any Interest Advance pursuant to Section 3.08; or

(h) the Certificate Insurer determines that the performance by
the Master Servicer of its servicing duties hereunder with respect to the Loans
is not, in the reasonable opinion of the Certificate Insurer after consultation
with the Master Servicer, in conformity with acceptable standards after
considering the following factors: (A) the terms and conditions of this
Agreement, (B) conformity with the Servicing Standards, (C) the Master
Servicer's practices as of the Closing Date, provided that such practices are
either (i) consistent with industry standards for the servicing of loans similar
to the Loans or (ii) the Master Servicer's historical practices and procedures;
or

(i) the Master Servicer shall dissolve or liquidate, in whole
or in part, in any material respects except to the extent that any resulting
successor entity is acceptable to the Certificate Insurer; or

(j) the long-term debt rating of the Master Servicer shall be
reduced below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or

(k) the Annual Default Percentage (Three Month Average)
exceeds 6.5% or the 60+ Delinquency Percentage (Rolling Three Month) exceeds
6.0%.

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Section VII.02. Consequences of a Master Servicer Termination
Event. If a Master Servicer Termination Event shall occur and be continuing, the
Certificate Insurer (or, if a Certificate Insurer Default shall have occurred
and be continuing, the Trustee at the direction of the Holders pursuant to a
Class Vote), by notice given in writing to the Master Servicer (and to the
Trustee if given by the Certificate Insurer or the Certificateholders) may
terminate all of the rights and obligations of the Master Servicer under this
Agreement. On or after the receipt by the Master Servicer of such written
notice, and the appointment of and acceptance by a successor Master Servicer,
all authority, power, obligations and responsibilities of the Master Servicer
under this Agreement, whether with respect to the Certificates or the Trust or
otherwise, shall pass to, be vested in and become obligations and
responsibilities of the successor Master Servicer; provided, however, that the
successor Master Servicer shall have no liability with respect to any obligation
which was required to be performed by the prior Master Servicer prior to the
date that the successor Master Servicer becomes the Master Servicer or any claim
of a third party based on any alleged action or inaction of the prior Master
Servicer. The successor Master Servicer is authorized and empowered by this
Agreement to execute and deliver, on behalf of the prior Master Servicer, as
attorney-in-fact or otherwise, any and all documents and other instruments and
to do or accomplish all other acts or things necessary or appropriate to effect
the purposes of such notice of termination. The prior Master Servicer agrees to
cooperate with the successor Master Servicer in effecting the termination of the
responsibilities and rights of the prior Master Servicer under this Agreement,
including, without limitation, the transfer to the successor Master Servicer for
administration by it of all cash amounts that shall at the time be held by the
prior Master Servicer for deposit, or have been deposited by the prior Master
Servicer, in the Collection Accounts or thereafter received with respect to the
Loans and the delivery to the successor Master Servicer of all Files and a
computer tape in readable form containing the Servicing Record and any other
information necessary to enable the successor Master Servicer to service the
Loans and the other Trust Property. If requested by the Certificate Insurer
(unless a Certificate Insurer Default shall have occurred and be continuing),
the successor Master Servicer shall direct the Obligors to make all payments
under the Loans directly to the successor Master Servicer, or to a lockbox
established by the Master Servicer at the direction of the Certificate Insurer
(unless a Certificate Insurer Default shall have occurred and be continuing), at
the prior Master Servicer's expense. In addition to any other amounts that are
then payable to the terminated Master Servicer under this Agreement, the
terminated Master Servicer shall then be entitled to receive (to the extent
provided by Section 3.08) out of the Distribution Amount, reimbursements for any
outstanding Interest Advances made

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during the period prior to the notice pursuant to this Section 7.02 which
terminates the obligation and rights of the terminated Master Servicer under
this Agreement. The Trustee and the successor Master Servicer may set off and
deduct any amounts owed by the terminated Master Servicer from any amounts
payable to the terminated Master Servicer. The terminated Master Servicer shall
grant the Trustee, the successor Master Servicer and the Certificate Insurer
reasonable access to the terminated Master Servicer's premises at the terminated
Master Servicer's expense.

Section VII.03. Appointment of Successor.

(a) On or after the time the Master Servicer receives a notice
of termination pursuant to Section 7.02 or upon the resignation of the Master
Servicer pursuant to Section 6.04, the Trustee shall be the successor in all
respects to the Master Servicer in its capacity as master servicer under this
Agreement and the transactions set forth or provided for in this Agreement, and
shall be subject to all the responsibilities, restrictions, duties, liabilities
and termination provisions relating thereto placed on the Master Servicer by the
terms and provisions of this Agreement. The Trustee shall take such action,
consistent with this Agreement, as shall be necessary to effectuate any such
succession. If the Trustee or any other successor Master Servicer is acting as
Master Servicer hereunder, it shall be subject to termination under Section 7.02
upon the occurrence of a Master Servicer Termination Event applicable to it as
Master Servicer.

(b) Any successor Master Servicer appointed pursuant to the
provisions of the Agreement must be approved by the Certificate Insurer
(provided no Certificate Insurer Default is then occurring and continuing) and
shall execute, acknowledge and deliver to the Trustee, the Certificate Insurer
and its predecessor Master Servicer an instrument accepting such appointment
hereunder, and thereupon the resignation or removal of the predecessor Master
Servicer shall become effective.

(c) Any successor Master Servicer shall be entitled to such
compensation (whether payable out of the Distribution Amount or otherwise) as
the Master Servicer would have been entitled to under the Agreement if the
Master Servicer had not resigned or been terminated hereunder. The Certificate
Insurer and a successor Master Servicer may agree on additional compensation to
be paid to such successor Master Servicer in accordance with Section
4.05(a)(xiii). In addition, any successor Master Servicer shall be entitled, to
reasonable transition expenses incurred in acting as successor Master Servicer
pursuant to Section 4.05(a)(xiii).

Section VII.04. Notification to Certificateholders. Upon

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any termination of the Master Servicer or appointment of a successor to the
Master Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register.

Section VII.05. Waiver of Past Defaults. The Certificate
Insurer (or, if a Certificate Insurer Default shall have occurred and be
continuing, the Certificateholders pursuant to a Class Vote) may, on behalf of
all Holders of Certificates, waive any default by the Master Servicer in the
performance of its obligations hereunder and its consequences. Upon any such
waiver of a past default, such default shall cease to exist, and any Master
Servicer Termination Event arising therefrom shall be deemed to have been
remedied for every purpose of this Agreement. No such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.

ARTICLE VIII

Concerning the Trustee

Section VIII.01. Duties of the Trustee and Contract of
Insurance Holder.

(a) The Trustee, prior to the occurrence of a Master Servicer
Termination Event and after the curing of all Master Servicer Termination Events
which may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement. In case a Master Servicer
Termination Event has occurred and not been cured (the appointment of a
successor servicer (including the Trustee) shall for purposes of this Article be
deemed such a cure), the Trustee shall exercise such of the rights and powers
vested in it by this Agreement, and use the same degree of care and skill in its
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs. The Trustee shall not, except as
otherwise provided in this Agreement, sell or otherwise transfer any of the
Trust Property.

(b) The Trustee, upon receipt of all resolutions,
certificates, statements, opinions, reports, documents, notices, orders or other
instruments furnished to the Trustee that are specifically required to be
furnished pursuant to any provision of this Agreement, shall examine them to
determine whether they conform to the requirements of this Agreement; provided,
however, that the Trustee, in its capacity as such, shall not be responsible for
the accuracy or content of any such resolution, certificate, statement, opinion,
report, document, notice, order or other instrument furnished to the Trustee
pursuant to this Agreement.

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The Trustee shall promptly mail each such resolution, certificate, statement,
opinion, report, document, notice, order or other instrument to each
Certificateholder.

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

(i) Prior to the occurrence of a Master Servicer
Termination Event, and after the curing of all such Master Servicer
Termination Events which may have occurred, the duties and obligations
of the Trustee shall be determined solely by the express provisions of
this Agreement, the Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Agreement, no implied covenants or obligations shall be
read into this Agreement against the Trustee and, in the absence of bad
faith, willful misconduct, or negligence on the part of the Trustee or
actual knowledge to the contrary of a Responsible Officer of the
Trustee assigned to and working in the Trustee's Corporate Trustee
Administration Department, the Trustee may conclusively rely, as to the
truth of the statements and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished to the Trustee
that conform to the requirements of this Agreement;

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

(iii) The Trustee shall not be personally liable with
respect to any action taken, suffered or omitted to be taken by it in
good faith in accordance with the direction given pursuant to a Class
Vote, relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, with respect to such Class
of Certificates under this Agreement;

(iv) The Trustee shall not be personally liable for
any failure to ascertain whether a Certificateholder is an affiliate of
the Master Servicer or the Depositor for purposes of obtaining
Certificateholder consent pursuant to the terms of this Agreement;

(v) For all purposes of this Agreement, the Trustee
shall not be deemed to have knowledge of any Master

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Servicer Termination Event unless a Responsible Officer of the Trustee
assigned to and working in the Trustee's Corporate Trustee
Administration Department shall have actual knowledge thereof or if
written notice thereof is received by the Trustee in accordance
herewith, and in the absence of such knowledge no provision hereof
requiring the taking of any action or the assumption of any duties or
responsibility by the Trustee following the occurrence of any Master
Servicer Termination Event shall be effective as to the Trustee; and

(vi) None of the provisions contained in this
Agreement shall in any event require the Trustee to perform, or to be
responsible for the manner of performance of, any of the obligations of
the Master Servicer or the Servicer under this Agreement or to
supervise or monitor the performance of such obligations (other than to
determine that any notices, reports or statements required to be
delivered to it by the Master Servicer hereunder comply with the
provisions of this Agreement), except during such time, if any, as the
Trustee shall be the successor to, and be vested with the rights,
duties, powers and privileges of the Master Servicer in accordance with
the provisions of this Agreement.

(d) If the Trustee receives any funds from the FHA or any
other Person with respect to the Loans or any other assets of the Trust, the
provisions of Section 3.12(e) shall apply.

(e) In the event that any conservator or receiver shall be
appointed for Mego, the Trustee shall cause the Master Servicer to notify the
Obligors of the sale of the Loans to the Trust.

Section VIII.02. Certain Matters Affecting the Trustee. Except
as otherwise provided in Section 8.01:

(i) The Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, Officer's
Certificate, certificate of auditors or any other certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or
parties;

(ii) The Trustee shall be under no obligation to
exercise any of the trusts or powers vested in it by this Agreement or
to institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of the Certificate Insurer or
any of the Certificateholders, pursuant to the provisions of this
Agreement, expend or use its own funds or otherwise incur any financial
liability in the performance of any of its duties as

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Trustee hereunder, or in the exercise of any of its rights or powers as
such, unless either (A) payment within a reasonable time to the Trustee
of the costs, expenses or liabilities likely to be incurred by it in
taking such action is, in the opinion of the Trustee, reasonably
assured to the Trustee by the security afforded to it by the terms of
this Agreement, or (B) the Certificate Insurer or such
Certificateholders as the case may be shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby (which, in the
case of a Certificateholder which is an institutional investor, will be
deemed satisfied by a written agreement of indemnity from such
Certificateholder); the right of the Trustee to perform any
discretionary act enumerated in this Agreement shall not be construed
as a duty, and the Trustee shall not be answerable for other than its
negligence, bad faith or willful misconduct in the performance of any
such act; nothing contained herein shall, however, relieve the Trustee
of the obligation, upon the occurrence of a Master Servicer Termination
Event which has not been cured, to exercise such of the rights and
powers vested in it by this Agreement, and to use the same degree of
care and skill in their exercise as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs;

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

(iv) The Trustee may consult with counsel and any
Opinion of Counsel or written advice of counsel shall be full and
complete authorization and protection in respect of any action taken or
suffered or omitted by it hereunder in good faith and in accordance
with such Opinion of Counsel or written advice;

(v) Prior to the occurrence of a Master Servicer
Termination Event hereunder and after the curing of all such Master
Servicer Termination Events which may have occurred, the Trustee shall
not be bound to make any investigation into the facts or matters stated
in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond or other paper or
document, unless requested in writing to do so by the Certificate
Insurer or pursuant to a Class Vote; provided, however, that if the
payment within a reasonable time to the Trustee of the costs, expenses
or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured
to the Trustee by the security

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afforded to it by the terms of this Agreement, the Trustee may require
reasonable indemnity from the Certificate Insurer or the
Certificateholders, as the case may be, giving such direction against
such expense or liability as a condition to so proceeding (which, in
the case of a Certificateholder which is an institutional investor,
will be deemed satisfied by a written agreement of indemnity from such
Certificateholder), except that, if a Master Servicer Termination Event
has occurred and is continuing, the expenses of any such investigation
shall be paid by the Master Servicer or, if paid by the Trustee, shall
be repaid by the Master Servicer upon demand, and the Trustee shall not
have any lien, claim or demand upon the Trust for the payment thereof;

(vi) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or
through agents or attorneys; and

(vii) The Trustee shall not be required to give any
bond or surety in respect of the trust created hereby or the powers
created hereunder.

Section VIII.03. Trustee Not Liable for Certificates or Loans.
The recitals contained herein and in the Certificates (other than the
countersignature of the Trustee on such Certificates) shall not be taken as the
statements of the Trustee, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Agreement (other than as to the execution and delivery of
this Agreement by the Trustee) or of the Certificates (other than the
countersignature of the Trustee on such Certificates) or of any Loan or related
document. The Trustee shall not be accountable for the use or application by the
Depositor of any of the Certificates or of the proceeds of such Certificates, or
for the use or application of any funds paid to the Master Servicer (unless the
Trustee is acting as such) in respect of the Loans or deposited in or withdrawn
by the Master Servicer from the Collection Accounts, other than funds so
withdrawn and thereafter deposited in the Distribution Account. Except as
otherwise expressly provided herein, the Trustee shall have no obligation to
inspect, insure or pay taxes on any Property, to investigate the state of title
with respect to any Property, to ensure the priority or perfection of any
Mortgage or security interest or to file or record any assignment, lien,
financing statement, continuation statement or security interest in relation to
any Loan or Property or to ensure the priority or perfection of any security
referred to in this Agreement or to prepare, file or record any assignment,
lien, financing statement or continuation statement with respect thereto or to
prepare or file any Securities and Exchange Commission filings for the Trust or
to record this

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Agreement.

Section VIII.04. Trustee May Own Certificates. The Trustee in
its individual or any other capacity may become the owner or pledgee of
Certificates of any Class with the same rights as it would have if it were not
Trustee, except that no determination, vote or request as Holder of such
Certificates shall be included in the determination of a Class Vote. The
Trustee, in its individual capacity, may deal with either the Depositor, the
Certificate Insurer and the Master Servicer, each in their individual
capacities, with the same rights it would have if it were not Trustee.

Section VIII.05. Trustee's Fees and Expenses; Indemnification.

(a) The Trustee will disburse to itself pursuant to Section
4.05(a)(iv), to the extent funds are available therefor, the Trustee Fee for all
services rendered by it in the execution of the trusts hereby created and in the
exercise and performance of any of the powers and duties hereunder of the
Trustee.

(b) Mego shall indemnify the Trustee and its agent for, and
hold them harmless against, any loss, liability or expense (including reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all Persons not regularly in its employ and the fees and expenses of any
co-trustee appointed hereunder)) incurred by the Trustee or such agent without
negligence, willful misfeasance or bad faith on the part of the Trustee or any
such agent and arising out of or in connection with the acceptance or
administration of the trusts created hereby, including without limitation the
costs and expenses of defending the Trustee or any such agent against any claim
or liability incurred by them in connection with the exercise or performance of
any of their powers or duties hereunder, including the signing of any document
pursuant to this Agreement, and including without limitation any liability
incurred by the Trustee arising from the Depositor's bad faith, willful
misfeasance or negligence. The obligations set forth in this Section 8.05(b)
shall survive the termination of this Agreement.

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Section VIII.06. Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times be a corporation or national banking
association organized and doing business under the laws of the United States or
of any state, authorized under such laws to exercise corporate trust powers,
subject to supervision or examination by federal or state authority and either
(i) having a combined capital and surplus of at least $50,000,000 or (ii) being
the wholly-owned subsidiary of a bank holding company having such a capital and
surplus. If such corporation or national banking association publishes reports
of condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section 8.06 the combined capital and surplus of such corporation or national
banking association shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. By executing and
delivering this Agreement, the Trustee represents and warrants that it meets
such requirements as of the date hereof. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 8.06, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. Neither the Master Servicer nor any affiliate thereof shall be
eligible to serve as Trustee at any time, except that the Trustee may serve as
successor master servicer pursuant to Section 7.02.

Section VIII.07. Resignation and Removal of the Trustee.

(a) The Trustee may resign and be discharged from the trust
hereby created by giving not less than 60 days' written notice thereof to the
Master Servicer and the Certificate Insurer. Upon receiving such notice of
resignation, the Depositor with the prior written consent of the Certificate
Insurer or, if a Certificate Insurer Default is then occurring and continuing,
the Senior Certificateholders pursuant to a Class Vote shall promptly appoint a
successor trustee acceptable to the Certificate Insurer or, if a Certificate
Insurer Default is then existing, the Senior Certificateholders pursuant to a
Class A Vote by written instrument, in duplicate, one copy of which instrument
shall be delivered to the resigning Trustee and one copy to the successor
trustee. If no successor trustee shall have been so appointed and have accepted
appointment within sixty days after the giving of such notice of resignation,
the resigning Trustee may petition any court of competent jurisdiction for the
appointment of a successor trustee.

(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06, or if

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the Trustee has failed to perform any obligation hereunder and such failure
materially and adversely affects Certificateholders of any Class or the
Certificate Insurer, and, in either such case, the Trustee shall fail to resign
after written request therefor by the Depositor, with the consent of the
Certificate Insurer, if a Certificate Insurer Default is not then occurring and
continuing, or the Certificate Insurer, if a Certificate Insurer Default is not
then occurring and continuing or if at any time the Trustee shall become
incapable of acting, or shall be adjudged as bankrupt or insolvent, or a
receiver or other conservator of the Trustee or of its property shall be
appointed, or any public officer shall take charge or control of the Trustee or
of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case the Depositor may with the prior written
consent of the Certificate Insurer or at the written request of the Certificate
Insurer shall remove the Trustee and appoint a successor trustee acceptable to
the Certificate Insurer by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee so removed and one copy to the
successor trustee.

(c) Any resignation or removal of the Trustee and appointment
of a successor trustee pursuant to any of the provisions of this Section 8.07
shall become effective upon acceptance of appointment by the successor trustee
as provided in Section 8.08.

Section VIII.08. Successor Trustee.

(a) Any successor trustee appointed as provided in Section
8.07 shall execute, acknowledge and deliver to the Depositor and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and the acceptance of such successor trustee shall become effective,
and such successor trustee, without any further act, deed or conveyance, shall
become fully vested with all rights, powers, duties and obligations of its
predecessor hereunder, with like effect as if originally named as Trustee
herein. The predecessor trustee shall upon payment of any unpaid Trustee Fees
deliver to the successor trustee all Files, related documents, statements and
funds held by it hereunder, including, without limitation, the monies held in
the Distribution Account and the FHA Premium Account and the Depositor and the
predecessor trustee shall execute and deliver such instruments and do such other
things as may reasonably be required more fully and certainly to vest and
confirm in the successor trustee all such rights, powers, duties and
obligations, provided, however, that the Trust shall remain liable to the
predecessor trustee for any unpaid outstanding fees and expenses of such
predecessor trustee.

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(b) No successor trustee shall accept appointment as provided
in this Section 8.08 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 8.06.

(c) Upon acceptance of appointment by a successor trustee as
provided in this Section 8.08, the Master Servicer shall mail notice of the
succession of such trustee hereunder to all Certificateholders at their
respective addresses appearing in the Certificate Register and be entitled to
reimbursement of expenses for such mailing from Mego.

Section VIII.09. Merger or Consolidation of the Trustee. Any
corporation or national banking association into which the Trustee may be merged
or converted or with which it may be consolidated or any corporation or national
banking association resulting from any merger, conversion or consolidation to
which the Trustee shall be a party, or any corporation or national banking
association succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder without
the execution or filing of any paper or any further act on the part of any of
the parties hereto, anything herein to the contrary notwithstanding, provided
that such corporation or national banking association shall be eligible under
the provisions of Section 8.06. The Trustee or its successor hereunder shall
provide the Depositor and the Certificate Insurer with prompt notice of any such
transaction.

Section VIII.10. Appointment of Co-Trustee or Separate
Trustee.

(a) Notwithstanding any other provisions hereof at any time,
for the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Trust or property securing the same may at the time be located,
the Depositor and the Trustee acting jointly with the prior written consent of
the Certificate Insurer shall have the power and shall execute and deliver all
instruments to appoint one or more Persons approved by the Trustee to act as
co-trustee or co-trustees, jointly with the Trustee, or separate trustee or
separate trustees, of all or any part of the Trust, and to vest in such Person
or Persons, in such capacity, such title to the Trust, or any part thereof, and,
subject to the other provisions of this Section 8.10, such powers, duties,
obligations, rights and trusts as the Master Servicer and the Trustee may
consider necessary or desirable. If the Master Servicer shall not have joined in
such appointment within fifteen days after the receipt by it of a request so to
do, or in case a Master Servicer Termination Event shall have occurred and be
continuing, the Trustee shall have the power to make such

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appointment with the prior written consent of the Certificate Insurer. No
co-trustee or separate trustee hereunder shall be required to meet the terms of
eligibility as a successor trustee under Section 8.06, and no notice to
Certificateholders of the appointment of co-trustee(s) or separate trustee(s)
shall be required under Section 8.08.

(b) In the case of any appointment of a co-trustee or separate
trustee pursuant to this Section 8.10, all rights, powers, duties and
obligations conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate trustee or
co-trustee jointly, except to the extent that under any law of any jurisdiction
in which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Master Servicer hereunder), the Trustee shall
be incompetent or unqualified to perform such act or acts, in which event such
rights, powers, duties and obligations (including the holding of title to the
Trust or any portion thereof in any such jurisdiction) shall be exercised and
performed singly by such separate trustee or co-trustee, but solely at the
direction of the Trustee.

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

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

(e) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder.

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

Section VIII.11. Appointment of Custodians.

(a) Any provision of this Agreement notwithstanding, the
Trustee may, with the consent of the Master Servicer and the prior written
consent of the Certificate Insurer, appoint, as agents for the Trustee, one or
more Custodians to hold all or a portion of the Files, and to take such other
action with respect thereto as shall be consistent with the terms of this
Agreement, by entering into a Custodial Agreement in form and substance
satisfactory to the Certificate Insurer, provided that none of the provisions of
this Section 8.11 relating to agreements or arrangements between the Trustee and
any Custodian or to actions taken through any such Custodian or otherwise shall
be deemed to relieve the Trustee of any of its duties and obligations hereunder,
and the Trustee shall be obligated with respect thereto to the same extent and
under the same terms and conditions as if it alone were performing all such
duties and obligations. Any Custodian shall have a combined capital and surplus
of at least $10,000,000. The Trustee shall be entitled to enter into any
agreement with any Custodian performing services on behalf of the Trustee
related to its duties and obligations hereunder for indemnification of the
Trustee by such Custodian, and nothing contained in this Agreement shall be
deemed to limit or modify such indemnification.

(b) The Custodian in its individual or any other capacity may
become the owner or pledgee of Certificates of any Class with the same rights it
would have if it were not Custodian.

(c) Subject to the provisions of this Article VIII, the
Trustee agrees to comply with the terms of each such Custodial Agreement and to
enforce the terms and provisions thereof against the Custodian for the benefit
of Certificateholders and the Certificate Insurer. The Trustee shall be solely
liable for all fees owed by it to any Custodian performing services on behalf of
the Trustee, irrespective of whether the Trustee's compensation pursuant to this
Agreement is sufficient to pay such fees. Any Custodial Agreement shall require
that the Custodian thereunder maintain continuous custody of each File in the
State of Minnesota, unless the Trustee shall obtain an Opinion of Counsel
acceptable to the Certificate Insurer from a firm of attorneys licensed to
practice law in the State in which custody of the Files will be maintained to
the effect that, in the event that the intended transfer and sale to the Trustee
by the Depositor of the Loans is deemed to be the grant of a security interest
in the Trust rather than a sale, the Trustee will have a perfected first
priority security interest in the Notes despite the fact that custody of the

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Files no longer is maintained in the State of Minnesota.

Section VIII.12. Certain Tax Matters.

(a) The Trustee is hereby authorized and directed by Mego and
to elect to treat the REMIC Pool, including the Collection Account, the
Distribution Account and the FHA Premium Account, as a REMIC in accordance with
the REMIC Provisions. In connection with such election, (i) the Class R
Certificates are hereby designated as the sole class of "residual interests" in
the REMIC Pool, (ii) the Senior Certificates are hereby designated as classes of
"regular interests" in the REMIC Pool, (iii) the latest possible maturity date
of the Senior Certificates is the Final Scheduled Distribution Date, and (iv)
the Closing Date is hereby designated as the "Start-Up Day" of the REMIC Pool,
all within the meaning of the REMIC Provisions. The taxable year of the REMIC
Pool shall be the calendar year and the first taxable year shall begin on the
Closing Date. The books of the REMIC Pool shall be maintained on an accrual
basis for federal income tax purposes.

(b) The Trustee as agent for Mego, so long as it shall be a
Holder of a Class R Certificate, and otherwise the Residual Holder appointed in
accordance with the provisions of the Code, shall:

(i) in a timely manner, prepare, file with the
Internal Revenue Service or other appropriate authorities, and cause
the Trustee to mail to Certificateholders, as required, any Tax
Returns, and any other federal, state or local tax or information
returns or reports that are required to be so filed, or provided to
Certificateholders, with respect to the REMIC Pool;

(ii) in the first Tax Return, elect to treat the
REMIC Pool, as a REMIC;

(iii) in the Tax Return for each taxable year of the
REMIC Pool, designate as the tax matters person for the REMIC Pool (x)
Mego or an affiliate thereof, if Mego or such affiliate, as the case
may be, owned a Class R Certificate at any time during such taxable
year, or (y) if neither Mego nor an affiliate thereof owned a Class R
Certificate at any time during such taxable year, (A) the Holder of a
Class R Certificate designated in a notice delivered to the Trustee
prior to the date of completion of such Tax Return by Holders of Class
R Certificates representing a majority of the Residual Interests, or
(B) if no such notice is received, the Person holding, at the end of
such taxable year, Class R Certificates representing, in the aggregate,
a greater percentage of the Residual Interests than Class R
Certificates

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then held by any other Person;

(iv) maintain or instruct the Trustee to maintain
records as to investments and other assets of the REMIC Pool sufficient
to show compliance with the REMIC Provisions during each taxable year
of the REMIC Pool; and

(v) take all actions necessary to ensure that the Tax
Return and such other returns or reports are signed by a Person that is
both authorized to sign such returns or reports hereunder and is an
appropriate Person to sign such returns or reports under the law
applicable to such returns or reports (including in the case of the Tax
Return, the Code, Treasury Regulations, and any official pronouncements
of the Internal Revenue Service).

The Trustee is hereby authorized under this Agreement to sign on behalf of the
REMIC Pool the Tax Return and any such other returns and reports. Each Holder of
a Class R Certificate hereby irrevocably appoints and authorizes the Trustee to
be its attorney-in-fact for purposes of signing any such returns and reports.
The Trustee shall (i) give notice to the Internal Revenue Service on Internal
Revenue Service Form 56 that it is acting in a fiduciary capacity on behalf of
the REMIC Pool in accordance with Treasury Regulation Section 1.860F-4(c), and
(ii) sign such return or report, provided that the Trustee shall be protected in
signing such return or report to the extent provided in Section 8.05(b). The
Trustee shall cause the REMIC Pool accountants to include in the first federal
income tax return the information required by Treasury Regulation Section
1.860D-1(d)(2) and Treasury Regulation Section 1.860F-4(b)(2).

(c) This Agreement shall be construed so as to carry out the
intention of the parties that the REMIC Pool be a REMIC at all times from the
Start-up Day to the Termination Date. Neither the Master Servicer nor the
Trustee shall knowingly or intentionally take any action or omit to take any
action that would cause the imposition of a tax on the REMIC Pool or Trust under
the REMIC Provisions or cause the REMIC Pool to fail to qualify as a REMIC at
any time that any Certificate is outstanding. Without limiting the generality of
the foregoing, after the Start-up Day the Trustee shall not accept any
contribution of assets to the REMIC Pool unless the Trustee shall have received
an Opinion of Counsel to the effect that such contribution will not cause the
imposition of a tax on the REMIC Pool under the REMIC Provisions or cause the
REMIC Pool to fail to qualify as a REMIC at any time that any Certificate is
outstanding. There is no requirement for any holder of a Residual Interest to
contribute any amount to the Trust.

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(d) The Trustee is hereby authorized and directed to make
information available to the Internal Revenue Service and to any Holder or
transferor of a Class R Certificate necessary for compliance with Section
860E(e) of the Code. The Master Servicer shall maintain records and information
related to the Loans and Monthly Payments sufficient to make any calculations
that may be required pursuant to such section and shall provide such information
to the Trustee; provided, however, that any calculations necessary to provide
such information to any Holder or the Internal Revenue Service shall be
performed by the accountants for the REMIC Pool. The provisions of Section
11.02(vi) shall also apply.

(e) The Trustee shall apply promptly to the Internal Revenue
Service for a Taxpayer Identification Number for the REMIC Pool and, promptly
upon receipt thereof, shall forward to the Master Servicer a copy of the "Notice
of New Employer Identification Number Assigned."

(f) In connection with assisting Mego (or such other Residual
Holder as is referred to in Section 8.12(a) above) in the preparation of, and in
filing of, any Tax Returns or other returns or reports pursuant to this Section,
the Trustee may rely on information provided by Mego and the Master Servicer and
Mego or the Master Servicer, as appropriate, shall indemnify and hold harmless
the Trustee for any loss, liability or expense incurred in connection with such
preparation and filing arising by reason of such person's bad faith, willful
misfeasance or negligence in providing or failing to provide such information.
The Trustee shall be entitled to reimbursement from Mego for its reasonable
out-of-pocket expenses and disbursements except any such expenses or
disbursements as may arise from its negligence, willful misfeasance or bad faith
and except as provided in the following sentence.

(g) The Trustee shall file IRS Form 8811 within the time
prescribed by law and make available on a timely basis all information required
to be provided pursuant to Temporary Treasury Regulation Section 1.6049-7T(e)
(or any successor provision) to persons entitled to receive information pursuant
thereto.

Section VIII.13. Representations and Warranties of the
Trustee.

The Trustee represents and warrants to, and agrees with, the
parties hereto, the Certificate Insurer and Certificateholders that:

(a) The Trustee is duly organized as a national banking
association under the laws of the United States of America, is

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validly existing and in good standing in such state and has the corporate power
and authority under United States law to conduct its corporate trust business as
now conducted.

(b) The Trustee has full corporate power and authority under
United States law to enter into and perform all transactions contemplated herein
and no consent, approval, authorization or order of any federal court or
governmental agency or body governing or having jurisdiction with respect to the
Trustee's trust powers is required for the Trustee to enter into this Agreement
and to perform its obligations hereunder.

(c) The Certificates when countersigned by the Trustee shall
have been duly and validly countersigned in accordance with this Agreement.

(d) The execution, delivery and performance by it of this
Agreement (a) do not violate any provision of any law or regulation governing
the banking and trust powers of the Trustee or any order, writ, judgment, or
decree of any court, arbitrator, or governmental authority applicable to the
Trustee or any of its assets, (b) do not violate any provision of its corporate
charter or by-laws, (c) do not violate any provision of, or constitute, with or
without notice or lapse of time, a default under, or result in the creation or
imposition of any lien on any of the Trust Property pursuant to the provisions
of any mortgage, indenture, contract, agreement or other undertaking other than
this Agreement to which it is a party and (d) have been duly authorized by the
Trustee.

(e) This Agreement has been duly executed and delivered by the
Trustee and constitutes the legal, valid and binding agreement of the Trustee,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by equitable
limitations on the availability of specific remedies, regardless of whether such
enforceability is considered in a proceeding in equity or at law.

(f) The Trustee has taken actual possession of the Notes,
Mortgages and any other related documents delivered pursuant to Section 2.01(b)
in good faith, and without notice or knowledge: (i) of any adverse claims, lien,
or encumbrance against any of the same; (ii) that any Note was overdue (except
for those Loans referred to in Section 2.03(b)(ii) that are delinquent as of the
Closing Date) or had been dishonored or subject to the circumstances described
in Section 3.304 of the Uniform Commercial Code as in effect in the State of New
York; or, (iii) of any other defense against or claim to the Notes by any other
person or entity. For purposes of this subsection (g), the Trustee shall not

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be deemed to have had notice or knowledge of the foregoing matters unless a
Responsible Officer assigned to and working in the Trustee's Corporate Trustee
Administration Department shall have actual knowledge thereof or written notice
thereof is received by the Trustee in accordance herewith.

(g) The Trustee has taken actual possession of the Notes,
Mortgages and other items in the Files in the ordinary course of its business.

(h) The Trustee is authorized and approved by FHA for
participation in the FHA Title I loan program and holds the Contract of
Insurance, which is a valid contract of insurance from FHA for such purpose; and
no contract of insurance held by the Trustee has ever been revoked or terminated
by FHA.

Section VIII.14. Streit Act. Any provisions required to be
contained in this Agreement by Section 126 Article 4-A of the New York Real
Property law are hereby incorporated, and such provisions shall be in addition
to those conferred or imposed by this Agreement; provided, however, that to the
extent that such Section 126 shall not apply to this Agreement, said Section 126
shall not have any effect, and if said Section 126 should at any time be
repealed or cease to apply to this Agreement, or be construed by judicial
decision to be inapplicable, said Section 126 shall cease to have any further
effect upon the provisions of this Agreement. In case of a conflict between the
provisions of this Agreement and any mandatory provisions of Article 4-A of the
New York Real Property law, such mandatory provisions of said Article 4-A shall
prevail, provided that if said Article 4-A shall not apply to this Agreement,
should at any time be repealed, or cease to apply to this Agreement, or be
construed by judicial decision to be inapplicable, such mandatory provision of
such Article 4-A shall cease to have any further effect upon the provisions of
this Agreement; provided, however, that the Trustee agrees to act in good faith
in the exercise of its rights and powers hereunder.

Section VIII.15. Rights to Direct Trustee. Subject to Section
8.02(ii), the Certificate Insurer (or, if an Certificate Insurer Default shall
have occurred and be continuing, the Certificateholders pursuant to a Class
Vote) shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred on the Trustee; provided, however, that subject to Section
8.01, the Trustee shall have the right to decline to follow any such direction
if the Trustee being advised by counsel determines that the action so directed
may not lawfully be taken, or if the Trustee in good faith shall, by a
Responsible Officer, determine that the proceedings so directed would be in
violation of this Agreement or any other Transaction Document or would subject

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it to personal liability against which it has not been provided reasonable
indemnity (which, in the case of a Certificateholder which is an institutional
investor, will be deemed satisfied by a written agreement of indemnity from such
Certificateholder) or (in the case of directions provided by a Class Vote) be
unduly prejudicial to the rights of Certificateholders not parties to such
direction; and provided further that nothing in this Agreement shall impair the
right of the Trustee to take any action deemed proper by the Trustee and which
is not inconsistent with such direction by the Certificate Insurer or the
Certificateholders.

Section VIII.16. Reports to the Securities and Exchange
Commission. The Trustee shall, on behalf of the Trust, cause to be filed with
the Securities and Exchange Commission any periodic reports required to be filed
under the provisions of the Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Securities and Exchange Commission thereunder. Upon
the request of the Trustee, each of the Seller, the Servicer, the Depositor and
the Master Servicer shall cooperate with the Trustee in the preparation of any
such report and shall provide to the Trustee in a timely manner all such
information or documentation as the Trustee may reasonable request in connection
with the performance of its duties and obligations under this Section.

ARTICLE IX

Termination

Section IX.01. Termination.

(a) The respective obligations and responsibilities of Mego,
the Master Servicer, the Depositor and the Trustee created hereby with respect
to the Certificates (other than the obligation to make certain payments and to
send certain notices to Certificateholders as hereinafter set forth) shall
terminate immediately following the occurrence of the last action required to be
taken by the Trustee pursuant to this Article IX on the Termination Date;
provided, however, that in no event shall the trust created hereby, i.e., the
Trust, continue beyond the expiration of twenty-one years from the death of the
last survivor of the descendants of Joseph P. Kennedy, the late ambassador of
the United States to the Court of St. James's, living on the Closing Date; and
provided, further, that the respective obligations and responsibilities of Mego
and the Master Servicer with respect to reimbursing the Trustee for claims of
the FHA shall continue until the Final Date pursuant to Section 3.12(g). As soon
as practicable after the termination of the Trust, the Trustee shall surrender
the Policy to the Certificate Insurer for cancellation.

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(b) The REMIC Pool shall be terminated with the consent of the
Certificate Insurer, and the assets of the REMIC Pool shall be sold or otherwise
disposed of in connection therewith, only pursuant to a Plan of Complete
Liquidation adopted by the Trustee at the direction of the Depositor and having
the terms set forth in Section 9.01(c). Each Holder of a Certificate hereby
irrevocably approves and appoints the Trustee, acting at the direction of the
Depositor as its attorney-in-fact for the purposes of the adoption of the Plan
of Complete Liquidation. The Trustee, acting at the direction of the Depositor,
shall adopt a Plan of Complete Liquidation promptly following the Trustee's
receipt of a Notice of Termination.

(c) The Plan of Complete Liquidation shall be adopted on the
earliest practicable date occurring not more than 90 days prior to the
Anticipated Termination Date specified in the Notice of Termination, and shall
provide:

(i) for the actions contemplated by the provisions
hereof pursuant to which the applicable Notice of Termination is given;

(ii) that the REMIC Pool shall terminate as a REMIC
as required by Section 860F(a)(4) of the Code on a Distribution Date
occurring not more than 90 days following the date of adoption of the
Plan of Complete Liquidation; and

(iii) that all assets of the REMIC Pool required to
be sold pursuant to the Plan of Complete Liquidation shall be sold
after the date of adoption thereof, such sale to be conducted by the
Master Servicer on behalf of the Trustee;

provided that the Plan of Complete Liquidation may be adopted prior to the
ninetieth day prior to the Anticipated Termination Date and, to the extent
consistent with the actions contemplated by the provisions hereof pursuant to
which the applicable Notice of Termination is given, may provide for actions
different from those set forth in clauses (ii) or (iii) if an Opinion of Counsel
shall have been previously delivered to the Trustee to the effect that the
adoption of a Plan of Complete Liquidation that provides for such alternative
actions as are set forth in such Opinion of Counsel will not result in the
imposition of a tax on the REMIC Pool or pursuant to the REMIC Provisions cause
the REMIC Pool to fail to qualify as a REMIC at any time that any Certificate is
Outstanding. The Trustee shall deliver to the Master Servicer and the
Certificate Insurer a copy of the Plan of Complete Liquidation promptly
following its adoption.

(d) Subject to the provisions of the following

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sentence, Mego or, if such option is not exercised by Mego, the Master Servicer
may, at its option (with the prior written consent of the Certificate Insurer if
such purchase would result in a claim under the Policy), upon not less than
thirty days' prior notice given to the Trustee at any time on or after the
applicable Early Termination Notice Date, purchase on the Monthly Cut-Off Date
specified in such notice, all, but not less than all, the Loans, all claims made
under the Contract of Insurance with respect to Loans that are pending with FHA
("FHA Pending Claims") and Foreclosed Properties then included in the Trust, at
a purchase price, payable in cash, equal to the sum of:

(i) the Principal Balance of each Loan included in
the Trust as of such Monthly Cut-Off Date;

(ii) all unpaid interest accrued on the Principal
Balance of each such Loan at the related Net Loan Rate to such Monthly
Cut-Off Date;

(iii) the aggregate fair market value of the FHA
Pending Claims for which a claim has been filed with the FHA included
in the Trust on such Monthly Cut-Off Date, as determined by an
Independent appraiser acceptable to the Trustee as of a date not more
than thirty days prior to such Monthly Cut-Off Date;

(iv) the aggregate fair market value of each
Foreclosed Property included in the Trust on such Monthly Cut-Off Date,
as determined by an Independent appraiser acceptable to the Trustee as
of a date not more than thirty days prior to such Monthly Cut-Off Date;
and

(v) any unreimbursed amounts due to the Certificate
Insurer under this Agreement or the Insurance Agreement.

Any amount received from such sale with respect to FHA Pending Claims shall be
considered FHA Insurance Payment Amounts. The expense of any Independent
appraiser required under this Section 9.01(d) shall be a nonreimbursable expense
of Mego. Mego or the Master Servicer shall effect the purchase referred to in
this Section 9.01(d) by deposit of the purchase price into the Distribution
Account. The Trustee shall give written notice of the Early Termination Notice
Date to the Certificate Insurer promptly upon the occurrence thereof.

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the Distribution Date which is the earlier of (i) the Final Scheduled
Distribution Date and (ii) the Distribution Date on which the Master Servicer
anticipates the latest of the maturity or other liquidation of the last Loan.

(f) Notice of any termination of the Trust pursuant to this
Section 9.01 shall be mailed, via first class mail, postage prepaid, by the
Trustee to affected Certificateholders at their addresses shown in the
Certificate Register as soon as practicable after the Trustee shall have
received a Notice of Termination, but in any event, not more than thirty days,
and not less than five days, prior to the Anticipated Termination Date except
that notice to Holders of Class R Certificates shall be made within two Business
Days after the Trustee shall have received a Notice of Termination. The notice
mailed by the Trustee to affected Certificateholders shall:

(i) specify the Anticipated Termination Date on which
the final distribution is anticipated to be made to Holders of
Certificates of the Classes specified therein; and

(ii) specify the amount of any such final
distribution, if known.

If the Trust is not terminated on any Anticipated Termination Date for any
reason, the Trustee shall promptly mail, via first class mail, postage prepaid,
notice thereof to each affected Certificateholder.

(g) On the Termination Date, amounts on deposit in the
Distribution Account will be withdrawn and applied in the manner set forth in
Section 4.05.

ARTICLE X

Miscellaneous Provisions

Section X.01. Amendment.

(a) This Agreement may be amended from time to time by the
parties hereto as specified in this Section, with the prior written consent of
the Certificate Insurer if a Certificate Insurer Default is not then occurring
and continuing (unless such amendment materially and adversely affects the
interests of the Certificate Insurer), provided that any amendment be
accompanied by an Opinion of Counsel to the Trustee and the Certificate Insurer
to the effect that such amendment complies with the provisions of this Section.

(b) If the purpose of the amendment (as detailed

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therein) is to correct any mistake, eliminate any inconsistency, cure any
ambiguity or deal with any matter not covered (i.e., to give effect to the
intent of the parties and, if applicable, to the expectations of the
Certificateholders), it shall not be necessary to obtain the consent of any
Certificateholder, but the Trustee shall be furnished with a letter from the
Rating Agency that the amendment will not result in the downgrading or
withdrawal of the rating then assigned to any Certificate.

(c) If the purpose of the amendment is to prevent the
imposition of any federal or state taxes at any time that any Certificates are
outstanding (i.e., technical in nature), it shall not be necessary to obtain the
consent of any Certificateholder, but the Trustee shall be furnished with an
Opinion of Counsel that such amendment is necessary or helpful to prevent the
imposition of such taxes and is not materially adverse to any Certificateholder.

(d) If the purpose of the amendment is to add or eliminate or
change any provision of the Agreement other than as contemplated in (b) and (c)
above, the amendment shall require the consent of Holders of Certificates
evidencing 51% of the Percentage Interests of each Class affected thereby;
provided, however, that no such amendment shall (i) reduce in any manner the
amount of, or delay the timing of, payments received that are required to be
distributed on any Certificate without the consent of the related
Certificateholder, or (ii) reduce the aforesaid percentage of Certificates the
Holders of which are required to consent to any such amendment, without the
consent of the Holders of all such Certificates then Outstanding.

(e) Promptly after the execution of any amendment hereof, the
Trustee shall furnish written notification of the substance of such amendment to
each Holder of the affected Certificates.

(f) It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders and of any
other consents, directions, waivers or other acts of Certificateholders
hereunder shall be subject to such reasonable regulations as to the Trustee may
prescribe.

(g) The Trustee may, but shall not be obligated to, enter into
any amendment hereto which affects the Trustee's own rights, duties, liabilities
and immunities under this Agreement or otherwise, except to the extent necessary
to maintain the qualification of the REMIC Pool as a REMIC.

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Section X.02. Recordation of Agreement

(a) To the extent permitted by applicable law, this Agreement or a
memorandum hereof (in a form mutually agreed upon by the Master Servicer, the
Depositor, Mego, the Certificate Insurer and the Trustee) may be recorded in all
appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Properties are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the expense of the
Trust, if the Master Servicer determines that such recordation materially and
beneficially affects the interests of the affected Certificateholders.

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

Section X.03. Rights of Certificateholders

(a) The death, incapacity or bankruptcy of any Certificateholder
shall not operate to terminate this Agreement or the Trust, nor entitle such
Certificateholder's legal representatives, heirs or successors to claim an
accounting or to take any action or proceeding in any court for a partition or
winding-up of the Trust, nor otherwise affect the rights, obligations and
liabilities of the parties hereto or any of them.

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

(c) No Holder of a Certificate of any Class shall have any right by
virtue of any provision of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this Agreement,
unless, with the prior written consent of the Certificate Insurer, if a
Certificate Insurer Default is not then occurring and continuing the Holders
shall have

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made written request pursuant to a Class Vote (wherein such request is only made
by each such affected Class of Certificates) upon the Trustee to institute such
action, suit or proceeding in its own name as Trustee hereunder and shall have
offered to the Trustee such reasonable indemnity as it may require against the
costs, expenses and liabilities to be incurred therein or thereby (which, in the
case of a Certificateholder which is an institutional investor, will be deemed
satisfied by a written agreement of indemnity from such Certificateholder), and
the Trustee, for sixty days after its receipt of such notice, request and offer
of indemnity, shall have neglected or refused to institute any such action, suit
or proceeding; it being understood and intended, and being expressly covenanted
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Holders of Certificates of any Class shall have any right in
any manner whatever by virtue of any provision of this Agreement to affect,
disturb or prejudice the rights of any other Holders of such Certificates, or to
obtain or seek to obtain priority over or preference to any other such Holder,
or to enforce any right under this Agreement, except in the manner herein
provided and for the equal, ratable and common benefit of all Certificateholders
of such Class. For the protection and enforcement of the provisions of this
Section 10.03, each and every Certificateholder and the Trustee shall be
entitled to such relief as can be given either at law or in equity. Nothing in
this Agreement shall be construed as giving the Certificateholders any right to
make a claim under the Policy.

SECTION X.04. GOVERNING LAW THIS AGREEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE PROVISIONS OF THE CERTIFICATES,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.

Section X.05. Notices

(a) All demands, notices, statements and reports hereunder shall be
in writing (unless otherwise specified) and shall be deemed to have been duly
given, if personally delivered, mailed by registered mail postage prepaid, or
delivered by overnight courier or if telecopied (with confirmation by another
prior specified method):

(i) in the case of the Master Servicer, to:

Norwest Bank Minnesota, N.A.
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Master Servicing Department

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FHA Title I Loan
Mego Trust 1996-1

or such other address as may hereafter be furnished to the other parties hereto
in writing by the Master Servicer;

(ii) in the case of Depositor to:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes

or such other address as may hereafter be furnished to the other parties hereto
in writing by the Depositor;

(iii) in the case of Mego, to:

Mego Mortgage Corporation
210 Interstate North Parkway
Suite 250
Atlanta, Georgia
Attention: Jeff S. Moore

(iv) in the case of the Trustee, to:

First Trust of New York, N.A.
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

or such other address as may hereafter be furnished to the other parties hereto
in writing by the Trustee;

(v) in the case of the FHA, to:

Office of the Assistant Secretary
for Housing-Federal Housing
Commissioner
U.S. Department of Housing and Urban
Development
Washington, D.C. 20410-8000
Attention: Robert J. Coyle
FHA Program Director of
FHA Title One
490 L'Enfant Plaza East
Suite 3214
Washington, D.C.

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(vi) in the case of Standard & Poor's, to:

Standard & Poor's Rating Services
26 Broadway, 15th Floor
New York, New York 10004
Attention: Loan Surveillance

(vii) in the case of Moody's, to:

Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Home Equity Monitoring Department

(viii) in the case of the Certificate Insurer, to:

MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
Attention: Insured Portfolio Management
Structured Finance (IPM-SF)
(Mego FHA Title I Loan Asset-Backed
Certificates, Series 1996-1)
Confirmation: (914) 273-4545
Telecopy No.: (914) 765-3164

(b) Any notice required or permitted to be mailed to a Holder of any
Class of Certificates (except for any notice required to be given to a Holder of
Senior Certificate in connection with a Class Vote) and any information to be
mailed by the Trustee to the Certificateholders pursuant to Section 8.01(b)
shall be mailed by first class mail, postage prepaid, or delivered by overnight
courier, to the address of such Holder appearing in the Certificate Register,
with a copy thereof to each Person designated by such Holder in a written notice
provided by such Holder to the Trustee. Any notice required or permitted to be
given to a Holder of any Senior Certificate in connection with a Class Vote
shall specify the consent sought and the circumstances relating thereto and
shall state that if the Class Vote does not occur within 30 days after the date
of such notice, such Class Vote shall be determined by the Certificate Insurer,
which notice shall be delivered by overnight courier to the address of such
Holder appearing in the Certificate Register, with a copy thereof to each Person
designated by such Holder in a written notice provided by such Holder to the
Trustee. Any notice or information so mailed within the time prescribed in this
Agreement shall be conclusively presumed to have been duly given, whether or not
such notice is received.

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Section X.06. Severability of Provisions If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, illegal or unenforceable, then such covenants,
agreements, provisions or terms shall be deemed to be modified to the extent
necessary to render them valid, legal and enforceable, and if no such
modification shall render them valid, legal and enforceable, then such
covenants, agreements, provisions or terms shall be severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Agreement
or of any Class of Certificates or the rights of the Holders thereof.

Section X.07. Waiver of Notice Notwithstanding anything to the
contrary contained herein, any Holder of a Class R Certificate shall be entitled
to:

(i) waive any provision hereof that requires the Trustee to give
any notice, or mail any report, statement or request for consent, to
such Holder; and

(ii) appoint the Master Servicer (with notice to the Trustee) as
its attorney-in-fact for the purposes of providing any consent or
giving any instruction required to be provided or given by such Holder
hereunder.

Any such waiver or appointment shall be in writing, shall be effective as of the
later of the date specified therein and the date of receipt by the Master
Servicer and/or the Trustee, as the case may be, and shall be revocable at any
time by such Holder upon receipt of written notice thereof by the Trustee and/or
the Master Servicer, as the case may be.

Section X.08. Access to List of Holders. Upon the written
applications of Holders of Certificates representing greater than $2,000,000 in
aggregate Denomination (hereinafter referred to as "applicants") to the Trustee,
which application states that the applicants desire to communicate with other
Holders with respect to their rights under this Agreement or under the
Certificates, the Trustee shall, within five Business Days after the receipt of
such application, afford such applicants access during normal business hours to
the most recent Certificate Register. Every Holder agrees with the Trustee that
neither the Trustee nor the Certificate Registrar shall be held accountable by
reason of disclosure pursuant hereto of any information included in the
Certificate Registrar, regardless of the source from which such information was
derived.

Section X.09. Third-Party Beneficiaries. This Agreement shall inure
to the benefit of and be binding upon the

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parties hereto and their respective successors and permitted assigns. Except as
otherwise provided in this Article X, no other Person shall have the right or
obligation hereunder. Upon issuance of the Policy, this Agreement shall also
inure to the benefit of the Certificate Insurer. Without limiting the generality
of the foregoing, all covenants and agreements in this Agreement which expressly
confer rights upon the Certificate Insurer shall be for the benefit of and run
directly to the Certificate Insurer, and the Certificate Insurer shall be
entitled to rely on and enforce such covenants to the same extent as if it were
a party to this Agreement. The Certificate Insurer may disclaim any of its
rights and powers under this Agreement (but not its duties and obligations under
the Policy) upon delivery of a written notice to the Trustee.

Section 10.10 The Certificate Insurer. (a) Except as set forth in
Section 10.01, any right conferred to the Certificate Insurer shall be suspended
and shall run to the benefit of the Certificateholders during any period in
which an Certificate Insurer Default shall have occurred and be continuing and
shall be exercisable by Class Vote.

(b) For so long as no Certificate Insure Default shall have occurred
and be continuing, the Trustee shall agree to accept any moneys due hereunder
from the Certificate Insurer.

Section X.11 Consent to Jurisdiction. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE PARTIES THERETO HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND
COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR RECOGNITION OR ENFORCEMENT OF
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
OR DETERMINED IN SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT. THE PARTIES
HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION,
AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.

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Section 10.12 Trial by Jury Waived. EACH PARTY HERETO HEREBY WAIVES,
TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN CONNECTION
WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH PARTY HERETO (A)
CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY
BY, AMONG OTHER THINGS, THIS WAIVER.

ARTICLE XI

Class R Certificate Transfer Restrictions

Section XI.01. RESERVED.

Section XI.02. Restrictions on Transfer. Each Person who has or who
acquires any Ownership Interest in a Class R Certificate shall be deemed by the
acceptance or acquisition of such Ownership Interest to have agreed to be bound
by the following provisions and to have irrevocably appointed the Trustee or its
designee as its attorney-in-fact to direct under clause (iv) below the delivery
of payments to a Person other than such Person and to negotiate the terms of any
mandatory sale under clause (v) below and to execute all instruments of transfer
and to do all other things necessary in connection with any such sale, and the
rights of each Person acquiring any Ownership Interest in a Class R Certificate
are expressly subject to the following provisions:

(i) Only a Permitted Transferee may hold or acquire any Ownership
Interest in a Class R Certificate. Each Person holding or acquiring any
Ownership Interest in a Class R Certificate shall promptly notify the
Trustee, the Certificate Insurer and the Master Servicer of any change
or impending change in its status as a Permitted Transferee.

(ii) In connection with any proposed Transfer of any Ownership
Interest in a Class R Certificate, the Trustee shall, as a condition to
such consent, require delivery to the Trustee of a properly completed,
sworn, executed and acknowledged affidavit from the Transferee (the
"Transfer Affidavit") in the form attached hereto as Exhibit L and from
the transferor (the "Transferor Representation"), in the form attached
hereto as Exhibit K.

(iii) Notwithstanding the delivery of a Transfer

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Affidavit by a proposed Transferee under clause (ii) above, if the
Responsible Officer or Responsible Officers of the Trustee has or have
actual knowledge that the proposed Transferee is not a Permitted
Transferee, the Trustee shall not register and, if the Trustee is not
the Certificate Registrar, shall direct to the Certificate Registrar
not to register a Class R Certificate in the name of the proposed
Transferee, no Transfer of an Ownership Interest in the Residual
Interest to such proposed Transferee shall be effected and the Trustee,
and Certificate Registrar, shall have no liability for failing to
effect the proposed registration.

(iv) Any attempted or purported Transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 11.02 shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported Transferee shall,
in violation of the provisions of this Section 11.02, become a Holder
of a Class R Certificate, then the prior Holder of such Class R
Certificate shall, upon discovery that the registration of Transfer of
such Class R Certificate was not in fact permitted by this Section
11.02, notify the Trustee and the Trustee, upon receipt of such notice
and upon verification of the facts set forth in such notice or upon
discovery by other means that the registration of Transfer of such
Class R Certificate was not in fact permitted by this Section 11.02,
shall notify the Master Servicer and the Certificate Registrar of such
improper Transfer (such notice to be accompanied by an Opinion of
Counsel to the effect that such Transfer was improper and the
retroactive restoration of the rights of the last preceding Permitted
Transferee as described in this clause (iv) shall not be invalid,
illegal or unenforceable) and, subject to clause (v) below, shall make
payments due on such Class R Certificate to the last preceding Holder
that is a Permitted Transferee (as described in such written notice)
and the last Holder that is a Permitted Transferee shall be restored to
all rights as Holder thereof retroactive to the date of registration of
Transfer of such Class R Certificate. The Trustee shall be entitled,
but shall not be obligated, to recover from any Holder of a Class R
Certificate that was in fact not a Permitted Transferee at the time it
became a Holder all payments made on such Class R Certificate. Any such
payments so recovered by the Trustee shall be paid and delivered by the
Trustee to the last preceding Holder that is a Permitted Transferee who
was a Holder of such Class R Certificate.

(v) If any Person that is not a Permitted Transferee acquires any
Ownership Interest in a Class R Certificate in violation of the
restrictions in this Section

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11.02, and (A) to the extent that the retroactive restoration of the
rights of the last preceding Holder that is a Permitted Transferee as
described in clause (iv) above shall be invalid, illegal or
unenforceable or (B) if the Trustee is unable within a reasonable
period to obtain the Opinion of Counsel required by clause (iv) above
then the Trustee shall have the right, without notice to the Holder of
such Class R Certificate or any other Person having an Ownership
Interest therein, to sell such Class R Certificate to a purchaser
selected by the Trustee on such terms as the Trustee may choose. The
proceeds of such sale, net of commissions, expenses and taxes due, if
any, will be remitted to the Holder of such Class R Certificate by the
Trustee, except that in the event that the Trustee determines that the
Holder of such Class R Certificate may be liable for any amount due
under this Section 11.02 or any other provisions of this Agreement, the
Trustee may withhold a corresponding amount from such remittance as
security for such claim. The terms and conditions of any sale under
this clause (v) shall be determined in the sole discretion of the
Trustee, and it shall not be liable to any Person having an Ownership
Interest in a Class R Certificate as a result of its exercise of such
discretion.

(vi) The Trustee shall make available, upon receipt of written
requests, all information necessary to compute any tax imposed (A) as a
result of the Transfer of an Ownership Interest in Class R Certificates
to any Person who is not a Permitted Transferee, and (B) as a result of
any regulated investment company, real estate investment trust, common
trust fund, partnership, trust, estate or organizations described in
Code section 1381 that holds an Ownership Interest in a Class R
Certificate and having as among its record holders at any time any
Person who is not a Permitted Transferee. Reasonable compensation for
providing such information may be charged by the Trustee. The
information furnished must be sufficient to compute the present value
of the anticipated excess inclusions as required by Treasury Department
regulations. The information must be furnished to the requesting party
or such later time period as allowed by Treasury Department regulations
or the Internal Revenue Service.

(vii) No undivided interest of the Residual Interest may be
transferred to any Person unless the entire interest and rights
relating to such undivided interest in the Residual Interest under this
Agreement are transferred to such Person.

(viii) The provisions of this Section 11.02 set forth prior to
this clause (viii) may be eliminated upon execution

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by the Trustee of a certificate stating that the Trustee has received
an Opinion of Counsel, in form and substance satisfactory to the
Trustee, to the effect that the absence of such provisions will not
cause the REMIC Pool to cease to qualify as a REMIC and will not create
a risk that (A) the Trust or the REMIC Pool may be subject to an
entity-level tax caused by the Transfer of any Ownership Interest in a
Class R Certificate to a Person which is not a Permitted Transferee or
(B) a Holder of a Senior Certificate or another Person will be subject
to a REMIC-related tax caused by the Transfer of any Ownership Interest
in a Class R Certificate to a Person which is not a Permitted
Transferee.

ARTICLE XII

Concerning the Contract of Insurance Holder

Section XII.01. Compliance with Title I and Filing of FHA Claims

(a) The Contract of Insurance Holder shall at all times while any
Senior Certificates are outstanding have a valid Contract of Insurance with the
FHA covering the Loans. To the extent applicable to the duties of the Contract
of Insurance Holder hereunder, the Contract of Insurance Holder shall comply
with the requirements of Title I and shall take or refrain from taking such
actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the Loans.

(b) If and for so long as the Contract of Insurance covers any loans
other than the Loans, and if HUD shall not have earmarked the coverage of the
Contract of Insurance with respect to the Loans, the Contract of Insurance
Holder covenants and agrees not to submit any claim to FHA with respect to a
Loan if the effect of approval of such claim would result in the amount of
claims paid by the FHA in respect of the Loans to exceed the Trust Designated
Insurance Amount. Notwithstanding the foregoing, the Claims Administrator shall
promptly notify the Trustee, the Master Servicer and the Certificate Insurer if
the amount of claims submitted to FHA in respect of the Loans under the Contract
of Insurance exceeds the Trust Designated Insurance Amount. As of the Closing
Date and at all times thereafter until the Termination Date, the Contract of
Insurance Holder covenants and agrees that the Contract of Insurance will only
apply to the Loans and Related Series Loans, if any, exclusively, or HUD shall
have agreed pursuant to 24 C.F.R. Section 201.32(d)(1) to "earmark" the FHA
insurance relating to the Loans and Related Series Loans, if any, in a manner
satisfactory to the Certificate Insurer, in its sole and absolute

139
<PAGE> 140
discretion. Mego, as Claims Administrator and Servicer, covenants and agrees
that it shall not take any action that would result in the Contract of Insurance
applying to loans other than the Loans and the Related Series Loans, if any,
exclusively, unless HUD shall have agreed pursuant to 24 C.F.R.
Section 201.32(d)(1) to "earmark" the FHA insurance relating to the Loans and
Related Series Loans in a manner satisfactory to the Certificate Insurer, in its
sole and absolute discretion.

(c) The Trustee hereby appoints Mego Mortgage Corporation as Claims
Administrator. Mego Mortgage Corporation, as Claims Administrator, shall perform
on behalf of the Contract of Insurance Holder the duties associated with the
submission of claims under Title I in connection with the Contract of Insurance,
except to the extent that certain documents must be signed by the Contract of
Insurance Holder (in which case the Contract of Insurance Holder shall only sign
such documents at the direction of the Claims Administrator) and shall not, in
its capacity as Claims Administrator, take any action or omit to take any action
that would cause the Contract of Insurance Holder to violate this Section 12.01
or otherwise fail to maintain a valid Contract of Insurance or cause any denial
by FHA of an insurance claim under Title I.

(d) The Contract of Insurance Holder shall not be deemed to have
violated this Section 12.01 and shall otherwise incur no liability hereunder if
any failure to maintain a valid Contract of Insurance or to comply with the
requirements of Title I or any denial by FHA of an insurance claim under Title I
shall have been caused by any act or omission of the Master Servicer or Claims
Administrator in the performance of its duties hereunder. The Contract of
Insurance Holder shall be permitted to, or, if directed by the Certificate
Insurer, so long as no Certificate Insurer Default exists, shall replace the
Claims Administrator for any failure of the Claims Administrator to perform its
duties hereunder. Any successor Claims Administrator shall be subject to the
prior approval of the Certificate Insurer, provided no Certificate Insurer
Default is there occurring.

(e) The Contract of Insurance Holder hereby represents and warrants to
the Depositor, the Master Servicer, the Trustee for the benefit of the
Certificateholders and the Certificate Insurer that First Trust of New York,
National Association is an investing lender in good standing with HUD having
authority to purchase, hold, and sell loans insured under 24 CFR Part 201,
pursuant to a valid Contract of Insurance, Number 71400 0000 6.

(f) The Seller shall forward to the Trustee a fully executed Transfer
of Note Report for each Loan within 31 days of the receipt by the Seller of such
Loan's case number under the

140
<PAGE> 141
Contract of Insurance. The Trustee shall promptly execute each Transfer of Note
Report, as buying lender, and promptly submit such Transfer of Note Report to
HUD.

Section XII.02. Regarding the Contract of Insurance Holder.

(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and the Certificate Insurer
(so long as a Certificate Insurer Default shall not have occurred and be
continuing) and the Certificateholders by Class Vote (if a Certificate Insurer
Default shall have occurred and be continuing) does not elect to waive the
obligations of the Contract of Insurance Holder to perform the duties which
render it legally unable to act or to delegate those duties to another Person or
if the circumstances giving rise to such illegality cannot be waived or
delegated. Any such determination permitting the resignation of the Contract of
Insurance Holder shall be evidenced by an Opinion of Counsel to such effect
delivered and acceptable to the Trustee and the Certificate Insurer. Upon
receiving such notice of resignation, the Contract of Insurance shall be
transferred to a qualified successor with the consent of the Certificate Insurer
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Contract of Insurance Holder and one copy to the
successor contract of insurance holder. Notwithstanding the foregoing, the
Contract of Insurance Holder may resign, with the prior written consent of the
Certificate Insurer, which may be withheld in its sole and absolute discretion,
upon transfer of the FHA insurance and related reserves with respect to the
Loans and any Related Series Loans to a contract of insurance held by a
successor Contract of Insurance Holder provided, however, that any Contract of
Insurance held by such successor Contract of Insurance Holder shall satisfy the
criteria set forth in Section 12.01(b), and, at the time of succession, shall
have a FHA insurance coverage reserve account balance not less than that of the
FHA Insurance Coverage Reserve Account at the time of succession.

(b) If at any time (i) the Contract of Insurance shall be revoked,
suspended or otherwise terminated, or (ii) the Contract of Insurance Holder
shall become incapable of acting, or shall be adjudged as bankrupt or insolvent,
or a receiver of the Contract of Insurance Holder or of its property shall be
appointed, or any

141
<PAGE> 142
public officer shall take charge or control of the Contract of Insurance Holder
or of its property or affairs for the purpose of rehabilitation, conservation or
liquidation, then, in any such case the Certificate Insurer may remove the
Contract of Insurance Holder and appoint a successor contract of insurance
holder by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.

(c) Any resignation or removal of the Contract of Insurance Holder and
appointment of a successor contract of insurance holder pursuant to any of the
provisions of this Section 12.02 shall become effective upon acceptance of
appointment by the successor contract of insurance holder.

(d) On or prior to the Closing Date, the Contract of Insurance Holder
shall have instructed FHA to forward all payments in respect of claims under the
Contract of Insurance made to the Contract of Insurance Holder to First Trust of
New York, National Association, as Trustee. The Contact of Insurance Holder
shall provide no further notification with respect to which such payments shall
be directed unless directed by First Trust of New York, National Association, as
Trustee.

142
<PAGE> 143
IN WITNESS WHEREOF, the Depositor, Mego, the Master Servicer, the
Claims Administrator, the Trustee and the Contract of Insurance Holder have
caused their names to be signed to this Pooling and Servicing Agreement by their
respective officers thereunto duly authorized as of the date first written
above.

MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims
Administrator

By: ___________________________________
Name:
Title:

FINANCIAL ASSET SECURITIES CORP.,
as Depositor

By: ___________________________________
Name:
Title:

NORWEST BANK MINNESOTA, N.A.,
as Master Servicer
By: ___________________________________
Name:
Title:

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION,
as Trustee and Contract of
Insurance Holder

By: ___________________________________
Name:
Title:
<PAGE> 144
STATE OF __________ )
) ss.:
COUNTY OF __________ )

On the _____ day of ___________, 1996 before me, a notary public in
and for said State, personally appeared Michael L. Mayer, known to me to be the
__________ of MEGO MORTGAGE CORPORATION, one of the parties that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said party, and acknowledged to me that such party executed the within
instrument.

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

______________________________
Notary Public

[Notarial Seal]

STATE OF __________ )
) ss.:
COUNTY OF __________ )

On the _____ day of ___________, 1996 before me, a notary public
in and for said State, personally appeared ________________, known to me to be
the __________ of FINANCIAL ASSET SECURITIES CORP., one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

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

______________________________
Notary Public

[Notarial Seal]
<PAGE> 145
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )

On the _____ day of ___________, 1996 before me, a notary public in
and for said State, personally appeared ________________, known to me to be the
Vice President of NORWEST BANK MINNESOTA, N.A., one of the parties that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said party, and acknowledged to me that such party executed the within
instrument.

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

______________________________
Notary Public

[Notarial Seal]

STATE OF ______________ )
) ss.:
COUNTY OF _____________ )

On the _____ day of __________, 1996 before me, a notary public in
and for said State, personally appeared ________________, known to me to be the
Vice President of FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, one of the
parties that executed the within instrument, and also known to me to be the
person who executed it on behalf of said party, and acknowledged to me that such
party executed the within instrument.

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

______________________________
Notary Public

[Notarial Seal]
<PAGE> 146
EXECUTION COPY

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

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

FINANCIAL ASSET SECURITIES CORP.
as Depositor,

MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator,

NORWEST BANK MINNESOTA, N.A.,
as Master Servicer

AND

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
as Trustee and Contract of Insurance Holder

POOLING AND SERVICING AGREEMENT
(FHA Title I Home Improvement Loans)

Dated as of March 21, 1996

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

FHA Title I Loan Asset-Backed Certificates,
Series 1996-1
(Issuable in Classes)

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

================================================================================
<PAGE> 147
TABLE OF CONTENTS

<TABLE>
<CAPTION>
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<S> <C>
ARTICLE I

Definitions

Section 1.01. Defined Terms.............................................................................. 1
Section 1.02. Rules of Interpretation.................................................................... 31

ARTICLE II

Transfer and Assignment of Loans;
Issuance of Certificates

Section 2.01. Transfer and Assignment of Loans........................................................... 32
Section 2.02. Acceptance by Trustee...................................................................... 36
Section 2.03. Representations and Warranties of Mego..................................................... 38
Section 2.04. Defective Loans............................................................................ 47
Section 2.05. Representations and Warranties of the Depositor............................................ 51
Section 2.06. Execution, Countersignature and Delivery of Certificates................................... 52

ARTICLE III

Administration and Servicing of Loans;
Claims Administration

Section 3.01. Servicing Standard......................................................................... 53
Section 3.02. Servicing Arrangements..................................................................... 54
Section 3.03. Servicing Record........................................................................... 56
Section 3.04. Annual Statement as to Compliance; Notice of Master Servicer Termination Event............. 59
Section 3.05. Annual Independent Accountants' Report; Servicer Review Report............................. 60
Section 3.06. Access to Certain Documentation and Information Regarding Loans............................ 62
Section 3.07. [Reserved]................................................................................. 62
Section 3.08. Advances................................................................................... 62
Section 3.09. Reimbursement of Interest Advances and Foreclosure Advances................................ 64
Section 3.10. Modifications, Waivers, Amendments and Consents............................................ 64
Section 3.11. Due-On-Sale; Due-on-Encumbrance............................................................ 65
Section 3.12. Claim for FHA Insurance and Foreclosure.................................................... 66
Section 3.13. Sale of Foreclosed Properties.............................................................. 72
Section 3.14. Management of Real Estate Owned............................................................ 73
</TABLE>
<PAGE> 148
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 3.15. Inspections................................................................................ 74
Section 3.16. Maintenance of Insurance................................................................... 74
Section 3.17. Release of Files........................................................................... 75
Section 3.18. Certain Tax Matters........................................................................ 76
Section 3.19. Filing of Continuation Statements.......................................................... 76
Section 3.20. Fidelity Bond.............................................................................. 77

ARTICLE IV

Distributions to Certificateholders

Section 4.01. General Provisions Relating to Distributions to Certificateholders......................... 77
Section 4.02. Distributions to Certificateholders........................................................ 78
Section 4.03. Collection Account and FHA Premium Account and the Reserve Fund............................ 78
Section 4.04. Distribution Account....................................................................... 80
Section 4.05. Distributions.............................................................................. 80
Section 4.06. FHA Premium Account........................................................................ 83
Section 4.07. General Provisions Regarding the Accounts; Eligible Accounts............................... 84
Section 4.08. Statements to Certificateholders........................................................... 85
Section 4.09. [Reserved]................................................................................. 86
Section 4.10. Claims Under Policy........................................................................ 86

ARTICLE V

The Certificates

Section 5.01. The Certificates.......................................................................... 87
Section 5.02. Registration of Transfer and Exchange of Certificates..................................... 88
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates......................................... 91
Section 5.04. Persons Deemed Owners..................................................................... 92
Section 5.05. Trustee to Make Payments From Trust Only.................................................. 92

ARTICLE VI

The Master Servicer

Section 6.01. Liability of the Master Servicer.......................................................... 93
Section 6.02. Merger or Consolidation of, or Assumption of, the Master Servicer......................... 93
Section 6.03. Limitation on Liability of the Master Servicer and Others................................. 94
Section 6.04. Master Servicer Not to Resign; Expenses; Assignment....................................... 95
Section 6.05. Master Servicer May Own Certificates...................................................... 96
Section 6.06. Representations and Warranties of the Master Servicer..................................... 96
</TABLE>

(ii)
<PAGE> 149
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 6.07. General Covenants of the Master Servicer.................................................. 98

ARTICLE VII

Master Servicer Termination Events

Section 7.01. Master Servicer Termination Events; Waiver................................................. 99
Section 7.02. Consequences of a Master Servicer Termination Event........................................ 101
Section 7.03. Appointment of Successor................................................................... 102
Section 7.04. Notification to Certificateholders......................................................... 103
Section 7.05. Waiver of Past Defaults.................................................................... 103

ARTICLE VIII

Concerning the Trustee

Section 8.01. Duties of the Trustee and Contract of Insurance Holder..................................... 104
Section 8.02. Certain Matters Affecting the Trustee...................................................... 106
Section 8.03. Trustee Not Liable for Certificates or Loans............................................... 107
Section 8.04. Trustee May Own Certificates............................................................... 108
Section 8.05. Trustee's Fees and Expenses; Indemnification............................................... 108
Section 8.06. Eligibility Requirements for Trustee....................................................... 109
Section 8.07. Resignation and Removal of the Trustee..................................................... 109
Section 8.08. Successor Trustee.......................................................................... 110
Section 8.09. Merger or Consolidation of the Trustee..................................................... 111
Section 8.10. Appointment of Co-Trustee or Separate Trustee.............................................. 111
Section 8.11. Appointment of Custodians.................................................................. 113
Section 8.12. Certain Tax Matters........................................................................ 114
Section 8.13. Representations and Warranties of the Trustee.............................................. 116
Section 8.14. Streit Act................................................................................. 118
Section 8.15. Rights to Direct Trustee................................................................... 118
Section 8.16. Reports to the Securities and Exchange Commission.......................................... 119

ARTICLE IX

Termination

Section 9.01. Termination................................................................................ 119

ARTICLE X

Miscellaneous Provisions

Section 10.01. Amendment.................................................................................. 122
Section 10.02. Recordation of Agreement................................................................... 123
Section 10.03. Rights of Certificateholders............................................................... 124
</TABLE>
(iii)
<PAGE> 150
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 10.04. GOVERNING LAW.............................................................................. 125
Section 10.05. Notices.................................................................................... 125
Section 10.06. Severability of Provisions................................................................. 127
Section 10.07. Waiver of Notice........................................................................... 127
Section 10.08. Access to List of Holders.................................................................. 128
Section 10.09. Third-Party Beneficiaries.................................................................. 128
Section 10.10 The Certificate Insurer.................................................................... 128
Section 10.11 Consent to Jurisdiction.................................................................... 128
Section 10.12 Trial by Jury Waived....................................................................... 129

ARTICLE XI

Class R Certificate Transfer Restrictions

Section 11.01. RESERVED................................................................................... 129
Section 11.02. Restrictions on Transfer................................................................... 129

ARTICLE XII

Concerning the Contract of Insurance Holder

Section 12.01. Compliance with Title I and Filing of FHA Claims........................................... 132
Section 12.02. Regarding the Contract of Insurance Holder................................................. 134

Exhibit A: Form of Servicing Agreement
Exhibit B: Loan Schedule
Exhibit C-1: Form of Class A Certificate
Exhibit C-2: Form of Class S Certificate
Exhibit D: Form of Class R Certificate
Exhibit E: Form of Master Servicer Certificate
Exhibit F: Form of Monthly Statement to the Certificateholders
Exhibit G: [Reserved]
Exhibit H: [Reserved]
Exhibit I: Form of "qualified institutional buyer" Transferee's Certificate
Exhibit J: Form of "accredited investor" Transferee's Certificate
Exhibit K: Form of Transferor's Certificate
Exhibit L: Form of Transfer Affidavit for the Class R Certificate
Exhibit M: Depository Agreement
Exhibit N: Form of Policy
</TABLE>

(iv)
<PAGE> 151
EXHIBIT A

FORM OF SERVICING AGREEMENT

A-1-1
<PAGE> 152
EXHIBIT B

LOAN SCHEDULE

B-1-1
<PAGE> 153
EXHIBIT C-1

UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE TRUSTEE OR ITS
AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO
CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"), AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED ("CODE"), ASSUMING COMPLIANCE WITH THE REMIC
PROVISIONS OF THE CODE.

THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS. THEREFORE, THE
ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON ANY DATE
SUBSEQUENT TO APRIL 25, 1996 (THE FIRST DISTRIBUTION DATE) BE LESS THAN ITS
INITIAL CLASS [A-1 A-2 A-3] CERTIFICATE BALANCE. THIS SECURITY IS NOT A SAVINGS
ACCOUNT OR DEPOSIT AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY, EXCEPT THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING
ADMINISTRATION.

C-1-1
<PAGE> 154
MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-1,
CLASS [A-1 A-2 A-3]

evidencing an undivided beneficial ownership interest in the Trust, as defined
below, the property of which includes a pool of fixed-rate residential first and
junior lien home improvement loans and retail installment sale contracts
partially insured by the Federal Housing Administration (the "FHA") of the
United States Department of Housing and Urban Development under Title I of the
National Housing Act of 1934, and caused to be sold to the Trust by Mego
Mortgage Corporation.

FINANCIAL ASSET SECURITIES CORP., as Depositor

(This Certificate does not represent an interest in or obligation of Mego
Mortgage Corporation, Financial Asset Securities Corp., the Trustee or any of
their respective affiliates, except to the extent described below.)

Class : [A-1 A-2 A-3]

Certificate No. : A-0001

Cut-Off Date : March 21, 1996

First Distribution Date : April 25, 1996

Initial Class [A-1 A-2 A-3]
Certificate
Balance of this Certificate
("Denomination") : $

Initial Certificate Balance of all
Class [A-1 A-2 A-3]
Certificates : $

Certificate Rate : %

C-1-2
<PAGE> 155
THIS CERTIFIES THAT [NAME OF CERTIFICATE OWNER] is the owner of
nonassessable, fully-paid, undivided beneficial ownership interest in the Mego
Mortgage FHA Title I Loan Trust 1996-1 (the "Trust") in the principal amount set
forth above. The Trust was created pursuant to a Pooling and Servicing Agreement
(the "Agreement") dated as of March 21, 1996 (the "Agreement") among Mego
Mortgage Corporation (the "Seller", "Servicer" and "Claims Administrator"),
Financial Asset Securities Corp. (the "Depositor"), Norwest Bank Minnesota,
N.A., as master servicer (the "Master Servicer"), and First Trust of New York,
National Association, as trustee and contract of insurance holder (the "Trustee"
and "Contract of Insurance Holder" as applicable), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Agreement. This Certificate is a duly authorized Certificate
designated as: "FHA Title I Loan Asset-Backed Certificates, Class [A-1 A-2 A-3]"
(herein called the "Class [A-1 A-2 A-3] Certificates"). Also issued under the
Agreement are the [Class A-1 Class A-2 and Class A-3] Certificates designated
as: ["FHA Title I Loan Asset-Backed Certificates, Class A-1", "FHA Title I Loan
Asset-Backed Certificates, Class A-2" and "FHA Title I Loan Asset-Backed
Certificates, Class A-3", respectively (together with the Class [A-1 A-2 A-3]
Certificates, the "Class A Certificates"), the Class S Certificates designated
as: "FHA Title I Loan Asset-Backed Certificates, Class S" (the "Class S
Certificates") and the Residual Certificates designated as: "FHA Title I Loan
Asset-Backed Certificates, Class R" (the "Class R Certificates"). The Class S
Certificates, the Class R Certificates and the Class A Certificates are
hereinafter collectively called the "Certificates". This Certificate is issued
under and is subject to the terms, provisions, and conditions of the Agreement,
to which Agreement the holder of this Class A Certificate by virtue of the
acceptance hereof assents and by which such holder is bound. The property of the
Trust includes (i) a pool of fixed rate residential first and junior lien home
improvement loans and retail installment sales contracts all of which are
partially insured by the FHA (the "Loans"), all monies received thereunder after
March 21, 1996 (the "Cut-Off Date"), the FHA insurance reserves attributable to
those Loans partially insured by the FHA as of the Cut-Off Date, the Files, the
Insurance Policies and any proceeds from any Insurance Policies, security
interests in the Properties which secure the Loans and any and all documents of
the Depositor and the Seller relating to the Loans and any and all proceeds from
the foregoing; and (ii) an insurance policy issued by MBIA Insurance Corporation
(the "Policy").

C-1-3
<PAGE> 156
"Record Date"), of an amount equal to the pro rata share evidenced by this
Certificate of the aggregate amount required to be distributed to Holders of
Class [A-1 A-2 A-3] Certificates specified above pursuant to the Agreement.

Full and complete payment of the Class Interest Distribution for the
Class [A-1 A-2 A-3] Certificates and the Class A Guaranteed Principal
Distributable Amount on each Distribution Date is unconditionally and
irrevocably guaranteed pursuant to the Policy.

Distributions on this Certificate will be made by the Trustee by (i)
check mailed, via first class mail, postage prepaid, to the address of such
Holder as it appears on the Certificate Register, or (ii) Fedwire transfer of
immediately available funds, if such Class A Certificateholder holds at least a
$500,000 Denomination, and if notice from such Certificateholder has been
received by the Trustee at least three Business Days prior to any Distribution
Date (any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account for receipt
of distributions at a bank which has Fedwire transfer capabilities, and
providing such other information as the Trustee may reasonably require to effect
an electronic credit entry to such account, without the presentation or
surrender of this Certificate or the making of any notation hereon. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Class A Certificate will be made after due notice by the
Trustee of the pendency of such distribution.

Upon receiving the final distribution hereon, the Holder hereof is
required to send this Certificate to the Trustee. The Agreement provides that,
in any event, upon making of the final distribution due on this Certificate,
this Certificate shall be deemed cancelled for all purposes under the Agreement.

Unless the certificate of authentication hereon shall have been
executed by an authorized officer of the Trustee, by manual signature, this
Certificate shall not entitle the holder hereof to any benefit under the
Agreement or be valid for any purpose.

The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, Servicer and Claims Administrator, the Master
Servicer, the Trustee, the Contract of Insurance Holder or any affiliate
thereof. The Certificates are limited in right of payment to certain collections
and recoveries respecting the Loans and claims made under the Policy, all as
more specifically set forth in the Agreement.

The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and

C-1-4
<PAGE> 157
obligations of the parties to the Agreement at any time by the parties to the
Agreement with the written consent of the Certificate Insurer and with the
consent of certain of the Holders of the Certificates as provided therein. Any
such consent by the Holder of this Certificate shall be conclusive and binding
on such Holder and on all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange hereof or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain circumstances,
without the consent of the Holders of any of the Certificates.

As provided in the Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in its capacity as
Certificate Registrar, or by any successor Certificate Registrar, in the city
where the Corporate Trust Office is located, accompanied by a written instrument
of transfer in form satisfactory to the Trustee and the Certificate Registrar
duly executed by the holder hereof or such holder's attorney duly authorized in
writing, and thereupon one or more new Certificates of authorized denominations
evidencing the same aggregate interest in the Trust will be issued to the
designated transferee.

The Class A Certificates are issuable only as registered Certificates
without coupons in minimum denominations of $100,000 and multiples of $1,000 in
excess thereof. As provided in the Agreement and subject to certain limitations
set forth therein, Certificates are exchangeable for new Certificates of
authorized denominations evidencing the same aggregate denomination, as
requested by the holder surrendering the same. No service charge will be made
for any such registration of transfer or exchange, but the Trustee may require
payment of a sum sufficient to cover any tax or governmental charges payable in
connection therewith.

The Trustee, the Certificate Insurer, the Certificate Registrar, and
any agent of the Trustee, the Certificate Insurer or the Certificate Registrar
may treat the person in whose name this Certificate is registered as the owner
hereof for all purposes and neither the Trustee, the Certificate Insurer, the
Certificate Registrar, nor any such agent shall be affected by any notice to the
contrary.

C-1-5
<PAGE> 158
of the Certificate Insurer purchase from the Trust all (but not fewer than all)
remaining Loans and other property acquired by foreclosure, deed in lieu of
foreclosure, or otherwise then constituting the corpus of the Trust at a price
specified in the Agreement, and such purchase of the Loans and other property of
the Trust will effect early retirement of the Certificates; however, such right
of purchase is exercisable only on a Distribution Date when the sum of the
Aggregate Principal Balances of the Loans is less than 10% of the initial
Aggregate Principal Balance.

C-1-6
<PAGE> 159
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: March [], 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity as
Trustee

By:________________________________

Dated:_____________________________

This is one of the Class [A-1 A-2 A-3] Certificates referenced in the
within-mentioned Agreement

By:________________________________
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

C-1-7
<PAGE> 160
EXHIBIT C-2

THE CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES AUTHORITY. NO SALE, TRANSFER OR ASSIGNMENT OF
THE CERTIFICATES OR ANY INTEREST THEREIN MAY BE MADE UNLESS SUCH SALE, TRANSFER
OR ASSIGNMENT IS MADE (1) PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A,
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL
BUYER TO WHOM NOTICE HAS BEEN GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A OR (2) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT THAT IS ACQUIRING THIS CERTIFICATE FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION. INVESTORS SHOULD CONSULT WITH THEIR COUNSEL AS TO THE
APPLICABLE REQUIREMENTS FOR A PURCHASER TO AVAIL ITSELF OF ANY EXEMPTION UNDER
THE SECURITIES ACT.

THIS CLASS S CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF (i) AN
"EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA")), THAT IS SUBJECT TO THE
PROVISIONS OF TITLE 1 OF ERISA, (ii) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF
THE INTERNAL REVENUE CODE OD 1986, AS AMENDED (THE "CODE") OR (iii) ANY ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY, UNLESS THE BENEFIT PLAN ACQUIRING THIS CERTIFICATE HAS AVAILABLE TO
IT AN EXEMPTION AND SECTION 4975 OF THE CODE AND SUCH EXEMPTION IS APPLICABLE TO
THE PURCHASE AND HOLDING OF THIS CERTIFICATE. UNLESS SUCH AN EXEMPTION IS
AVAILABLE, BY ACCEPTING AND HOLDING THIS CLASS S CERTIFICATE, THE HOLDER HEREOF
AND THE CERTIFICATE OWNER SHALL EACH BE DEEMED TO HAVE REPRESENTED AND WARRANTED
THAT IT IS NOT A BENEFIT PLAN.

THIS CERTIFICATE HAS NO PRINCIPAL BALANCE AND IS NOT ENTITLED TO ANY
DISTRIBUTIONS IN RESPECT OF PRINCIPAL. THIS SECURITY IS NOT A SAVINGS ACCOUNT OR
DEPOSIT AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY,
EXCEPT THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING
ADMINISTRATION.

C-2-1
<PAGE> 161
MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-1,
CLASS S

FINANCIAL ASSET SECURITIES CORP., as Depositor

Class : S

Certificate No. : S-0001

Cut-Off Date : March 21, 1996

First Distribution Date : April 25, 1996

Initial Notional Amount
of this Certificate
("Denomination") : $

Initial Notional Amount of all

Class S Certificates : $

Certificate Rate : %

C-2-2
<PAGE> 162
THIS CERTIFIES THAT [NAME OF CERTIFICATE OWNER] is the owner of
nonassessable, fully-paid, undivided beneficial ownership interest in the Mego
Mortgage FHA Title I Loan Trust 1996-1 (the "Trust") Percentage Interest
evidenced by this Certificate (obtained by dividing the Denomination of this
Certificate by the Initial Notional Amount of all Certificates of this Class) in
certain monthly distributions of interest. The Trust was created pursuant to a
Pooling and Servicing Agreement (the "Agreement") dated as of March 21, 1996
(the "Agreement") among Mego Mortgage Corporation (the "Seller", "Servicer" and
"Claims Administrator"), Financial Asset Securities Corp. (the "Depositor"),
Norwest Bank Minnesota, N.A., as master servicer (the "Master Servicer"), and
First Trust of New York, National Association, as trustee and contract of
insurance holder (the "Trustee" and "Contract of Insurance Holder" as
applicable), a summary of certain of the pertinent provisions of which is set
forth below. To the extent not otherwise defined herein, the capitalized terms
used herein have the meanings assigned to them in the Agreement. This
Certificate is a duly authorized Certificate designated as: "FHA Title I Loan
Asset-Backed Certificates, Class S" (herein called the "Class S Certificates").
Also issued under the Agreement are the [Class A-1 Class A-2 and Class A-3]
Certificates designated as: ["FHA Title I Loan Asset-Backed Certificates, Class
A-1", "FHA Title I Loan Asset-Backed Certificates, Class A-2", "FHA Title I Loan
Asset-Backed Certificates, Class A-3", respectively (together with the Class
[A-1 A-2 A-3] Certificates, the "Class A Certificates"), and the Residual
Certificates designated as: "Mego FHA Title I Loan Asset-Backed Certificates,
Class R" (the "Class R Certificates"). The Class S Certificates, the Class R
Certificates and the Class A Certificates are hereinafter collectively called
the "Certificates". This Certificate is issued under and is subject to the
terms, provisions, and conditions of the Agreement, to which Agreement the
holder of this Class A Certificate by virtue of the acceptance hereof assents
and by which such holder is bound. The property of the Trust includes (i) a pool
of fixed rate residential first and junior lien home improvement loans and
retail installment sales contracts all of which are partially insured by the FHA
(the "Loans"), all monies received thereunder after March 21, 1996 (the "Cut-Off
Date"), the FHA insurance reserves attributable to those Loans partially insured
by the FHA as of the Cut-Off Date, the Files, the Insurance Policies and any
proceeds from any Insurance Policies, security interests in the Properties which
secure the Loans and any and all documents of the Depositor and the Seller
relating to the Loans and any and all proceeds from the foregoing and (ii) an
insurance policy issued by MBIA Insurance Corporation (the "Policy").

C-2-3
<PAGE> 163
close of business on the last day of the previous calendar month (the "Record
Date"), of an amount equal to the pro rata share evidenced by this Certificate
of the aggregate amount required to be distributed to Holders of Class S
Certificates specified above pursuant to the Agreement.

Full and complete payment of the Class Interest Distribution for the
Class S Certificates on each Distribution Date is unconditionally and
irrevocably guaranteed pursuant to the Policy.

Distributions on this Certificate will be made by the Trustee by (i)
check mailed, via first class mail, postage prepaid, to the address of such
Holder as it appears on the Certificate Register, or (ii) Fedwire transfer of
immediately available funds, if such Class S Certificateholder holds at least a
30% Percentage Interest, and if notice from such Certificateholder has been
received by the Trustee at least three Business Days prior to any Distribution
Date (any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account for receipt
of distributions at a bank which has Fedwire transfer capabilities, and
providing such other information as the Trustee may reasonably require to effect
an electronic credit entry to such account, without the presentation or
surrender of this Certificate or the making of any notation hereon. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Class S Certificate will be made after due notice by the
Trustee of the pendency of such distribution.

The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and

C-2-4
<PAGE> 164
obligations of the parties to the Agreement at any time by the parties to the
Agreement with the written consent of the Certificate Insurer and with the
consent of certain of the Holders of the Certificates as provided therein. Any
such consent by the Holder of this Certificate shall be conclusive and binding
on such Holder and on all future Holders of this Certificate and of any
Certificate issued upon the transfer hereof or in exchange hereof or in lieu
hereof whether or not notation of such consent is made upon this Certificate.
The Agreement also permits the amendment thereof, in certain circumstances,
without the consent of the Holders of any of the Certificates.

No transfer of this Certificate shall be made unless (i) such transfer
is made pursuant to an effective registration statement under the Securities Act
and any applicable state securities laws or is exempt from the registration
requirements under the Securities Act and such state securities laws. Each
prospective transferor or transferee of a Certificate not previously registered
under the Securities Act shall deliver a transferor's certificate and a
transferee's certificate, respectively, to the Trustee in such form as provided
by the Agreement.

C-2-5
<PAGE> 165
acquired by foreclosure, deed in lieu of foreclosure, or otherwise then
constituting the corpus of the Trust at a price specified in the Agreement, and
such purchase of the Loans and other property of the Trust will effect early
retirement of the Certificates; however, such right of purchase is exercisable
only on a Distribution Date when the sum of the Aggregate Principal Balances of
the Loans is less than 10% of the initial Aggregate Principal Balance.

C-2-6
<PAGE> 166
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: March [], 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity as
Trustee

By:________________________________

Dated:_____________________________

This is one of the Class S Certificates
referenced in the within-mentioned Agreement

By:_________________________________________
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

C-2-7
<PAGE> 167
EXHIBIT D

THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR (3) IN RELIANCE ON ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE
SKY LAWS AND SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A CERTIFICATION OF THE
TRANSFEROR AND THE TRANSFEREE TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE
WITH THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"), AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED ("CODE"), ASSUMING COMPLIANCE WITH THE REMIC
PROVISIONS OF THE CODE. TRANSFER OF THIS CLASS R CERTIFICATE IS RESTRICTED AS
SET FORTH IN THE POOLING AND SERVICING AGREEMENT. NO TRANSFER OF THIS CLASS R
CERTIFICATE MAY BE MADE TO A "DISQUALIFIED ORGANIZATION" AS DEFINED IN SECTION
860E(e)(5) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE "CODE"). SUCH
TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL SUBDIVISION THEREOF, ANY
FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION, ANY AGENCY OR
INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN TAXABLE
INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC ENERGY OR
PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY ORGANIZATION
(OTHER THAN A FARMER'S COOPERATIVE) THAT IS EXEMPT FROM FEDERAL INCOME TAX
UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS INCOME. NO
TRANSFER OF THIS CLASS R CERTIFICATE WILL BE REGISTERED BY THE CERTIFICATE
REGISTRAR UNLESS THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT AFFIRMING,
AMONG OTHER THINGS, THAT THE PROPOSED TRANSFEREE IS NOT A DISQUALIFIED
ORGANIZATION AND IS NOT ACQUIRING THE CLASS R CERTIFICATE FOR THE ACCOUNT OF A
DISQUALIFIED ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT REQUIRED OF EACH
PROPOSED TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE. A TRANSFER IN
VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE TO A SUBSTANTIAL TAX UPON
THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT ACTING FOR THE TRANSFEREE. A
PASS-THRU ENTITY THAT HOLDS THIS

D-1
<PAGE> 168
CLASS R CERTIFICATE AND THAT HAS A DISQUALIFIED ORGANIZATION AS A RECORD OWNER
IN ANY TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH SUCH YEAR EQUAL
TO THE PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH RESPECT TO THE
PORTION OF THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY BY SUCH
DISQUALIFIED ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX RATE ON
CORPORATIONS. FOR PURPOSES OF THE PRECEDING SENTENCE, THE TERM "PASS-THRU"
ENTITY INCLUDES REGULATED INVESTMENT COMPANIES, REAL ESTATE INVESTMENT TRUSTS,
COMMON TRUST FUNDS, PARTNERSHIPS, TRUSTS, ESTATES, COOPERATIVES TO WHICH PART I
OF SUBCHAPTER 1T OF THE CODE APPLIES AND, EXCEPT AS PROVIDED IN REGULATIONS,
NOMINEES.

NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS SUCH
TRANSFER IS MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02(b)(2) OF THE
AGREEMENT REFERRED TO HEREIN. THIS SECURITY IS NOT A SAVINGS ACCOUNT OR DEPOSIT
AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY, EXCEPT
THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING ADMINISTRATION.

D-2
<PAGE> 169
MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-1
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-1,
CLASS R

evidencing an undivided beneficial ownership interest in the Trust, as defined
below, the property of which includes a pool of fixed-rate residential first and
junior lien home improvement loans and retail installment sales contracts
partially insured by the Federal Housing Administration (the "FHA") of the
United States Department of Housing and Urban Development under Title I of the
National Housing Act of 1934, and caused to be sold to the Trust by Mego
Mortgage Corporation.

FINANCIAL ASSET SECURITIES CORP., as Depositor

Class R Certificate

Certificate No. : R-0001

Percentage Interest Evidenced
by this Certificate 100%

D-3
<PAGE> 170
THIS CERTIFIES THAT MEGO MORTGAGE CORPORATION is the owner of
nonassessable, fully-paid, undivided beneficial ownership interest in the Mego
Mortgage FHA Title I Loan Trust 1996-1 (the "Trust") to the extent set forth
herein. The Trust was created pursuant to a Pooling and Servicing Agreement
dated as of March 21, 1996 (the "Agreement") among Financial Asset Securities
Corp. (the "Depositor"), Mego Mortgage Corporation (the "Seller", "Servicer" and
"Claims Administrator"), Norwest Bank Minnesota, N.A., as master servicer (the
"Master Servicer") and First Trust of New York, National Association, as trustee
and contract of insurance holder (the "Trustee" and the "Contract of Insurance
Holder"), a summary of certain of the pertinent provisions of which is set forth
below. To the extent not otherwise defined herein, the capitalized terms used
herein have the meanings assigned to them in the Agreement. This Certificate is
one duly authorized Class R Certificate designated as: "FHA Title I Loan
Asset-Backed Certificates, Class R" (the "Class R Certificates"). Also issued
under the Agreement are Class A Certificates designated each as: "FHA Title I
Loan Asset-Backed Certificates, Class A-1", "FHA Title I Loan Asset-Backed
Certificates, Class A-2", "FHA Title I Loan Asset-Backed Certificates, Class
A-3" (collectively, the "Class A Certificates") and the "FHA Title I Loan
Asset-Backed Certificates, Class S" (the "Class S Certificates"). The Class R
Certificates, the Class S Certificates and the Class A Certificates are
hereinafter collectively called the "Certificates". This Certificate is issued
under and is subject to the terms, provisions, and conditions of the Agreement,
to which Agreement the holder of this Certificate by virtue of the acceptance
hereof assents and by which such holder is bound. The property of the Trust
includes (i) a pool of fixed rate residential first and junior lien home
improvement loans and retail installment sale contracts, substantially all of
which are partially insured by the FHA (the "Loans"), all monies received
thereunder after March 21, 1996 (the "Cut-Off Date"), the FHA insurance reserves
attributable to those Loans partially insured by the FHA as of the Cut-Off Date,
the Files, the Insurance Policies and any proceeds from any Insurance Policies,
security interests in the Properties which secure the Loans and any and all
documents of the Depositor and the Seller relating to the Loans and any and all
proceeds from the foregoing; and (ii) an insurance policy issued by MBIA
Insurance Corporation (the "Policy").

Under the Agreement, there will be distributed on the 25th day of each
month or, if such 25th day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing on April 25, 1996, to the person in whose name
this Certificate is registered at the close of business on the last day of the
previous calendar month (the "Record Date"), of an amount equal to the
Percentage Interest evidenced by this Certificate of the aggregate amount
required to be distributed to the Holder of Class R Certificates specified above

D-4
<PAGE> 171
pursuant to the Agreement.

Each holder of this Class R Certificate acknowledges and agrees that
its rights to receive distributions in respect of this Class R Certificate are
subordinated to the rights of the Holders of the Class A Certificates and the
Class S Certificates to receive distributions, the rights of the Master Servicer
to receive the Master Servicing Fee (and any unpaid Master Servicing Fees) and
the right of the Certificate Insurer to receive reimbursement of amounts paid
under the Policy and to receive amounts due under the Insurance Agreement, to
the extent described in the Agreement.

As more fully described in the Agreement, no transfer of this
Certificate shall be made unless such transfer is exempt from the registration
requirements of the Securities Act of 1933, as amended, and any applicable State
Securities Laws as is made in accordance with said Act and Laws.

No transfer of this Certificate shall be made unless the Trustee shall
have received a representation letter from the transferee of such Certificate
and each Prospective Owner of a beneficial interest in this Certificate
acquiring such beneficial interest, which certificate shall be for the benefit
of the Trustee, the Depositor, the Certificate Insurer and the Master Servicer,
stating that either (A) the Prospective Owner (1) is not an "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a plan within the meaning of
Section 4975(e)(1) of the Code (each a "Plan") and (2) is not acquiring (or
considered to be acquiring) the Certificate with the assets of any entity whose
underlying assets include the assets of a Plan by reason of such a Plan's
investment in such entity, or (B) the Prospective Owner is an insurance company
that is acquiring this Certificate for its own account, with assets from an
"insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"), 60 Fed. Reg. 35925
(July 12, 1995) and there exists no Plan with respect to which the amount of
such general account's reserves and liabilities for the contract(s) held by or
on behalf of such Plan and all other Plans maintained by the same employer (or
affiliate thereof, as defined in Section (V)(a)(1) of PTCE 95-60) or by the same
employee organization, exceeds 10% of the total of all reserves and liabilities
of such general account (as such amounts are determined under Section I(a) of
PTCE 95-60) at the date of acquisition.

D-5
<PAGE> 172
notice from such Certificateholder has been received by the Trustee at least
three Business Days prior to any Distribution Date (any such notice being
applicable to all subsequent Distribution Dates unless and until rescinded in
writing) designating a deposit account for receipt of distributions at a bank
which has Fedwire transfer capabilities, and providing such other information as
the Trustee may reasonably require to effect an electronic credit entry to such
account, without the presentation or surrender of this Certificate or the making
of any notation hereon. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Class R Certificate
will be made after due notice by the Trustee of the pendency of such
distribution.

The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, Servicer and Claims Administrator, the Master
Servicer, the Trustee, the Contract of Insurance Holder or any affiliate of any
of them. The Certificates are limited in right of payment to certain collections
and recoveries respecting the Loans and claims made under the Policy, all as
more specifically set forth in the Agreement.

The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
parties to the Agreement at any time by the parties to the Agreement with the
written consent of the Certificate Insurer and with the consent of certain of
the Holders of the Certificates as provided therein. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and on
all future Holders of this Certificate and of any Certificate issued upon the
transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain circumstances, without the consent of the Holders
of any of the Certificates.

D-6
<PAGE> 173
Trustee in its capacity as Certificate Registrar, or by any successor
Certificate Registrar, in the city where the Corporate Trust Office is located,
accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by the holder hereof or such
holder's attorney duly authorized in writing, and thereupon one or more new
Certificates of authorized denominations evidencing the same aggregate interest
in the Trust will be issued to the designated transferee.

As provided in the Agreement and subject to the terms set forth
therein, only a Permitted Transferee may hold or acquire any Ownership Interest
in a Class R Certificate, and any other attempted or purported transfer shall be
null and void.

The Class R Certificates are issuable only as registered Certificates
without coupons in minimum denominations representing a twentieth (e.g., 5%)
Residual Interest and integral multiples thereof. As provided in the Agreement
and subject to certain limitations set forth therein, Certificates are
exchangeable for new Certificates of authorized denominations evidencing the
same aggregate denomination, as requested by the holder surrendering the same.
No service charge will be made for any such registration of transfer or
exchange, but the Trustee may require payment of a sum sufficient to cover any
tax or governmental charges payable in connection therewith.

The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Agreement, and the
disposition of all property held as part of the Trust. The Master Servicer and
the Seller may at their respective options with the consent of the Certificate
Insurer purchase from the Trust all (but not fewer than all) remaining Loans and
other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then constituting the corpus of the Trust at a price specified in the
Agreement, and such purchase of the Loans and other property of the Trust will
effect early retirement of the Certificates; however, such right of purchase is
exercisable only on a Distribution Date when the sum of the Aggregate Principal
Balances of the Loans is less than 10% of the initial Aggregate Principal
Balance.

D-7
<PAGE> 174
IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: March ___, 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity as
Trustee

By:________________________________

Dated:_____________________________

This is one of the Class R Certificates
referenced in the within-mentioned Agreement

By:________________________________
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

D-8
<PAGE> 175
EXHIBIT E

FORM OF MASTER SERVICER CERTIFICATE
<PAGE> 176
EXHIBIT F

FORM OF MONTHLY STATEMENT TO CERTIFICATEHOLDERS
<PAGE> 177
EXHIBIT G

[RESERVED]
<PAGE> 178
EXHIBIT H

[RESERVED]
<PAGE> 179
EXHIBIT I

[FORM OF "QUALIFIED INSTITUTIONAL BUYER" TRANSFEREE'S CERTIFICATE]
Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-1.

Dear Sirs:

In connection with our disposition of Certificates (the "Certificates")
issued pursuant to the Pooling and Servicing Agreement dated as of March 21,
1996 (the "Agreement") by and among Mego Mortgage Corporation, Financial Asset
Securities Corp., as Depositor, First Trust of New York, National Association,
as Trustee and Contract of Insurance Holder, and Norwest Bank Minnesota, N.A.,
as Master Servicer, we advise you as follows: (i) we are a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 and we are acquiring beneficial ownership of the Certificates for
our own account or for the account of not more than __ persons, each of which is
a "qualified institutional buyer"; and [IF THE TRANSFER IS OF THE CLASS R
CERTIFICATE][ (ii) either (a) the source of funds to be used to pay the purchase
price of the Certificates are funds held in our general account which we
reasonably believe do not constitute "plan assets" of an employee benefit plan
subject to the fiduciary responsibility provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code"), or a governmental plan
as defined in Section 3(32) of ERISA subject to any federal, state or local law
which is to a material extent similar to the foregoing provisions of ERISA or
the Code, or (b) we are an insurance company general account and, at the time of
the purchase of the Certificates, the amount of reserves and liabilities for the
general account contracts held by or for any plan (and any other plan of the
same employer or affiliate) does not exceed 10% of the total reserves and
liabilities of the general account plus surplus (such determination to be made
in accordance with Prohibited Transaction Class Exemption 95-60).] Capitalized
terms used but not otherwise defined herein shall have the meanings ascribed
thereto in the Agreement. In addition to the foregoing, you may rely on the
information provided in Annex [1 or 2, as applicable] attached hereto and
incorporated herein.

Very truly yours,

[PURCHASER]

By: __________________________
Name:
Title:
<PAGE> 180
ANNEX 1 TO EXHIBIT I

QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

[For Buyers Other Than Registered Investment Companies]

The undersigned hereby certifies as follows to the parties listed
in the "Qualified Institutional Buyer" Transferee's Certificate to which this
certification relates with respect to the Rule 144A Securities described
therein:

1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.

2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or invested
on a discretionary basis $_____________ (1) in securities (except for the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year (such amount being calculated in accordance with Rule 144A) and (ii)
the Buyer satisfies the criteria in the category marked below.

- Corporation, etc. The Buyer is a corporation (other than a
bank, savings and loan association or similar
institution), Massachusetts or similar business trust,
partnership, or charitable organization described in
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended.

- Bank. The Buyer (a) is a national bank or banking
institution organized under the laws of any State,
territory or the District of Columbia, the business of
which is substantially confined to banking and is
supervised by the State or territorial banking commission
or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.

- ---------------------------
(1) Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that case,
Buyer must own and/or invest on a discretionary basis at least
$10,000,000 in securities.

I-1-1
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- Savings and Loan. The Buyer (a) is a savings and loan
association, building and loan association, cooperative
bank, homestead association or similar institution, which
is supervised and examined by a State or Federal authority
having supervision over any such institutions or is a
foreign savings and loan association or equivalent
institution and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.

- Broker-dealer. The Buyer is a dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934.

- Insurance Company. The Buyer is an insurance company whose
primary and predominant business activity is the writing
of insurance or the reinsuring of risks underwritten by
insurance companies and which is subject to supervision by
the insurance commissioner or a similar official or agency
of a State, territory or the District of Columbia.

- State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.

- ERISA Plan. The Buyer is an employee benefit plan within
the meaning of Title I of the Employee Retirement Income
Security Act of 1974.

- Investment Advisor. The Buyer is an investment advisor
registered under the Investment Advisers Act of 1940.

- Small Business Investment Company. Buyer is a small
business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958.

- Business Development Company. Buyer is a business
development company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940.

- Trust Fund. The Buyer is a trust fund whose trustee is a
bank or trust company and whose participants are
exclusively State or Local Plans or ERISA Plans as defined
above, and no participant of the Buyer is an individual
retirement account or an H.R. 10 (Keogh) plan.

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3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii) securities that
are part of an unsold allotment to or subscription by the Buyer, if the Buyer is
a dealer, (iii) bank deposit notes and certificates of deposit, (iv) loan
participations, (v) repurchase agreements, (vi) securities owned but subject to
a repurchase agreement and (vii) currency, interest rate and commodity swaps.

4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence applies,
the securities may be valued at market. Further, in determining such aggregate
amount, the Buyer may have included securities owned by subsidiaries of the
Buyer, but only if such subsidiaries are consolidated with the Buyer in its
financial statements prepared in accordance with generally accepted accounting
principles and if the investments of such subsidiaries are managed under the
Buyer's direction. However, such securities were not included if the Buyer is a
majority-owned, consolidated subsidiary of another enterprise and the Buyer is
not itself a reporting company under the Securities Exchange Act of 1934.

5. The Buyer acknowledges that it is familiar with Rule 144A and
understands that the seller to it and other parties related to the Certificates
are relying and will continue to rely on the statements made herein because one
or more sales to the Buyer may be in reliance on Rule 144A.

6. Until the date of purchase of the Rule 144A Securities, the
Buyer will notify each of the parties to which this certification is made of any
changes in the information and conclusions herein. Until such notice is given,
the Buyer's purchase of Rule 144A Securities will constitute a reaffirmation of
this certification as of the date of such purchase. In addition, if the Buyer is
a Bank or Savings and Loan as provided above, the Buyer agrees that it will
furnish to such parties updated annual financial statements promptly after they
become available.

_________________________________
Print Name of Buyer

By:______________________________
Name:
Title:

Date:_____________________________

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ANNEX 2 TO EXHIBIT I

QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

[For Buyers that are Registered Investment Companies]

1. As indicated below, the undersigned is the President, Chief
Financial Officer or Senior Vice President of the Buyer or, if the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because Buyer is part of a Family of
Investment Companies (as defined below), is such an officer of the Adviser.

2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such securities
was used, except (i) where the Buyer or the Buyer's Family of Investment
Companies reports its securities holdings in its financial statements on the
basis of their market value, and (ii) no current information with respect to the
cost of those securities has been published. If clause (ii) in the preceding
sentence applies, the securities may be valued at market.

- The Buyer owned $________________ in securities (other
than the excluded securities referred to below) as of the
end of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).

- The Buyer is part of a Family of Investment Companies
which owned in the aggregate $__________ in securities
(other than the excluded securities referred to below) as
of the end of the Buyer's most recent fiscal year (such
amount being calculated in accordance with Rule 144A).

I-2-1
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3. The term "Family of Investment Companies" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or investment advisers that are affiliated (by virtue of
being majority owned subsidiaries of the same parent or because one investment
adviser is a majority owned subsidiary of the other).

4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and certificates
of deposit, (iii) loan participations, (iv) repurchase agreements, (v)
securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.

5. The Buyer is familiar with Rule 144A and understands that the
parties listed in the Qualified Institutional Buyer Transferee's Certificate to
which this certification relates are relying and will continue to rely on the
statements made herein because one or more sales to the Buyer will be in
reliance on Rule 144A. In addition, the Buyer will only purchase for the Buyer's
own account.

6. Until the date of purchase of the Rule 144A Securities, the
undersigned will notify each of the parties to which this certification is made
of any changes in the information and conclusions herein. Until such notice is
given, the Buyer's purchase of Rule 144A Securities will constitute a
reaffirmation of this certification by the undersigned as of the date of such
purchase.

_________________________________
Print Name of Buyer or Adviser

By:______________________________
Name:
Title:

IF AN ADVISER:

_________________________________
Print Name of Buyer

Date:____________________________

I-2-2
<PAGE> 185
EXHIBIT J

[FORM OF "ACCREDITED INVESTOR" TRANSFEREE'S CERTIFICATE]

Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-1.

Dear Sirs:

In connection with our proposed purchase of Certificates (the
"Certificates") issued pursuant to the Pooling and Servicing Agreement dated as
of March 21, 1996 (the "Agreement") by and among Mego Mortgage Corporation, as
Seller, Servicer and Claims Administrator, Financial Asset Securities Corp., as
Depositor, First Trust of New York, National Association, as Trustee and
Contract of Insurance Holder, and Norwest Bank Minnesota, N.A., as Master
Servicer, we confirm that:

1. We understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
may not be sold except as permitted in the following sentence. We agree,
on our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that such Certificates may be resold, pledged or
transferred only: (i) so long as such Certificates are eligible for resale
pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person
whom we reasonably believe is a "qualified institutional buyer" as defined
in Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB, to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (ii) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
(if applicable) under the Securities Act or (iii) to an institution that
is an "Accredited Investor" as defined in Rule 501(a)(1), (2), (3) or (7)
under the

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Securities Act (an "Accredited Investor") that is acquiring the
Certificates for investment purposes and not for distribution, in each
case in accordance with any applicable securities laws of any state of the
United States, and we will notify any purchaser of the Certificates from
us of the above resale restrictions. We further understand that in
connection with any transfer of the Certificates to an Accredited Investor
by us that the Depositor or Trustee may request, and if so requested we
will furnish, such certificates and other information as they may
reasonably require to confirm that any such transfer with the foregoing
restrictions.

2. We are an institutional investor which is an Accredited
Investor or, if the Certificates are to be purchased for one or more
institutional accounts ("investor accounts") for which it is acting as
fiduciary or agent (except if it is a bank as defined in Section 3(a)(2)
of the Securities Act, or a savings and loan association or other
institution as described in Section 3(a)(5)(A) of the Securities Act,
whether acting in its individual or in a fiduciary capacity), each such
investor account is an institutional investor and an Accredited Investor
on a like basis. In the normal course of its business, it invests in or
purchases securities similar to the Certificates, and it has such
knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of purchasing any of the
Certificates. It is aware that it (or any investor account) may be
required to bear the economic risk of an investment in the Certificates
for an indefinite period of time, and it (or such account) is able to bear
such risk for an indefinite period.

Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed hereto in the Agreement.

Very truly yours,

[PURCHASER]

By: ________________________________
Name:
Title:

J-2
<PAGE> 187
EXHIBIT K

[FORM OF TRANSFEROR'S CERTIFICATE]

Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-1.

Ladies and Gentlemen:

[(a) we understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Act"), and are
being disposed of by us in a transaction that is exempt from the
registration requirements of the Act;] [and]

[(b) we have not offered or sold any Certificates to, or solicited
offers to buy any Certificates from, any person, or otherwise
approached or negotiated with any person with respect thereto, in
a manner that would be deemed, or taken any other action which
would result in, a violation of Section 5 of the Act] [; and]

[(c) to the extent we are disposing of a Class R Certificate, we
have no actual knowledge that the transferee is not a Permitted
Transferee.]

Very truly yours,

____________________________
Name of Transferor

By: _______________________
Name: _____________________
Title: ____________________

K-1
<PAGE> 188
EXHIBIT L

[FORM OF TRANSFER AFFIDAVIT FOR THE CLASS R CERTIFICATE]

STATE OF )
) ss.:
COUNTY OF )

The undersigned, being first duly sworn, deposes and says as follows:

I The undersigned is an officer of _______________, the proposed
Transferee of an Ownership Interest in a Class R Certificate (the "Certificate")
issued pursuant to the Pooling and Servicing Agreement dated as of March 21,
1996 (the "Agreement") by and among Mego Mortgage Corporation, as Seller,
Servicer and Claims Administrator, Financial Asset Securities Corp., as
Depositor, First Trust of New York, National Association, as Trustee and
Contract of Insurance Holder, and Norwest Bank Minnesota, N.A., as Master
Servicer. Capitalized terms used, but not defined herein or in Exhibit 1 which
is attached hereto, shall have the meanings ascribed to such terms in the
Agreement. The Transferee has authorized the undersigned to make this affidavit
on behalf of the Transferee.

II The Transferee is, as of the date hereof, and will be, as of the date
of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (i) for its own account or (ii) as
nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit. The
Transferee has no knowledge that any such affidavit is false.

III The Transferee has been advised of, and understands that (i) a tax
will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability for
the tax if the subsequent Transferee furnished to such Person an affidavit that
such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.

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<PAGE> 189
IV The Transferee has been advised of, and understands that a tax will
be imposed on a "pass-through entity" holding the Certificate if at any time
during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
respect to which the record holder furnishes to the pass-through entity an
affidavit that such record holder is a Permitted Transferee and the pass-through
entity does not have actual knowledge that such affidavit is false. (For this
purpose, a "pass-through entity" includes but is not limited to a regulated
investment company, a real estate investment trust or common trust fund, a
partnership, trust or estate, and certain cooperatives and, except as may be
provided in Treasury Regulations, persons holding interests in pass-through
entities as a nominee for another Person.)

V The Transferee has reviewed the provisions of Article XI of the
Agreement (which is attached hereto as Exhibit 2 and incorporated herein by
reference) and understands the legal consequences of the acquisition of an
Ownership Interest in the Certificate including, without limitation, the
restrictions on subsequent Transfers and the provisions regarding voiding the
Transfer and mandatory sales. The Transferee expressly agrees to be bound by and
to abide by the provisions of Article XI of the Agreement and the restrictions
noted on the face of the Certificate. The Transferee understands and agrees that
any breach of any of the representations included herein shall render the
Transfer to the Transferee contemplated hereby null and void.

VI The Transferee agrees to require a Transfer Affidavit from any Person
to whom the Transferee attempts to Transfer its Ownership Interest in the
Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee. In connection with any such Transfer by the Transferee, the
Transferee agrees to deliver to the Trustee a certificate (a "Transfer
Certificate") to the effect that such Transferee has no actual knowledge that
the Person to which the Transfer is to be made is not a Permitted Transferee.

VII The Transferee's taxpayer identification number is _____.

L-2
<PAGE> 190
IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this ____ day of _____________, 19__.

[NAME OF TRANSFEREE]

By:____________________________
Name:
Title:

Personally appeared before me the above-named _____________, known or
proved to me to be the same person who executed the foregoing instrument and to
be the ____________ of the Transferee, and acknowledged that he executed the
same as his free act and deed and the free act and deed of the Transferee.

Subscribed and sworn before me this ____ day of _______, 19__.

_____________________________
NOTARY PUBLIC

My Commission expires the ___ day of
_______________, 19__.

L-3
<PAGE> 191
Exhibit 1
to EXHIBIT L

Certain Definitions

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

"Permitted Transferee": Any Person other than (i) the United States, any
State or political subdivision thereof, or any agency or instrumentality of any
of the foregoing, (ii) a foreign government, International Organization or any
agency or instrumentality of either of the foregoing, (iii) an organization
(except certain farmers' cooperatives described in Code Section 521) which is
exempt from tax imposed by Chapter 1 of the Code (including the tax imposed by
Code Section 511 on unrelated business taxable income) on any excess inclusions
(as defined in Code Section 860E(c)(1)) with respect to any Class R Certificate,
(iv) rural electric and telephone cooperatives described in Code Section
1381(a)(2)(c), (v) a Person that is not a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust whose income from sources without the United States is
includible in gross income for United States federal income tax purposes
regardless of its connection with the conduct of a trade or business within the
United States, and (vi) any other Person so designated by the Trustee based upon
an Opinion of Counsel that the Transfer of an Ownership Interest in a Class R
Certificate to such Person may cause the Trust Fund to fail to qualify as a
REMIC at any time that certain Certificates are Outstanding. The terms "United
States," "State" and "International Organization" shall have the meanings set
forth in Code Section 7701 or successor provisions. A corporation will not be
treated as an instrumentality of the United States or of any State or political
subdivision thereof if all of its activities are subject to tax, and, with the
exception of the FHLMC, a majority of its board of directors is not selected by
such governmental unit.

"Person": Any individual, corporation, partnership, joint venture, bank,
joint stock company, trust (including any beneficiary thereof), unincorporated
organization or government or any agency or political subdivision thereof.

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

"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.

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Exhibit 2
to EXHIBIT L

Section 11.01 of the Agreement

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

(1) Only a Permitted Transferee may hold or acquire any
Ownership Interest in a Class R Certificate. Each Person holding or
acquiring any Ownership Interest in a Class R Certificate shall promptly
notify the Trustee, the Certificate Insurer and the Master Servicer of any
change or impending change in its status as a Permitted Transferee.

(2) In connection with any proposed Transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall, as a
condition to such consent, require delivery to the Trustee of a properly
completed, sworn, executed and acknowledged affidavit from the Transferee
(the "Transfer Affidavit") in the form attached hereto as Exhibit J and
from the transferor (the "Transferor Representation"), in the form attached
hereto as Exhibit L.

(3) Notwithstanding the delivery of a Transfer Affidavit by
a proposed Transferee under clause (ii) above, if the Responsible Officer
or Responsible Officers of the Trustee has or have actual knowledge that
the proposed Transferee is not a Permitted Transferee, the Trustee shall
not register and, if the Trustee is not the Certificate Registrar, shall
direct to the Certificate Registrar not to register a Class R Certificate
in the name of the proposed Transferee, no Transfer of an Ownership
Interest in the Residual Interest to such proposed Transferee shall be
effected and the Trustee, and Certificate Registrar, shall have no
liability for failing to effect the proposed registration.

(4) Any attempted or purported Transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of Section
11.02 of the Agreement shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported Transferee shall, in
violation of the provisions of Section 11.02 of the Agreement, become a
Holder of a Class R Certificate, then the prior Holder of such Class R
Certificate shall, upon discovery that the registration of Transfer of such

L-2-2
<PAGE> 193
Class R Certificate was not in fact permitted by Section 11.02 of the
Agreement, notify the Trustee and the Trustee, upon receipt of such notice
and upon verification of the facts set forth in such notice or upon
discovery by other means that the registration of Transfer of such Class R
Certificate was not in fact permitted by Section 11.02 of the Agreement,
shall notify the Master Servicer and the Certificate Registrar of such
improper Transfer (such notice to be accompanied by an Opinion of Counsel
to the effect that such Transfer was improper and the retroactive
restoration of the rights of the last preceding Permitted Transferee as
described in this clause (iv) shall not be invalid, illegal or
unenforceable) and, subject to clause (v) below, shall make payments due on
such Class R Certificate to the last preceding Holder that is a Permitted
Transferee (as described in such written notice) and the last Holder that
is a Permitted Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such Class R
Certificate. The Trustee shall be entitled, but shall not be obligated, to
recover from any Holder of a Class R Certificate that was in fact not a
Permitted Transferee at the time it became a Holder all payments made on
such Class R Certificate. Any such payments so recovered by the Trustee
shall be paid and delivered by the Trustee to the last preceding Holder
that is a Permitted Transferee who was a Holder of such Class R
Certificate.

(5) If any Person that is not a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation of
the restrictions in Section 11.02 of the Agreement, and (A) to the extent
that the retroactive restoration of the rights of the last preceding Holder
that is a Permitted Transferee as described in clause (iv) above shall be
invalid, illegal or unenforceable or (B) if the Trustee is unable within a
reasonable period to obtain the Opinion of Counsel required by clause (iv)
above then the Trustee shall have the right, without notice to the Holder
of such Class R Certificate or any other Person having an Ownership
Interest therein, to sell such Class R Certificate to a purchaser selected
by the Trustee on such terms as the Trustee may choose. The proceeds of
such sale, net of commissions, expenses and taxes due, if any, will be
remitted to the Holder of such Class R Certificate by the Trustee, except
that in the event that the Trustee determines that the Holder of such Class
R Certificate may be liable for any amount due under Section 11.02 or any
other provisions of the Agreement, the Trustee may withhold a corresponding
amount from such remittance as security for such claim. The terms and
conditions of any sale under this clause (v) shall be determined in the
sole discretion of the Trustee, and it shall not be liable to any Person
having an Ownership Interest in a Class R Certificate as a result of its
exercise of such discretion.

(6) The Trustee shall make available, upon receipt of
written requests, all information necessary to compute any tax

L-2-3
<PAGE> 194
imposed (A) as a result of the Transfer of an Ownership Interest in Class R
Certificates to any Person who is not a Permitted Transferee, and (B) as a
result of any regulated investment company, real estate investment trust,
common trust fund, partnership, trust, estate or organizations described in
Code section 1381 that holds an Ownership Interest in a Class R Certificate
and having as among its record holders at any time any Person who is not a
Permitted Transferee. Reasonable compensation for providing such
information may be charged by the Trustee. The information furnished must
be sufficient to compute the present value of the anticipated excess
inclusions as required by Treasury Department regulations. The information
must be furnished to the requesting party or such later time period as
allowed by Treasury Department regulations or the Internal Revenue Service.

(7) No undivided interest of the Residual Interest may be
transferred to any Person unless the entire interest and rights relating to
such undivided interest in the Residual Interest under this Agreement are
transferred to such Person.

(8) The provisions of Section 11.02 of the Agreement set
forth prior to this clause (viii) may be eliminated upon execution by the
Trustee of a certificate stating that the Trustee has received an Opinion
of Counsel, in form and substance satisfactory to the Trustee, to the
effect that the absence of such provisions will not cause the REMIC Pool to
cease to qualify as a REMIC and will not create a risk that (A) the Trust
or the REMIC Pool may be subject to an entity-level tax caused by the
Transfer of any Ownership Interest in a Class R Certificate to a Person
which is not a Permitted Transferee or (B) a Holder of a Senior Certificate
or another Person will be subject to a REMIC-related tax caused by the
Transfer of any Ownership Interest in a Class R Certificate to a Person
which is not a Permitted Transferee.

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<PAGE> 195
EXHIBIT M

DEPOSITORY AGREEMENT

<PAGE> 1

EXHIBIT 10.17

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

FINANCIAL ASSET SECURITIES CORP.,

as Purchaser,

and

MEGO MORTGAGE CORPORATION,

as Seller,

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

LOAN PURCHASE AGREEMENT

Dated as of August 1, 1996

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

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

<PAGE> 2
Table of Contents

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

Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE

Section 2.1 Sale of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.2 [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.3 Obligations of Seller Upon Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.4 Payment of Purchase Price for the
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH

Section 3.1 Seller Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE IV.
SELLER'S COVENANTS

Section 4.1 Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE V.
INDEMNIFICATION BY THE SELLER

Section 5.1 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.2 Limitation on Liability of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE VI.
TERMINATION

Section 6.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE VII.
MISCELLANEOUS PROVISIONS

Section 7.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 7.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.6 Further Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7.7 Intention of the Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.8 Successors and Assigns; Assignment of
Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7.9 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 7.10 Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>

i
<PAGE> 3
EXHIBITS AND SCHEDULES

Schedule I Schedule of Loans

ii
<PAGE> 4

LOAN PURCHASE AGREEMENT (the "Purchase Agreement"), dated as
of August 1, 1996, between Mego Mortgage Corporation ("Mego" or the "Seller")
and FINANCIAL ASSET SECURITIES CORP., ("FASCO" and together with any assignee
of FASCO, the "Purchaser").

W I T N E S S E T H

WHEREAS, all of the Loans will be partially insured under the
FHA Title I program;

WHEREAS, the parties hereto desire that the Seller sell all
its right, title and interest in and to the Loans and the Related Documents
pursuant to the terms of this Purchase Agreement; and

WHEREAS, pursuant to the terms of a Pooling and Servicing
Agreement, dated as of August 1, 1996 (the "Pooling and Servicing Agreement"),
among FASCO, as depositor (the "Depositor"), Mego, as Seller, servicer (the
"Servicer") and claims administrator (the "Claims Administrator"), Norwest Bank
Minnesota, N.A., as master servicer (the "Master Servicer"), and First Trust of
New York, National Association, as trustee (the "Trustee") and contract of
insurance holder (the "Contract of Insurance Holder"), the Purchaser will
sell, transfer, assign and otherwise convey to the Trustee for the benefit of
the Holders of the Certificates and the Certificate Insurer (each as defined
herein), all its right, title and interest in and to the Loans and this
Purchase Agreement;

NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties hereto agree as follows:

1
<PAGE> 5
ARTICLE I.
DEFINITIONS

Section I.1 Definitions. Capitalized terms used but not
defined herein have the meanings assigned thereto in the Pooling and Servicing
Agreement.

Registration Statement. The Purchaser's registration
statement on Form S-3 (No. 33-99018), in the form in which it became effective
under the Securities Act of 1933, as amended, on March 20, 1996, including any
documents incorporated by reference therein.

Base Prospectus. The prospectus, dated March 20, 1996,
attached to the Prospectus Supplement relating to the Class A Certificates.

ARTICLE II.
SALE OF LOANS; PAYMENT OF PURCHASE PRICE

Section II.1 Sale of Loans. The Seller, concurrently with
the execution and delivery of this Purchase Agreement, does hereby sell,
assign, set over, and otherwise convey to the Purchaser, without recourse other
than as expressly provided herein and in the Pooling and Servicing Agreement,
and in accordance with the requirements for transfer of an insured loan under
Title I and 24 CFR Section 201.32(c), all of its right, title and interest in,
to and under the following, whether now existing or hereafter acquired and
wherever located: (i) as of the Cut-Off Date, the Loans delivered to the
Trustee on the Closing Date, including the related Principal Balance and all
payments and collections on account thereof received on or with respect to such
Loans after the Cut-Off Date (including amounts due prior to the Cut-Off Date
but received thereafter), (ii) the rights to the FHA Insurance reserves
attributable to the Loans as of the Cut-Off Date under Title I, (iii) the
Files, (iv) the Insurance Policies and any proceeds from any Insurance
Policies, (v) the Mortgages and security interests in Properties which secure
the Loans, (vi) any and all documents or electronic records relating to the
Loans, (vii) all proceeds of any of the foregoing.

Section II.2 [Reserved].

Section II.3 Obligations of Seller Upon Sale. In
connection with any transfer pursuant to Section 2.1 hereof, the Seller further
agrees, at its own expense, on or prior to the Closing Date (a) to indicate in
its books and records that the Loans have been sold to the Purchaser pursuant
to this Purchase Agreement and (b) to deliver to the Purchaser a computer file
containing a true and complete list of all Loans specifying for

2
<PAGE> 6
each Loan, as of the Cut-Off Date, (i) its account number and (ii) its
Principal Balance. Such file, which forms a part of Exhibit B to the Pooling
and Servicing Agreement, shall also be marked as Schedule I to this Purchase
Agreement and is hereby incorporated into and made a part of this Purchase
Agreement.

The Seller agrees to prepare, execute and file UCC-1 financing
statements with the Secretary of State in the States of Georgia and of Delaware
and with the County Clerk of Cobb (which shall have been filed on or before the
Closing Date with respect to the Loans describing the Loans and naming the
Seller as debtor and, the Purchaser as secured party (and indicating that such
loans have been assigned to the Trustee) all necessary continuation statements
and any amendments to the UCC-1 financing statements required to reflect a
change in the name or corporate structure of the Seller or the filing of any
additional UCC-1 financing statements due to the change in the principal office
of the Seller, as are necessary to perfect the sale of the Trustee's interest
in each Loan and the proceeds thereof.

In connection with any conveyance by the Seller, the Seller
shall on behalf of the Purchaser deliver to, and deposit with the Trustee, as
assignee of the Purchaser, on or before the Closing Date the following
documents or instruments with respect to each Loan (the "Related Documents");
provided, that the documents or instruments listed in clause (f) below may be
held in the custody of the Seller on behalf of the Trustee.

With respect to each Loan:

(a) The original Note, showing a complete chain
of endorsements or assignments from the named payee to the Trust and
endorsed without recourse to the order of the Trustee which latter
endorsement may be executed with a facsimile signature;

3
<PAGE> 7
by an appropriate public official may be delivered to the Trustee);

(d) All original intermediate assignments of the
Mortgage, showing a complete chain of assignments from the named
mortgagee to the assignor to the Trustee, with evidence of recording
thereon (or true copies thereof certified by appropriate public
officials may be substituted); provided, however, that if the
intermediate assignments of mortgage with evidence of recording
thereon cannot be delivered concurrently with the execution and
delivery of this Purchase Agreement solely because of a delay caused
by the public recording office where such assignments of Mortgage have
been delivered for recordation, there shall be delivered to the
Trustee a copy of each such assignment of Mortgage certified as a true
copy in an Officer's Certificate, which Officer's Certificate shall
certify that each such assignment of Mortgage has been delivered to
the appropriate public recording office for recordation, and there
shall be promptly delivered to the Trustee such assignments of
Mortgage with evidence of recording indicated thereon upon its receipt
thereof from the public recording official (or true copies thereof
certified by an appropriate public official may be delivered to the
Trustee);

(e) An original of each assumption or
modification agreement, if any, relating to such Mortgage Loan; and

4
<PAGE> 8
copy of a written verification that the Obligor at the time of
origination was not more than 30 days delinquent on any senior
mortgage or deed of trust on the Property, (x) with respect to each
Loan for which an appraisal is required pursuant to the applicable
regulations, an original or a copy of an appraisal of the Property as
of the time of origination of the Loan, (xi) an original or a copy of
a title search as of the time of origination with respect to the
Property, and (xii) any other documents required for the submission of
a claim with respect to each Loan to the FHA.

With respect to any documents referred to clauses (b) and (d)
above that are not delivered to the Trustee because of a delay caused by the
public recording office, such documents shall be delivered to the Trustee in
accordance with the terms of such clauses by the Seller if such documents are
received by it or by the Purchaser if such documents are received by it.

The Purchaser hereby acknowledges its acceptance of all right,
title and interest to the Loans and other property, now existing and hereafter
created, conveyed to it pursuant to Section 2.1 hereof.

Section II.4 Payment of Purchase Price for the Loans.
(a) In consideration of the sale of the Loans from the Seller to the Purchaser
on the Closing Date, the Purchaser agrees to pay to the Seller on the Closing
Date by transfer of immediately available funds, an amount equal to $[
] (before deducting expenses payable by the Seller to the Purchaser) (the
"Purchase Price").

(b) Within 60 days of the Closing Date, the Seller, at its
own expense, shall cause the Trustee to record each assignment of Mortgage in
favor of the Trustee (which may be a blanket

5
<PAGE> 9
assignment if permitted by applicable law) in the appropriate real property or
other records; provided, however, the Trustee need not record any assignment
which relates to a Loan in any jurisdiction under the laws of which, as
evidenced by an Opinion of Counsel delivered by the Seller (at the Seller's
expense) to the Trustee and the Certificate Insurer, the recordation of such
assignment is not necessary to protect the Trustee's, the Certificate Insurer's
and the Certificateholders' interest in the related Loan. With respect to any
assignment of Mortgage as to which the related recording information is
unavailable within 60 days following the Closing Date, such assignment of
Mortgage shall be submitted for recording within 30 days after receipt of such
information but in no event later than one year after the Closing Date. The
Trustee shall be required to retain a copy of each assignment of Mortgage
submitted for recording. In the event that any such assignment of Mortgage is
lost or returned unrecorded because of a defect therein, the Seller shall
promptly prepare a substitute assignment of Mortgage or cure such defect, as
the case may be, and thereafter the Trustee shall be required to submit each
such assignment of Mortgage for recording.

ARTICLE III.
REPRESENTATIONS AND
WARRANTIES; REMEDIES FOR BREACH

Section III.1 Seller Representations and Warranties.

(a) The Seller represents and warrants to the Purchaser as of the Cut-Off
Date and the Closing Date that:

(iii) Neither the execution and delivery of this
Purchase Agreement or any of the other Transaction Documents

6
<PAGE> 10
to which the Seller is a party, the consummation of the transactions
required of it herein or under any other Transaction Document, nor the
fulfillment of or compliance with the terms and conditions of this
Purchase Agreement or any of the other Transaction Documents will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Seller's charter or by-laws or any legal restriction
or any material agreement or instrument to which the Seller is now a
party or by which it is bound, or which would adversely affect the
creation and administration of the Trust as contemplated hereby, or
constitute a material default or result in an acceleration under any
of the foregoing, or result in the violation of any law, rule,
regulation, order, judgment or decree to which the Seller or its
property is subject;

(iv) There is no action, suit, proceeding,
investigation or litigation pending against the Seller or, to its
knowledge, threatened, which, if determined adversely to the Seller,
would materially adversely affect the sale of the Loans, the
execution, delivery or enforceability of this Purchase Agreement or
any other Transaction Document, or which would have a material adverse
affect on the financial condition of the Seller;

(vii) The Seller received fair consideration and
reasonably equivalent value in exchange for the sale of the Loans to
the Purchaser;

(viii) The Seller is a non-supervised lender in good
standing under 24 CFR Section 202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR part
201; and

(ix) (_) The Seller has transferred the Loans
without

7
<PAGE> 11
any intent to hinder, delay or defraud any of its creditors.

It is understood and agreed that the representations and
warranties set forth in this Section 3.1 shall survive delivery of the
respective Files to the Trustee on behalf of the Purchaser. In the event that
(a) any of the representations and warranties of the Seller in Section 2.03(b)
of the Pooling and Servicing Agreement are determined to be untrue in a manner
that materially and adversely affects the interests of the Certificateholders
or the Certificate Insurer in any Loan with respect to which such
representation or warranty is made and (b) the Seller shall fail to cure such
breach within the time period specified in Section 2.04 of the Pooling and
Servicing Agreement, the Seller shall be obligated to repurchase or substitute
the affected Loan(s) in accordance with the provisions of Section 2.04 of the
Pooling and Servicing Agreement.

With respect to representations and warranties made by Mego pursuant
to this Section 3.1(b) that are made to the Seller's best knowledge, if it is
discovered by any of the Depositor, the Seller, the Trustee or the Certificate
Insurer that the substance of such representation and warranty is inaccurate
and such inaccuracy materially and adversely affects the value of the related
Loan, notwithstanding the Seller's lack of knowledge, such inaccuracy shall be
deemed a breach of the applicable representation and warranty.

ARTICLE IV.
SELLER'S COVENANTS

ARTICLE V.
INDEMNIFICATION BY THE SELLER

Section V.1 Indemnification. The Seller agrees to
indemnify and hold harmless the Purchaser from and against any loss, liability,
expense, damage, claim or injury (other than

8
<PAGE> 12
those resulting solely from defaults on the Loans) arising out of or based on
this Agreement including, without limitation, in connection with the
origination or prior servicing of the Loans by reason of any acts, omissions,
or alleged acts or omissions arising out of activities of the Seller,
originator or prior servicer, including reasonable attorneys' fees and other
costs or expenses incurred in connection with the defense of any actual or
threatened action, proceeding or claim; provided that the Seller shall not
indemnify the Purchaser if such loss, liability, expense, damage or injury is
due to the Purchaser's willful misfeasance, bad faith or negligence or by
reason of the Purchaser's reckless disregard of its obligations hereunder. The
provisions of this indemnity shall run directly to and be enforceable by an
injured party subject to the limitations hereof.

Section V.2 Limitation on Liability of the Seller.
None of the directors or trustees or officers or employees or agents of the
Seller shall be under any liability to the Purchaser, it being expressly
understood that all such liability is expressly waived and released as a
condition of, and as consideration for, the execution of this Purchase
Agreement; provided, however, that this provision shall not protect any such
Person against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder. Except as expressly provided herein and in the Pooling and
Servicing Agreement, the Seller shall not be under any liability to the Trust,
the Trustee or the Certificateholders. The Seller and any director or officer
or employee or agent of the Seller may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person respecting
any matters arising hereunder.

Section 5.3 Indemnification (a) The Seller agrees to indemnify and
hold harmless the Purchaser, the directors of the Purchaser and each person, if
any, who controls the Purchaser within the meaning of Section 15 of the
Securities Act of 1933 (the "Act") or Section 20 of the Securities Exchange Act
of 1934 (the "Exchange Act"), from and against any and all losses, claims,
damages, liabilities or judgments (including without limiting the foregoing the
reasonable legal and other expenses incurred in connection with any action,
suit or proceeding or any claim asserted) arising out of (i) any untrue
statement or alleged untrue statement of a material fact contained under any of
the captions "Property of the Trust," "Mego Mortgage Corporation," "The Title I
Loan Program and the Contract of Insurance" and "Description of the Loans" in
the Prospectus Supplement or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading or (ii) any information concerning the Seller, the
Loans or the Seller's operations based on any untrue statement or alleged
untrue statement of a fact contained

9
<PAGE> 13
in any information provided by the Seller to the Purchaser, or any material
omission from the information purported to be provided thereby, and
disseminated to any Rating Agency, the Certificate Insurer or prospective
investors (directly or indirectly through available information systems) in
connection with the issuance, marketing or offering of the Class A
Certificates. This indemnity agreement will be in addition to any liability
which the Seller may otherwise have pursuant to this Agreement.

(b) The Purchaser agrees to indemnify and hold harmless the Seller
and each person, if any, who controls the Seller within the meaning of Section
15 of the Act or Section 20 of the Exchange Act from and against any and all
losses, claims, damages and liabilities caused by (A) any untrue statement or
alleged untrue statement of a material fact contained in (i) the Prospectus
Supplement under the caption "Description of the Certificates," (ii) the Base
Prospectus or (iii) the Registration Statement or (B) any omission or alleged
omission to state a material fact, in the case of the Registration Statement,
required to be stated therein or necessary to make the statements therein not
misleading, and in the case of the section of the Prospectus Supplement
specified in clause (A) (i) of this sentence and the Base Prospectus, necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. This indemnity agreement will be in
addition to any liability which the Purchaser may have pursuant to Agreement.

(c) In case any action or proceeding (including any governmental or
regulatory investigation or proceeding) shall be instituted involving any
person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (hereinafter called the "indemnified
party") shall promptly notify the person against whom such indemnity may be
sought (hereinafter called the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall assume the
defense thereof, including the employment of counsel reasonably satisfactory to
the indemnified party to represent the indemnified party and any others the
indemnifying party may designate and shall pay the fees and disbursements of
such counsel related to such proceeding. In any such action or proceeding, any
indemnified party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such indemnified party
unless (1) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (2) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be

10
<PAGE> 14
liable for the reasonable fees and expenses of more than one separate firm (in
addition to any local counsel) for any indemnified party and each person, if
any, who controls such indemnified party within the meaning of either Section
15 of the Act or Section 20 of the Exchange Act, and it is also understood that
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for any indemnified party and any director, officer and control
person of the indemnified party, such firm shall be designated in writing by
such indemnified party. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity
could have been sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such proceeding.

(d) If the indemnification provided for in this Section 5.3 is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to therein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the indemnified party on the one hand
and the indemnifying party on the other from the sale of the Loans or (ii) if
the allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the indemnified
party on the one hand and the indemnifying party on the other in connection
with the statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. For purposes of the foregoing, the benefit received by the
Seller from the sale of the Loans shall be deemed to equal the amount of the
gross proceeds received by the Seller from such sale, and the benefit received
by the Purchaser for such sale shall be deemed to equal the Formula Amount (as
defined below). The relative fault of the Purchaser on the one hand and the
Seller on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Purchaser or by the Seller and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.

11
<PAGE> 15
The Seller and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 5.3(d) were determined by
pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 5.3(d), in no
event shall the Purchaser be required to contribute any amount in excess of the
amount by which (I) the sum of (A) the product of (a) the aggregate Cut-off
Date Principal Balance of the Loans and (b) the excess of (i) 100% over (ii)
the weighted average Purchase Price (as such term is defined in Section 4 of
the Master Loan Purchase and Servicing Agreement, dated as of April 1, 1995
(the "MLPSA"), by and between GCFP, as Initial Purchaser, and the Seller, as
Seller and Servicer) with respect to the Loans purchased pursuant to the MLPSA
on or prior to ______________ ___, 1996, weighted on the basis of the unpaid
principal balances thereof at the respective dates of purchase (the "Formula
Amount") and (B) $_______ (__% of the Cut-off Date Principal Balance of Loans
not previously owned by Greenwich Capital Financial Products, Inc.) exceeds
(II) the amount of any damages which the Purchaser has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.

ARTICLE VI.
TERMINATION

Section VI.1 Termination. The respective obligations
and responsibilities of the Seller and the Purchaser created hereby shall
terminate, except for the Seller's and Purchaser's indemnity obligations as
provided herein, upon the termination of the Trust as provided in Article IX of
the Pooling and Servicing Agreement.

ARTICLE VII.
MISCELLANEOUS PROVISIONS

Section VII.1 Amendment. This Purchase Agreement may be
amended from time to time by the Seller and the Purchaser, with the consent of
the Certificate Insurer, by written agreement

12
<PAGE> 16
signed by the Seller and the Purchaser.

(a) if to the Seller:

Prior to September 15, 1996
Mego Mortgage Corporation
210 Interstate North Pkwy.
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President

After September 15, 1996
Mego Mortgage Corporation
1000 Park Wood Circle
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President

or, such other address as may hereafter be furnished to the Purchaser in
writing by the Seller.

(b) if to FASCO

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes

or such other address as may hereafter be furnished to the Seller in writing by
the Purchaser.

Section VII.5 Counterparts. This Purchase Agreement may
be executed in one or more counterparts and by the different

13
<PAGE> 17
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed to be an original and such counterparts, together, shall constitute
one and the same agreement.

Section VII.7 Intention of the Parties. It is the
intention of the parties that the Purchaser is purchasing, and the Seller is
selling, the Loans rather than pledging the Loans to secure a loan by the
Purchaser to the Seller. Accordingly, the parties hereto each intend to treat
the transaction for federal income tax purposes and all other purposes as a
sale by the Seller, and a purchase by the Purchaser, of the Loans. The
Purchaser will have the right to review the Loans and the related Files to
determine the characteristics of the Loans which will affect the federal income
tax consequences of owning the Loans and the Seller will cooperate with all
reasonable requests made by the Purchaser in the course of such review.

14
<PAGE> 18
is acquiring the Loans for the purpose of contributing them to the Trust that
will issue the Certificates representing undivided interests in such Loans. As
an inducement to FASCO to purchase the Loans, the Seller acknowledges and
consents to the assignment by FASCO to the Trustee of all of FASCO's rights
against the Seller pursuant to this Purchase Agreement and to the enforcement
or exercise of any right or remedy against the Seller pursuant to this Purchase
Agreement by the Trustee under the Pooling and Servicing Agreement. Such
enforcement of a right or remedy by the Trustee shall have the same force and
effect as if the right or remedy had been enforced or exercised by FASCO
directly.

Section VII.9 Survival. The representations and
warranties set forth in Article III and the provisions of Article V shall
survive the purchase of the Loans hereunder.

15
<PAGE> 19
IN WITNESS WHEREOF, the Seller and the Purchaser have caused
this Loan Purchase Agreement to be duly executed on their behalf by
their respective officers thereunto duly authorized as of the day and
year first above written.

FINANCIAL ASSET SECURITIES CORP.,
as Purchaser

By:
----------------------------
Name: Kari Skilbred
Title: Vice President

MEGO MORTGAGE CORPORATION,
as Seller

By:
----------------------------
Name: James L. Belter
Title: Executive Vice President

<PAGE> 20

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

On the 15th day of August, 1996 before me, a Notary Public in and for
said State, personally appeared Kari Skilbred, known to me to be a Vice
President of FINANCIAL ASSET SECURITIES CORP., the corporation that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.

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

-------------------------------
Notary Public

<PAGE> 21

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

On the 15th day of August, 1996 before me, a Notary Public in and for
said State, personally appeared James L. Belter, known to me to be an Executive
Vice President of MEGO MORTGAGE CORPORATION, the company that executed the
within instrument, and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.

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

-------------------------------
Notary Public

<PAGE> 22

SCHEDULE I

Loan Schedule

See Exhibit B to Pooling and Servicing Agreement

<PAGE> 1

EXHIBIT 10.18

EXECUTION COPY

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

________________________________

FINANCIAL ASSET SECURITIES CORP.
as Depositor,

MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims Administrator,

NORWEST BANK MINNESOTA, N.A.,
as Master Servicer

AND

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
as Trustee and Contract of Insurance Holder

POOLING AND SERVICING AGREEMENT
(FHA Title I Home Improvement Loans)

Dated as of August 1, 1996

_________________________

FHA Title I Loan Asset-Backed Certificates,
Series 1996-2
(Issuable in Classes)

_________________________

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TABLE OF CONTENTS

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ARTICLE I

Definitions

Section 1.01. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Rules of Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 1.03. Interest Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

ARTICLE II

Transfer and Assignment of Loans;
Issuance of Certificates
Section 2.01. Transfer and Assignment of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 2.02. Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 2.03. Representations and Warranties of Mego. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.04. Defective Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 2.05. Representations and Warranties of the Depositor . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 2.06. Execution, Countersignature and Delivery of Certificates . . . . . . . . . . . . . . . . . . . 52

ARTICLE III

Administration and Servicing of Loans;
Claims Administration

Section 3.01. Servicing Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 3.02. Servicing Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.03. Servicing Record . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 3.04. Annual Statement as to Compliance; Notice of Master Servicer
Termination Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 3.05. Annual Independent Accountants' Report; Servicer Review Report . . . . . . . . . . . . . . . . 60
Section 3.06. Access to Certain Documentation and Information Regarding Loans . . . . . . . . . . . . . . . . 61
Section 3.07. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 3.08. Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 3.09. Reimbursement of Interest Advances and Foreclosure Advances . . . . . . . . . . . . . . . . . . 63
Section 3.10. Modifications, Waivers, Amendments and Consents . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 3.11. Due-On-Sale; Due-on-Encumbrance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 3.12. Claim for FHA Insurance and Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 3.13. Sale of Foreclosed Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 3.14. Management of Real Estate Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 3.15. Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 3.16. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
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Section 3.17. Release of Files . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 3.18. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 3.19. Filing of Continuation Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 3.20. Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Section 3.21. Errors and Omissions Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

ARTICLE IV

Distributions to Certificateholders

Section 4.01. General Provisions Relating to Distributions to
Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 4.02. Distributions to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 4.03. Collection Account and FHA Premium Account and the Reserve Fund . . . . . . . . . . . . . . . . 78
Section 4.04. Distribution Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 4.05. Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 4.06. FHA Premium Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 4.07. General Provisions Regarding the Accounts; Eligible Accounts . . . . . . . . . . . . . . . . . 83
Section 4.08. Statements to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 4.09. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
Section 4.10. Claims Under Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

ARTICLE V

The Certificates

Section 5.01. The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Section 5.02. Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . 87
Section 5.03. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . 90
Section 5.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 5.05. Trustee to Make Payments From Trust Only . . . . . . . . . . . . . . . . . . . . . . . . . . . 91

ARTICLE VI

The Master Servicer

Section 6.01. Liability of the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 6.02. Merger or Consolidation of, or Assumption of, the Master Servicer . . . . . . . . . . . . . . . 92
Section 6.03. Limitation on Liability of the Master Servicer and Others . . . . . . . . . . . . . . . . . . . 93
Section 6.04. Master Servicer Not to Resign; Expenses; Assignment . . . . . . . . . . . . . . . . . . . . . . 94
Section 6.05. Master Servicer May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 6.06. Representations and Warranties of the Master Servicer . . . . . . . . . . . . . . . . . . . . . 95
Section 6.07. General Covenants of the Master Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

ARTICLE VII
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Master Servicer Termination Events

Section 7.01. Master Servicer Termination Events; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Section 7.02. Consequences of a Master Servicer Termination Event . . . . . . . . . . . . . . . . . . . . . . 100
Section 7.03. Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Section 7.04. Notification to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
Section 7.05. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

ARTICLE VIII

Concerning the Trustee

Section 8.01. Duties of the Trustee and Contract of Insurance Holder . . . . . . . . . . . . . . . . . . . . 103
Section 8.02. Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 8.03. Trustee Not Liable for Certificates or Loans . . . . . . . . . . . . . . . . . . . . . . . . . 106
Section 8.04. Trustee May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 8.05. Trustee's Fees and Expenses;
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 8.06. Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 8.07. Resignation and Removal of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 8.08. Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 8.09. Merger or Consolidation of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 8.10. Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 8.11. Appointment of Custodians . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Section 8.12. Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Section 8.13. Representations and Warranties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . 115
Section 8.14. Streit Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 8.15. Rights to Direct Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
Section 8.16. Reports to the Securities and Exchange Commission . . . . . . . . . . . . . . . . . . . . . . . 118

ARTICLE IX

Termination

Section 9.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

ARTICLE X

Miscellaneous Provisions

Section 10.01. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
Section 10.02. Recordation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Section 10.03. Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Section 10.04. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Section 10.05. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
Section 10.06. Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
Section 10.07. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
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Section 10.08. Access to List of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Section 10.09. Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Section 10.10. The Certificate Insurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Section 10.11. Consent to Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128
Section 10.12. Trial by Jury Waived . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

ARTICLE XI

Class R Certificate Transfer Restrictions

Section 11.01. Restrictions on Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

ARTICLE XII

Concerning the Contract of Insurance Holder
Section 12.01. Compliance with Title I and Filing of FHA Claims . . . . . . . . . . . . . . . . . . . . . . . . 131
Section 12.02. Regarding the Contract of Insurance Holder . . . . . . . . . . . . . . . . . . . . . . . . . . . 133

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POOLING AND SERVICING AGREEMENT, dated as of August 1, 1996, among MEGO
MORTGAGE CORPORATION ("Mego", the "Seller", the "Servicer" and the "Claims
Administrator", as applicable), FINANCIAL ASSET SECURITIES CORP., as Depositor
(the "Depositor"), FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, as Trustee and
Contract of Insurance Holder (in each respective capacity, the "Trustee" and the
"Contract of Insurance Holder") and NORWEST BANK MINNESOTA, N.A., as Master
Servicer (the "Master Servicer").

W I T N E S S E T H:

ARTICLE I

Definitions

Section I.01. Defined Terms .01. Defined Terms". Whenever used
in this Agreement, the following words and phrases, unless the context otherwise
requires, shall have the meanings specified in this Article.

Accountant's Report. As defined in Section 3.05(a).

Accounts. The Distribution Account, the FHA Premium Account
and the Collection Account.

Aggregate Principal Balance. With respect to any date of
determination, the sum of the Principal Balances for all Loans.

Aggregate Senior Interest Distribution. With respect to any
Distribution Date, the aggregate of the Class Interest
Distributions for each Class of Outstanding Senior Certificates.

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

Anticipated Termination Date. The Distribution Date next
following the Monthly Cut-Off Date specified in a Notice of Termination
delivered to the Trustee pursuant to Section 9.01(d), or the Distribution Date
specified in a Notice of Termination delivered to the Trustee by the Master
Servicer pursuant to Section 9.01(e), as the case may be.

Calendar Month. The period from and including the first day of
a calendar month to and including the last day of such calendar month.

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Certificate. Any one of the FHA Title I Loan Asset-Backed
Certificates, Series 1996-2 executed by the Trustee on behalf of
the Trust and countersigned by the Trustee.

Certificate Insurer. MBIA Insurance Corporation, a stock
insurance company organized and created under the laws of the State
of New York, and any successors thereto.

Certificate Insurer Default. The existence and continuance of
any of the following:

(a) the Certificate Insurer fails to
make a payment required under the Policy in accordance
with its terms; or

(b) (i) the entry by a court having jurisdiction in
the premises of (A) a decree or order for relief in respect of
the Certificate Insurer in an involuntary case or proceeding
under any applicable United States federal or state
bankruptcy, insolvency, rehabilitation, reorganization or
other similar law or (B) a decree or order adjudging the
Certificate Insurer a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization,
rehabilitation, arrangement, adjustment or composition of or
in respect of the Certificate Insurer under any applicable
United States federal or state law, or appointing a custodian,
receiver, liquidator, rehabilitator, assignee, trustee,
sequestrator or other similar official of the Certificate
Insurer or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and the
continuance of any such decree or order for relief or any such
other decree or order unstayed and in effect for a period of
60 consecutive days; or

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answer or consent seeking reorganization or relief under any
applicable United States federal or state law, or the consent
by the Certificate Insurer to the filing of such petition or
to the appointment of or the taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
similar official of the Certificate Insurer or of any
substantial part of its property, or the making by the
Certificate Insurer of an assignment for the benefit of its
creditors, or the failure by the Certificate Insurer to pay
debts generally as they become due, or the admission by the
Certificate Insurer in writing of its inability to pay its
debts generally as they become due, or the taking of corporate
action by the Certificate Insurer in furtherance of any such
action.

Certificate Owner. With respect to any Class A Certificate
held in book-entry form, the Person who is the beneficial owner of such
Certificate, as reflected on the books of the Clearing Agency (directly as a
Depository Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).

Certificate Rate. As to each Class of Senior Certificates, the
per annum rate set forth as follows: Class A: 7.275% and Class S: 1.00%;
provided, however, with respect to any Distribution Date after the first
Distribution Date and the Class A Certificates, if the Maximum Rate for such
Distribution Date is less than the rate designated to the Class A Certificates
in the immediately preceding clause, the Certificate Rate for such Distribution
Date shall be the Maximum Rate.

Certificate Register and Certificate Registrar. The register
established, and the registrar appointed, pursuant to Section 5.02.

Certificateholder or Holder. The Person in whose name a
Certificate of any Class is registered in the Certificate Register.

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

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Relief Act.

Claims Administrator. Mego Mortgage Corporation, a corporation
organized under the laws of the State of Delaware, and its successors and
assigns.

Class. With respect to each of the Class A, Class S and Class
R, all of the Certificates of such Class.

Class A Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-1 and designated as a Class A Certificate pursuant
to Section 5.01.

Class A Certificate Balance. With respect to the Class A
Certificates as of any date of determination, the Initial Class A Certificate
Balance reduced by all Class A Principal Distributions previously distributed.

Class A Guaranteed Principal Distribution Amount. With respect
to any Distribution Date, the positive excess, if any, of (i) the Class A
Certificate Balance as of such Distribution Date (taking into account
distributions on such Distribution Date pursuant to clauses (viii) and (x) of
Section 4.05(a)) over (ii) the Aggregate Principal Balance as of the end of the
related Due Period; provided, that on the Final Scheduled Distribution Date, the
Class A Guaranteed Principal Distribution Amount shall equal the amount referred
to in clause (i) of this definition for such Distribution Date.

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provided, however, that the Class A Principal Distribution shall not exceed the
Class A Certificate Balance. The "Class A Principal Distribution" on the Final
Scheduled Distribution Date will equal the Class A Certificate Balance as of
such Distribution Date.

Class Monthly Interest Amount. With respect to any
Distribution Date and each Class of Senior Certificates, 30 days of interest at
the applicable Certificate Rate for such Class, on, with respect to the Class A
Certificates, the related Class A Certificate Balance as of the close of
business on the immediately preceding calendar month, or, with respect to the
Class S Certificates, the Class S Notional Amount for such Distribution Date, in
each case reduced by an amount equal to such Class' pro rata share (based on the
amount of interest to which such Class would have otherwise been entitled) of
the sum of (i) the Civil Relief Act Interest Shortfall and (ii) the Net
Prepayment Interest Shortfall, if any, for such Distribution Date.

Class R Certificate. Any Certificate substantially in the form
attached hereto as Exhibit D and designated as a Class R Certificate pursuant to
Section 5.01.

Class S Certificate. Any Certificate substantially in the form
attached hereto as Exhibit C-2 and designated as Class S pursuant to Section
5.01.

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Class S Notional Amount. As to any Distribution Date and the
Class S Certificates, the Aggregate Principal Balance as of the opening of
business on the first day of the calendar month preceding the calendar month of
such Distribution Date (i.e., if the Distribution Date is June 25, the first day
of the calendar month preceding the calendar month of such Distribution Date is
May 1), or in the case of the first Distribution Date, the Cut-Off Date
Aggregate Loan Balance.

Clearing Agency. An organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.

Closing Date. August 15, 1996.

Code. The Internal Revenue Code of 1986, as it may be amended
from time to time, and any successor statutes thereto.

Collection Account. The account or accounts denominated as a
Collection Account and maintained or caused to be maintained by the
Trustee as described in Section 4.03.

Contract of Insurance. The contract of insurance under Title I
covering the Loans held under the name First Trust of New York, National
Association, or any successor thereto, as Contract

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of Insurance Holder hereunder.

Contract of Insurance Holder. First Trust of New York,
National Association, its successors in interest, and any successor thereto
pursuant to the terms of this Agreement.

Credit File. With respect to any Loan, all of the related
documents listed in Section 2.01(b)(A)(vi) and any additional documents required
to be added thereto pursuant to this Agreement.

Custodial Agreement. Any agreement entered into between the
Trustee and a Custodian pursuant to Section 8.11.

Cut-Off Date. With respect to any Loan, either the opening of
business on August 1, 1996 or, if such Loan is originated on or
after August 1, 1996, such Loan's origination date.

Cut-Off Date Aggregate Principal Balance.
$48,781,405.44.

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Defective Loan. A Loan required to be purchased or repurchased
pursuant to Section 2.04.

Denomination. With respect to the Class A Certificates, the
portion of the Initial Class A Certificate Balance represented by
such Certificate as specified on the face thereof.

Depository Agreement. The agreement entered among the
Depositor, the Trustee, and the Depository, in connection with the issuance of
the Class A Certificates, substantially in the form of Exhibit M.

Determination Date. With respect to any Distribution Date, the
fifth Business Day preceding such Distribution Date.

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provided, however, that the Trustee (or the Master Servicer on behalf of the
Trustee) shall not be considered to Directly Operate a Foreclosed Property
solely because the Trustee (or the Master Servicer on behalf of the Trustee)
establishes rental terms, chooses tenants, enters into or renews leases, deals
with taxes and insurance, or makes decisions as to repairs or capital
expenditures with respect to such Foreclosed Property.

Distribution Account. The account established and maintained
by the Trustee pursuant to Section 4.04.

Due Date. With respect to any Monthly Payment, the date on
which such Monthly Payment is required to be paid pursuant to the related Note.

Due Period. With respect to any Determination Date or
Distribution Date, the calendar month immediately preceding such Determination
Date or Distribution Date, as the case may be.

Early Termination Notice Date. Any date on which the Aggregate
Principal Balance is less than 10% of the sum of the Cut-Off Date Aggregate
Principal Balance.

Eligible Account. (i) A segregated trust account that is
maintained with the corporate trust department of a depository institution
acceptable to the Certificate Insurer (so long as a Certificate Insurer Default
shall not have occurred and be continuing), or (ii) a segregated direct deposit
account maintained with a depository institution or trust company organized
under the laws of the United States of America, or any of the States thereof, or
the District of Columbia, having a certificate of deposit, short term deposit or
commercial paper rating of at least A-1+ by Standard & Poor's and P-1 by Moody's

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and (so long as a Certificate Insurer Default shall not have occurred and be
continuing) acceptable to the Certificate Insurer.

Eligible Investments. Any one or more of the following types
of investments:

1. U.S. Export-Import Bank (Eximbank)
A. Direct obligations or
fully guaranteed certificates of beneficial
ownership

2. Farmers Home Administration (FmHA)
A. Certificates of beneficial
ownership

3. Federal Financing Bank

4. FHA Debentures (FHA)

5. General Services Administration
A. Participation certificates

6. U.S. Maritime Administration
A. Guaranteed Title XI
financing

7. HUD
A. Project Notes
B. Local Authority Bonds
C. New Communities Debentures
- U.S. government guaranteed debentures
D. U.S. Public Housing Notes
and Bonds - U.S. government guaranteed
public housing notes and bonds

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(c) Bonds, debentures, notes or other evidence of indebtedness
issued or guaranteed by any of the following non-full faith and credit U.S.
government agencies that are rated by both Rating Agencies in one of the top two
long-term rating categories (stripped securities are only permitted if they have
been stripped by the agency itself):

1. Federal Home Loan Bank System
A. Senior debt obligations

2. FHLMC
A. Participation Certificates
B. Senior debt obligations

3. FNMA
A. Mortgage-backed securities
and senior debt obligations

4. Student Loan Marketing Association
A. Senior debt obligations

5. Resolution Funding Corp. obligations

6. Farm Credit System
A. Consolidated systemwide bonds and notes

(e) Certificates of deposit secured at all times by collateral
described in (a) and/or (b) above. Such certificates must be issued by
commercial banks, savings and loan associations or mutual savings banks which
have a short term rating by Moody's of P-1.
The collateral must be held by a third party and the Certificateholders must
have a perfected first security interest in the collateral.

(f) Certificates of deposit, savings accounts, deposit
accounts or money market deposits which are fully insured by FDIC, including BIF
and SAIF.

(g) Investment agreements, including guaranteed investment
contracts, acceptable to the Certificate Insurer and each Rating Agency.

(h) Commercial paper rated "Prime - 1" by Moody's and "A-1" or
better by Standard & Poor's.

(i) Bonds or notes issued by any state or municipality

12
<PAGE> 18

which are rated by Moody's and Standard & Poor's in one of the two highest
rating long term categories assigned by such agencies.

(j) Federal funds or bankers acceptances with a maximum term
of one year of any bank which has an unsecured, uninsured and unguaranteed
obligation rating of "Prime - 1" by Moody's and "A-1" or "A" or better by S&P.

(k) Repurchase agreements provide for the transfer of
securities from a dealer bank or securities firm (seller/borrower) to the Trust
(buyer/lender), and the transfer of cash from the Trust to the dealer bank or
securities firm with an agreement that the dealer bank or securities firm will
repay the cash plus a yield to the Trust in exchange for the securities at a
specified date.

Repurchase agreements ("repos") must satisfy the following
criteria or be approved by the Certificate Insurer.

1. Repos must be between the Trust and
a dealer bank or securities firm

A. Primary dealers on the
Federal Reserve reporting dealer list which
are rated A or better by Standard & Poor's
and P-1 by Moody's, or

B. Banks rated "A" or above
by Standard & Poor's and P-1 by Moody's.

2. The written repo contract trust must
include the following:

A. Securities which are
acceptable for transfer are:

(1) Direct U.S.
governments, or

(2) Federal agencies
backed by the full faith and credit
of the U.S. government (or FNMA or
FHLMC) other than mortgage backed
securities.

B. The term of the repo may
be up to 30 days

C. The collateral must be
delivered to the Trustee or third party
acting as agent for the Trustee
before/simultaneous with payment (perfection
by possession of certificated securities).

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<PAGE> 19

D. Valuation of Collateral

(1) The securities
must be valued weekly,
marked-to-market at current market
price plus accrued interest.

(a) The value of
collateral must be equal to 104% of
the amount of cash transferred by
the Trust to the dealer bank or
security firm under the repo plus
accrued interest. If the value of
securities held as collateral slips
below 104% of the value of the cash
transferred by municipality, then
additional cash and/or acceptable
securities must be transferred. If,
however, the securities used as
collateral are FNMA or FHLMC, then
the value of collateral must equal
105%.

3. Legal opinion which must be delivered to the Trustee:

a. Repo meets guidelines under state law for
legal investment of public funds.

Eligible Servicer. A Person that (i) is servicing a portfolio
of Title I mortgage loans, (ii) is legally qualified to service, and is capable
of servicing, the Loans and has all licenses required to service Title I
mortgage loans, (iii) has demonstrated the ability professionally and
competently to service a portfolio of FHA insured mortgage loans similar to the
Loans with reasonable skill and care, (iv) has a net worth calculated in
accordance with generally accepted accounting principles of at least $500,000
and (v) if other than Mego, is acceptable to the Certificate Insurer.

Excess Claim Amount. With respect to any Distribution Date, an
amount equal to (A) 90% of the excess of (x) claims paid under the Contract of
Insurance in respect of the Loans over (y) the Trust Designated Insurance Amount
less (B) the amount deposited to the Reserve Fund on previous Distribution
Dates.

Excess Spread. With respect to any Distribution Date, the
positive excess, if any, of (x) the Distribution Amount with respect to such
Distribution Date over (y) the amount required to be distributed pursuant to
priorities (i) through (ix) of Section 4.05(a) on such Distribution Date.

Exemption. An individual Prohibited Transactions Exemption
granted to an underwriter by the Department of Labor

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<PAGE> 20

which provides relief from certain of the prohibited transaction provisions of
ERISA with respect to the purchase, holding, and subsequent resale by an ERISA
Plan of certificates in pass-through trusts that meet the conditions and the
requirements of such exemption.

FDIC. The Federal Deposit Insurance Corporation and any
successor thereto.

FHA. The Federal Housing Administration and any successor
thereto.

FHA Insurance. Insurance issued by FHA pursuant to Title I of
the National Housing Act of 1934, as amended.

FHA Insurance Coverage Reserve Account. The account
established by the FHA pursuant to the Contract of Insurance which is adjusted
and maintained under Title I (see 24 C.F.R. 201.32(a)).

FHA Pending Claims. As defined in Section 9.01(d).

FHA Premium Account. The Eligible Account established and
maintained by the Trustee pursuant to Section 4.06(a).

FHA Premium Account Deposit. With respect to any Distribution
Date an amount equal to the greater of (i) 1/12 times .75% times the aggregate
Principal Balance of all Loans other than Invoiced Loans as of the first day of
the calendar month preceding the month of such Distribution Date (or the
aggregate Principal Balance of such Loans as of the applicable Cut-Off Date with
respect to the first Distribution Date) and (ii) the positive

15
<PAGE> 21

excess, if any, of (A) the projected amount of premium and other charges due
under the Contract of Insurance for the next succeeding Due Period and (B) the
balance in the FHA Premium Account as of the related Determination Date.

FHA Reserve Amount. As to each Loan, 10% of the Initial
Principal Balance thereof.

File. With respect to any Loan, the related documents listed
in Section 2.01(b)(A) and any additional documents required to be added thereto
pursuant to this Agreement.

Final Date. The later of:

(i) two years after the last insurance claim
with respect to a Loan filed with the FHA was certified for
payment by FHA, or

(ii) the final settlement date with
respect to any insurance claim for a Loan rejected by the FHA.

Final Residual Distribution Amount. With respect to the
Distribution Date which coincides with the Termination Date, all amounts, if
any, remaining in the Distribution Account and the FHA Premium Account and all
other assets, if any, held by the Trust after all payments required to be made
pursuant to Section 4.05(a)(i) through (xv) have been made or provided for on
such Distribution Date.

Final Scheduled Distribution Date. The Distribution Date in
August, 2017.

FHLMC. The Federal Home Loan Mortgage Corporation.

FNMA. The Federal National Mortgage Association.

Foreclosed Property. Any Property acquired by the Trust as a
result of:

(i) the completion of foreclosure or
comparable proceedings with respect to the related Loan;

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<PAGE> 22

(ii) the Trustee's acceptance of the deed or other
evidence of title to the related Property in lieu of foreclosure or
other proceeding with respect to the related Loan; or

(iii) the acquisition by the Trustee of title thereto by
operation of law.

Foreclosure Advances. As defined in Section 3.08(b).

GNMA. The Government National Mortgage Association.

HUD. The United States Department of Housing and Urban
Development and any successor thereto.

Indemnification Agreement. The Indemnification Agreement dated
August 15, 1996, among the Certificate Insurer, the Underwriter and Mego, as the
same may be amended from time to time.

Independent. When used with respect to any specified Person,
such Person (i) is in fact independent of Mego, the Master Servicer, the
Depositor or any of their respective affiliates, (ii) does not have any direct
financial interest in or any material indirect financial interest in any of
Mego, the Master Servicer, the Depositor or any of their respective affiliates
and (iii) is not connected with any of Mego, the Master Servicer, the Depositor
or any of their respective affiliates, as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of Mego, the
Master Servicer, the Depositor or any of their respective affiliates merely
because such Person is the beneficial owner of 1% or less of any class of
securities issued by Mego, the Master Servicer, the Depositor or any of their
respective affiliates, as the case may be.

Independent Accountants. A firm of nationally recognized
certified public accountants which is Independent.

Independent Contractor. Either (i) any Person (other than the
Master Servicer) that would be an "independent contractor" with respect to the
Trust within the meaning of Section 856(d)(3) of the Code if the Trust were a
real estate investment trust except that the ownership tests set forth in that
section shall be considered to be met by any Person that owns, directly or
indirectly, 35 percent or more of any Class of Certificates), provided that the
Trust does not receive or derive any income from such Person and the
relationship between such Person and the Trust is at arm's length, all within
the meaning of Treasury Regulation section 1.856-4(b)(5) or (ii) any other
Person

17
<PAGE> 23

(including the Master Servicer) if the Master Servicer has delivered to the
Trustee an Opinion of Counsel to the effect that the taking of any action in
respect of any Foreclosed Property by such Person, subject to any conditions
therein specified, that is otherwise herein contemplated to be taken by an
Independent Contractor will not cause such Foreclosed Property to cease to
qualify as "foreclosure property" within the meaning of Section 860G(a)(8) of
the Code (determined without regard to the exception applicable for purposes of
Section 860D(a) of the Code), or cause any income realized in respect of such
Foreclosed Property to fail to qualify as rents from real property within the
meaning of Section 856(d) of the Code.

Initial Class A Certificate Balance. $48,537,000.

Initial Principal Balance. With respect to any Loan, the
outstanding principal balance thereof at the opening of business on the Cut-Off
Date for such Loan, after giving effect to all payments of principal received
prior thereto.

Insurance Agreement. The Insurance Agreement, dated as of
August 1, 1996, as supplemented and amended from time to time among the
Certificate Insurer, the Trustee, the Contract of Insurance Holder, the
Depositor, the Master Servicer, the Servicer, the Seller and Claims
Administrator.

Insurance Policies. With respect to any Property, any related
title or other insurance policy other than the Contract of
Insurance or the Policy.

Insured Payment. As defined in the Policy.

Interest Advance. As defined in Section 3.08(a).

Interested Person. As of any date of determination,

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<PAGE> 24

the Master Servicer, the Depositor, Mego, or any registered Holder of a Class R
Certificate on the date of determination, or any of their respective affiliates.

Invoiced Loan. A Loan with respect to which the related
Obligor is required to pay the premium on FHA Insurance with respect to such
Loan.

Legal File. With respect to any Loan, the related documents
listed in Section 2.01(b)(A)(i)-(v) and any additional documents required to be
added thereto pursuant to this Agreement.

Loan. As of any date of determination, each of the mortgage
loans transferred and assigned to the Trustee pursuant to Section
2.01(a) or in accordance with Section 2.04(c).

Loan Schedule. The schedule of Loans included in the Trust as
of the Closing Date, specifying with respect to each such Loan the information
set forth on Exhibit B attached hereto.

Master Servicer. Norwest Bank Minnesota, N.A., a national
banking association, its successors in interest or any successor
master servicer appointed as herein provided.

Master Servicer Certificate. As defined in Section 4.01(c).

Master Servicer Fee. With respect to any Distribution Date,
1/12 times 0.08% times the Aggregate Principal Balance as of the opening of
business on the first day of the month preceding the month of such Distribution
Date (or, with respect to the first

19
<PAGE> 25

Distribution Date, the Cut-Off Date Aggregate Principal Balance).

Master Servicer Termination Event. Any event specified in
Section 7.01.

Maturity Date. With respect to any Loan and as of any date of
determination, the date on which the last payment of principal is
due and payable under the related Note.

Maximum Rate. With respect to any Distribution Date a rate
equal to the quotient of (a) the excess of (i) the aggregate of the Monthly
Payments allocable to interest due during the related Due Period net of the
portion thereof allocable to Master Servicer Fees and Servicer Fees over (ii)
the sum of the amounts required to be distributed for such Distribution Date
pursuant to subsections (i), (iv)-(vi) of Section 4.05(a) and (b) one-twelfth of
the Class A Certificate Balance (prior to giving effect to distributions made on
such Distribution Date).

Monthly Cut-Off Date. The last day of any calendar month, and
with respect to any Distribution Date, the last day of the calendar
month immediately preceding such Distribution Date.

Moody's. Moody's Investors Service, Inc., or any successor
thereto.

Mortgagee. With respect to any Loan as of any date of
determination, the holder of the related Note and Mortgage as of
such date.

Mortgagor or Obligor. With respect to any Loan, the obligor(s)
on the related Note.

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<PAGE> 26

Net Loan Rate. With respect to each Loan, the related Loan
Rate less the applicable Servicer Fee per annum.

Note. With respect to any Loan, the note (or notes), retail
installment sale contract or other instrument evidencing the
indebtedness under such Loan.

Notice of Termination. Notice given to the Trustee by the
Master Servicer pursuant to Section 9.01(e), or by Mego pursuant to Section
9.01(d).

Obligee. A Mortgagee.

Obligor. A Mortgagor.

OC Floor. The product of 1% and the Cut-Off Date Aggregate
Principal Balance, which product is equal to $487,814.05.

OC Multiple. As to any Distribution Date, the highest OC
Multiple based upon the data set forth in the Master Servicer's Certificate for
such Distribution Date as set forth in the following chart:

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<PAGE> 27

<TABLE>
<CAPTION>
================================================================================================================
Annual Default
30+ Day 60+ Day %
Delinquency Delinquency (3 Month
OC Percentage Percentage Average)
(Rolling 3 (Rolling 3
Multiple Month) Month)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.00 0.00% to 7.99% 0.00% to 3.49% 0.00% to 4.99%
- ----------------------------------------------------------------------------------------------------------------
1.25 8.00% to 8.99% 3.50% to 4.99% 5.00% to 5.99%
- ----------------------------------------------------------------------------------------------------------------
1.50 9.00% to 11.99% 5.00% to 6.99% 6.00% to 6.99%
- ----------------------------------------------------------------------------------------------------------------
2.50 >=12.00% >=7.00% >=7.00%
- ----------------------------------------------------------------------------------------------------------------
Cumulative
Default
Percentage
- ----------------------------------------------------------------------------------------------------------------
Months* Months 0 Months -
0-12 0-24 Maturity
- ----------------------------------------------------------------------------------------------------------------
2.50 >5.0% >8.0% >12.0%
================================================================================================================
</TABLE>

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

* Month 0 is August, 1996.

OC Reduction Date. shall be the later of (i) the Distribution
Date occurring in August, 1999 and (ii) the Distribution Date on which the
Aggregate Principal Balance for such Distribution Date is equal to or less than
one-half of the aggregate of the Initial Principal Balances of all Loans.

Other Fees. With respect to any Distribution Date, (i) amounts
in respect of fees and expenses due to any provider of services to the Trust,
except the Trustee, the Master Servicer, the Servicer, the Claims Administrator,
the Contract of Insurance Holder and also except any Person, the fees of which
are required by this Agreement to be paid by the Master Servicer, the Servicer,

22
<PAGE> 28

the Claims Administrator, the Contract of Insurance Holder or the Trustee, but
including such amounts payable to the successor Master Servicer pursuant to
Section 7.03(c); (ii) any taxes assessed against the Trust; (iii) the reasonable
transition expenses of a successor Master Servicer incurred in acting as
successor Master Servicer; and (iv) expenses of either the Trustee or the Master
Servicer incurred pursuant to Section 8.01(e).

(i) Certificates theretofore cancelled by the
Certificate Registrar or delivered to the Certificate
Registrar for cancellation;

(ii) Certificates or portions thereof for which the
amount of the final distribution to be made thereon has been previously
deposited with the Trustee in trust for the Holders of such
Certificates;

(iii) Certificates in exchange for or in
lieu of which other Certificates have been executed,
countersigned and delivered pursuant to this Agreement; and

(iv) Certificates alleged to have been
destroyed, lost or stolen for which replacement Certificates
have been issued as provided for in Section 5.03;

Overcollateralization Amount. As of any Distribution Date the
amount, if any, by which the sum of the Aggregate Principal Balance as of the
end of the related Due Period exceeds

23
<PAGE> 29

the Class A Certificate Balance after giving effect to distributions of
principal to be made on such Distribution Date.

Ownership Interest. Any record or beneficial ownership
interest in any Class R Certificate.

(i) the related Obligor;

(ii) the application to amounts due on such Loan (or, in
the case of any Foreclosed Property, to amounts previously due on the
related Foreclosed Loan) of any related Insurance Proceeds, any related
condemnation awards or settlements or any payments made by any related
guarantor or third-party credit-support provider;

(iii) FHA Insurance Payment Amounts with respect to such
Loan;

(iv) the operation or sale of the related Foreclosed
Property;

(v) the Purchase Price with respect to such Loan; or

(vi) amounts deposited into the Distribution Account
pursuant to Section 9.01(d).

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<PAGE> 30

board of directors is not selected by any such governmental unit), (iii) an
organization (except certain farmers' cooperatives described in Code Section
521) exempt from tax imposed by Chapter 1 of the Code (including the tax imposed
by Section 511 of the Code on unrelated business taxable income) on any excess
inclusions (as defined in Code Section 860E(c)(1)) with respect to any Class R
Certificate, (iv) rural electric and telephone cooperatives described in Code
Section 1381(a)(2)(c), (v) any other Person so designated by the Trustee based
upon an Opinion of Counsel that the holding of an ownership interest in a Class
R Certificate by such Person may cause the Trust or any Person having an
ownership interest in any Class R Certificate, other than such Person, to incur
a liability for any tax imposed under the Code that would not otherwise be
imposed but for the transfer of an ownership interest in a Class R Certificate
to such Person and (vi) a Person that is not a citizen or resident of the United
States, a corporation, partnership, or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source unless such person provides the Trustee with a
duly completed Internal Revenue Service Form 4224. The terms "United States,"
"state" and "international organization" shall have the meanings set forth in
Code Section 7701 or successor provisions.

Policy. The certificate guaranty insurance policy 21805 dated
as of the Closing Date, as set forth in Exhibit N, issued by the Certificate
Insurer to the Trustee for the benefit of Senior Certificateholders.

Preference Amount. As defined in the Policy.

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<PAGE> 31

Premium. The premium payable to the Certificate Insurer in
accordance with Section 3.02 of the Insurance Agreement.

Principal Balance. With respect to any Loan, and for any date
of determination, the Initial Principal Balance of such Loan reduced by all
amounts previously received or collected in respect of principal on such Loan on
or subsequent to the Cut-Off Date for such Loan; provided, that with respect to
any Defaulted Loan, the Principal Balance shall be zero immediately after the
Due Period in which such Loan becomes a Defaulted Loan.

Principal Prepayment. Any payment or other receipt of
principal in full due on a Loan made by an Obligor which is received in advance
of the scheduled Maturity Date of such Loan.

Property. With respect to any Loan, any fee interest in the
residential property subject to the lien of the related Mortgage.

Prospectus Supplement. The prospectus supplement, dated August
14, 1996, relating to the Class A Certificates.

Purchase Agreement. The loan purchase agreement entered into
between Mego, as Seller, and the Depositor, as purchaser, dated as
of August 1, 1996.

Rating Agency. Each of Moody's and Standard & Poor's, so long
as such Person maintains ratings on any of the Senior

26
<PAGE> 32

Certificates; and if either Moody's or Standard & Poor's no longer maintains
ratings on the Senior Certificates, such other nationally recognized statistical
rating organization specified by Mego and (so long as a Certificate Insurer
Default shall not have occurred and be continuing) acceptable to the Certificate
Insurer.

Record Date. With respect to any Distribution Date, the last
day of the month (or if such last day is not a Business Day, the Business Day
immediately preceding such last day) preceding the month of such Distribution
Date.

Related Documents. The Certificates, the Policy, the Purchase
Agreement and the Insurance Agreement.

Related Series. Means (i) the Trust, (ii) Mego Mortgage FHA
Title I Loan Trust 1996-1 and (iii) each of the subsequent series of trusts, of
which the Trustee is the trustee and the Certificate Insurer is the certificate
insurer, to which Related Series Loans are sold directly or indirectly by Mego,
established pursuant to pooling and servicing agreements.

Related Series Loans. Means FHA Title I loans related to a
Related Series which: (i) are sold by Mego, directly or indirectly, to a trust
and (ii) the Title I insurance coverage attributable to which is made available
to cover claims with respect to the Loans and the Related Series Loans in each
other Related Series by virtue of terms relating to the administration of the
FHA Insurance Coverage Reserve Account substantially similar to the terms
hereof.

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<PAGE> 33

REMIC. A "real estate mortgage investment conduit," as defined
in the REMIC Provisions.

REMIC Pool. The pool of assets consisting of the Trust
Property for which an election shall be made to be treated as a REMIC under the
REMIC Provisions.

Reserve Fund. The account which is an Eligible Account
denominated as the Reserve Fund to be established by the Trustee
pursuant to Section 4.03(d) hereof.

Residual Interest. The fractional undivided interest evidenced
by a Class R Certificate in all amounts distributable to Holders of Class R
Certificates pursuant to Section 4.05(a).

Responsible Officer. When used with respect to the Trustee, an
officer in its Corporate Trust Office, or any other officer assigned by the
Trustee to administer its corporate trust matters, and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject. When
used with respect to any other Person that is not an individual, the President,
any Vice-President or Assistant Vice-President or the Controller of such Person,
or any other officer or employee having similar functions.

28
<PAGE> 34

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

Senior Certificate. Any of the Class A or Class S
Certificates.

Servicer. Mego or any other Eligible Servicer with whom the
Master Servicer has entered into a Servicing Agreement pursuant to Section 3.02.

Servicer Fee. With respect to any Distribution Date, 1/12
times 1.00% times the Aggregate Principal Balance as of the opening of business
on the first day of the month preceding the month of such Distribution Date (or,
with respect to the first Distribution Date, the Cut-Off Date Aggregate
Principal Balance), reduced by the aggregate Prepayment Interest Shortfall for
the related Due Period.

Servicer Review Report. As defined in Section 3.05(d).

Servicer Termination Event. With respect to the Servicing
Agreement, the events specified in Section 7.02 therein.

Servicing Agreement. The servicing agreement dated as of
August 1, 1996, between Mego, as Servicer, the Master Servicer, the Trustee and
the Trust and any other agreement entered into in accordance with Section 3.02.

Servicing Record. The record maintained by the Master Servicer
pursuant to Section 3.03.

Servicing Standard. The standard set forth in Section 3.01(a).

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<PAGE> 35

Standard & Poor's. Standard & Poor's Rating Services, or any
successor thereto.

Start-up Day. The day designated as such in Section 8.12(a).

Substitution Adjustment Amount. The meaning assigned to such
term in Section 2.04(d).

Tax Return. The federal income tax return on Internal Revenue
Service Form 1066, U.S. Real Estate Mortgage Investment Conduit Income Tax
Return, including Schedule Q thereto, Quarterly Notice to Residual Interest
Holders of REMIC Taxable Income or Net Loss Allocation, or any successor forms,
to be filed on behalf of the Trust due to its classification as a REMIC under
the REMIC Provisions, together with any and all other information, reports or
returns that may be required to be furnished to the Certificateholders or filed
with the Internal Revenue Service or any other governmental taxing authority
under any applicable provisions of federal, state or local tax laws.

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<PAGE> 36

Termination Date. The earlier of (a) the Distribution Date in
August, 2017 and (b) the Distribution Date next following the Monthly Cut-Off
Date coinciding with or next following the date of the liquidation or
disposition of the last asset held by the Trust pursuant to Section 3.13,
9.01(d) or 9.01(e).

Title Document. The evidence of title to or ownership of the
Property required by Title I. (See 24 C.F.R. 201.26(a)(1)
and 201.20).

Transaction Documents. This Agreement, the Purchase Agreement,
the Servicing Agreement, the Insurance Agreement and the Indemnification
Agreement.

Transfer. Any direct or indirect purchase, transfer, sale,
assignment or other form of disposition of any Ownership Interest in a
Certificate other than any pledge of such Certificate for security.

Transferee. Any Person who is acquiring by Transfer any
Ownership Interest in a Certificate.

Trust. The trust established hereby and evidenced by the FHA
Title I Loan Asset-Backed Certificates, Series 1996-2, designated
as the "Mego Mortgage FHA Title I Loan Trust 1996-2."

Trust Designated Insurance Amount. $4,878,140 or such greater
amount approved in advance in writing by the Certificate Insurer.

Trust Property. The property and proceeds of every

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<PAGE> 37

kind conveyed pursuant to Section 2.01 hereof or in accordance with Section
2.04(c) hereof, together with the Policy and the Accounts (including all cash
and Eligible Investments therein and all proceeds thereof).

Trustee. First Trust of New York, National Association, its
successors in interest or any successor trustee appointed as herein
provided.

Trustee Fee. With respect to any Distribution Date, the
greater of (a) one-twelfth of 0.05% times the Aggregate Principal Balance as of
the opening of business on the first day of the calendar month preceding the
calendar month of such Distribution Date (or, with respect to the first
Distribution Date, the Cut-Off Date Aggregate Principal Balance) and (b) $9,000.

Underwriter. Greenwich Capital Markets, Inc.

Section I.02. Rules of Interpretation. The terms "hereof,"
"herein" or "hereunder," unless otherwise modified by more specific reference,
shall refer to this Agreement in its entirety. Unless otherwise indicated in
context, the terms "Article," "Section," "Exhibit" or "Schedule" shall refer to
an Article or Section of, or Exhibit or Schedule to, this Agreement. The
definition of a term shall include the singular, the plural, the past, the
present, the future, the active and the passive forms of such term.

Section I.03. Interest Calculations Unless otherwise
specified, all calculations of accrued interest on the Certificates and accrued
fees shall be made on the basis of a 360-day year consisting of twelve 30-day
months.

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<PAGE> 38

ARTICLE II

Transfer and Assignment of Loans;
Issuance of Certificates

Section II.01. Transfer and Assignment of Loans .

(a) The Depositor as of the Closing Date does hereby, sell,
transfer, assign and otherwise convey to the Trustee for the benefit of the
Holders of the Certificates, in accordance with their terms and the terms
hereof, and the Certificate Insurer, without recourse other than as expressly
provided herein, and in accordance with the requirements for transfer of an
insured loan in Title I and 24 C.F.R. Section 201.32(c), all the right, title
and interest of the Depositor in and to (a) as of the applicable Cut-Off Date,
the Loans delivered to the Trustee on the Closing Date, including the related
Principal Balance and all payments and collections on account thereof received
on or after such Cut-Off Date (including amounts due prior to such Cut-Off Date
but received thereafter), the rights to FHA Insurance reserves attributable to
the Loans as of the applicable Cut-Off Date, the Files, the Insurance Policies
and any proceeds from any Insurance Policies, the Mortgages and security
interests in Properties which secure the Loans and any and all documents or
electronic records relating to the Loans, and all proceeds of any of the
foregoing, and (b) the Purchase Agreement.

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<PAGE> 39

of the Secretary of State of the State in which the Depositor is located.

(A) With respect to each Loan:

(i) The original Note, showing a complete
chain of endorsements or assignments from the named payee to
the Trust and endorsed without recourse to the order of the
Trustee which latter endorsement may be executed with a
facsimile signature;

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<PAGE> 40

(iv) All original intermediate assignments of
the Mortgage, showing a complete chain of assignments from the
named mortgagee to the assignor to the Trustee, with evidence
of recording thereon (or true copies thereof certified by
appropriate public officials may be substituted); provided,
however, that if the intermediate assignments of mortgage with
evidence of recording thereon cannot be delivered concurrently
with the execution and delivery of this Agreement solely
because of a delay caused by the public recording office where
such assignments of Mortgage have been delivered for
recordation, there shall be delivered to the Trustee a copy of
each such assignment of Mortgage certified as a true copy in
an Officer's Certificate of Mego, which Officer's Certificate
shall certify that each such assignment of Mortgage has been
delivered to the appropriate public recording office for
recordation, and there shall be promptly delivered to the
Trustee such assignments of Mortgage with evidence of
recording indicated thereon upon its receipt thereof from the
public recording official (or true copies thereof certified by
an appropriate public official may be delivered to the
Trustee);

(v) An original of each assumption or
modification agreement, if any, relating to such Loan;

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<PAGE> 41

of the time of origination of the Loan, (K) an original or a
copy of a title search as of the time of origination with
respect to the Property, and (L) any other documents required
for the submission of a claim with respect to each Loan to the
FHA.

(c) Mego, at the direction of the Depositor, concurrently with
the execution and delivery hereof, has delivered to the Trustee cash in an
amount equal to at least an aggregate amount representing (i) the accrued annual
FHA premium due on each Loan to the applicable Cut-Off Date, and (ii) the amount
of FHA premium collected in respect of the Invoiced Loans after the applicable
Cut-Off Date. The Trustee shall distribute the amount referred to in clause (i)
of the previous sentence into the FHA Premium Account and shall distribute the
amount referred to in clause (ii) of the previous sentence into the Distribution
Account.

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assignment of Mortgage shall be submitted for recording within 30 days after
receipt of such information but in no event later than one year after the
Closing Date. The Trustee shall be required to retain a copy of each assignment
of Mortgage submitted for recording. In the event that any such assignment of
Mortgage is lost or returned unrecorded because of a defect therein, Mego shall
promptly prepare a substitute assignment of Mortgage or cure such defect, as the
case may be, and thereafter the Trustee shall be required to submit each such
assignment of Loan for recording.

Section II.02. Acceptance by Trustee .

The Trustee agrees to review each Legal File within 60 days of
the Closing Date to confirm whether or not the recorded Mortgage or recorded
intermediate assignment or assignments, as the case may be, is contained in such
File. Promptly upon completion of such review, the Trustee shall prepare and
deliver a list of the Files which are incomplete as described in this paragraph
and deliver such list to the Certificate Insurer, the Master Servicer, the
Depositor and Mego and Mego shall be obligated to cure such incomplete File in
accordance with Section 2.04.

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<PAGE> 43

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<PAGE> 44

have no duty to monitor or otherwise oversee Mego's performance as custodian
hereunder.

Section II.03. Representations and Warranties of Mego.

(a) Mego hereby represents and warrants to the Depositor, the
Master Servicer, the Trustee for the benefit of the Certificateholders and the
Certificate Insurer that as of the Closing Date:

(iii) Neither the execution and delivery
of this Agreement or any of the other Transaction Documents to which
Mego is a party, the consummation of the transactions required of it
herein or under any other Transaction Document, nor the fulfillment of
or compliance with the terms and conditions of this Agreement or any of
the other Transaction Documents will conflict with or result in a
breach of any of the terms, conditions or provisions of Mego's charter
or by-laws or any legal restriction or any material agreement or
instrument to which Mego is now a party or by which it is bound, or
which would adversely affect the creation and administration of the
Trust as contemplated hereby, or constitute a material default or
result in an

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<PAGE> 45

acceleration under any of the foregoing, or result in the violation of
any law, rule, regulation, order, judgment or decree to which Mego or
their respective property is subject;

(vii) Mego received fair consideration and reasonably
equivalent value in exchange for the sale of the Loans to the
Depositor;

(viii) HUD has approved in writing the transfer to the
Contract of Insurance of the FHA Reserve Amount relating to each Loan
and all actions have been taken by Mego (other than the filing of the
Transfer of Note Report Form 27030 with HUD) and all required consents
have been obtained (other than approval upon HUD's receipt of such
Transfer of Note Report), in either case, necessary to effect transfer
to the Contract of Insurance Holder of the FHA Reserve Amount

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<PAGE> 46

relating to each Loan (except for Loans with respect to which a case
number has not been assigned as of the Closing Date). The FHA Reserve
Amounts with respect to the Loans transferred to the Contract of
Insurance Holder both prior to and following the transfer of the Loans
to the Trustee will be available to satisfy claims with respect to such
Loans. The amount in the FHA Insurance Coverage Reserve Account,
together with all amounts to be requested for transfer with respect to
the Loans, will equal $13,297,514. The amount to be requested for
transfer with respect to the Loans is $4,878,140, which is the sum of
approximately 10% of the Cut-Off Date Aggregate Principal Balance;

(ix) Mego is a non-supervised lender in good standing
with HUD under 24 CFR Section202.5 and is authorized to originate,
purchase, hold, service and/or sell loans insured under 24 CFR Part 201
pursuant to a valid contract of insurance, Number 70497-00003; and

(x) Mego has transferred the Loans without any intent to
hinder, delay or defraud any of its creditors.

(b) Mego hereby agrees for the benefit of the Depositor, the
Master Servicer and the Trustee for the benefit of the Certificateholders and
the Certificate Insurer, that the failure of any of the following
representations and warranties to be true and correct as to any Loan (and the
related Note and Mortgage, if applicable) as of the Cut-Off Date for such Loan,
or such later date if so specified in such representation and warranty, gives
rise to the remedy specified in Section 2.04:

(i) The information pertaining to each Loan set forth in
the Loan Schedule was true and correct in all material respects as of
the applicable Cut-Off Date;

(ii) As of the Closing Date at least 99.65% of the Loans
(by aggregate Initial Principal Balance) are not more than 30 days and
the remaining 0.35% of the Loans (by aggregate Initial Principal
Balance) are not more than 60 days past due (without giving effect to
any grace period); Mego has not advanced funds, induced, solicited or
knowingly received any advance of funds from a party other than the
Obligor, directly or indirectly, for the payment of any amount required
by the Loan;

(iii) The terms of the Note and any related Mortgage
contain the entire agreement of the parties and have not been impaired,
waived, altered or modified in any respect, except by written
instruments reflected in the related File and recorded, if necessary,
to maintain the lien priority of the related Mortgage; the substance of
each such

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<PAGE> 47

waiver, alteration and modification has been approved by the FHA to the
extent required under Title I; no other instrument of waiver,
alteration, expansion or modification has been executed, and no Obligor
has been released, in whole or in part, except in connection with an
assumption agreement approved by the FHA to the extent required under
Title I, which assumption agreement is part of the related File and the
payment terms of which are reflected in the related Loan Schedule;

(iv) The Note and any related Mortgage are not subject to
any set-off, claims, counterclaim or defense and will not have such in
the future with respect to the goods and services provided under the
Note, including the defense of usury or of fraud in the inducement, nor
will the operation of any of the terms of the Note and any related
Mortgage, or the exercise of any right thereunder, render such Mortgage
unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the defense of
usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto;

(vi) The related Mortgage has not been satisfied,
cancelled, rescinded or subordinated, in whole or part; and Mego has
not waived the performance by the Mortgagor of any action, if the
Mortgagor's failure to perform such action would cause the Loan to be
in default, except as otherwise permitted by clause (iii); and the
Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any
such satisfaction, subordination, release, cancellation or rescission;

(vii) The related Mortgage is a valid, subsisting and
enforceable lien on the Property, including the land and all buildings
on the Property;

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<PAGE> 48

(x) As of the applicable Cut-Off Date, the proceeds of
the Loan have been fully disbursed and there is no requirement for
future advances thereunder, and any and all applicable requirements set
forth in the Loan documents have been complied with; the Mortgagor is
not entitled to any refund of any amounts paid or due under the Note or
Mortgage;

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

(xiv) Each Loan is an FHA Title I property improvement
loan (as defined in 24 C.F.R. Section 201.2)

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<PAGE> 49

underwritten and originated by Mego in accordance with FHA requirements
for the Title I Loan program as set forth in 24 C.F.R. Parts 201 and
202, and Mego has transmitted a loan report with respect to such Loan
to FHA so that such Loan will be included in the Title I program;

(xvi) The related Note is not and has not been secured by
any collateral except the lien of the corresponding Mortgage;

(xx) The improvements to the Property relating to

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<PAGE> 50

each Loan, have been or shall be completed and inspected by the
Servicer within the time period and to the extent required under the
applicable Title I regulations, and evidence of such inspection shall
have been delivered to the Trustee or, if not, a letter of
non-compliance or shall be delivered to the Trustee promptly upon the
completion of such inspection;

(xxii) There exists a File relating to each Loan and such
File contains all of the original or certified documentation listed in
Section 2.01(b)(A). Each Legal File has been delivered to the Trustee
and each Credit File is being held in trust by Mego for the benefit of,
and as agent for, the Certificateholders, the Certificate Insurer and
the Trustee as the owner thereof. Each document included in the File
which is required to be executed by the Obligor has been executed by
the Obligor in the appropriate places. Each assignment of Mortgage to
the Trustee is in recordable form and is acceptable for recording under
the laws of the jurisdiction in which the Property is located. All
blanks on any form required to be completed have been so completed;

(xxiii) Each Loan is in respect of a home improvement loan
or a retail installment sale contract, and each Property with respect
thereto is improved by a residential dwelling and is not a Loan in
respect of a manufactured home or mobile home or the land on which a
manufactured home or mobile home has been placed;

(xxiv) Each Loan was originated by Mego in accordance
with the applicable underwriting criteria established by the FHA and
HUD;

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<PAGE> 51

(xxvi) No Loan was selected from among Mego's assets in a
manner which would cause them to be adversely selected as to credit
risk from the pool of home improvement loans owned by Mego;

(xxviii) Except for the related FHA Premium Amount, there
is no obligation on the part of Mego or any other party other than the
Obligor to make payments with respect to the Loan;

(xxxi) Any related Mortgage contains an enforceable
provision requiring the consent of the Mortgagee to assumption of the
related Loan upon sale of the Property;

(xxxiv) Subject to Section 2.04(b), the FHA Reserve

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<PAGE> 52

Amount with respect to each Loan, has been or will be transferred to
the FHA Insurance Coverage Reserve Account;

(xxxv) The related File contains a Title Document with
respect to each Loan reflecting that title to the related Property is
vested at least 50% in the Obligor under such Loan;

(xxxvi) The Property (including each residential dwelling
improvement thereon) is free of damage which materially and adversely
affects the value thereof and which impairs the ability to insure the
related Loan under the Title I program;

(xxxvii) Each Loan is a "qualified mortgage" under
Section 860G(a)(3) of the Code;

(xxxviii) Each Loan was originated in compliance with all
applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith
or in the application of any insurance required by Title 1 in relation
to such Loan;

(xxxix) Each Loan has been serviced in accordance with
all applicable laws and, to the best of Mego's knowledge, no fraud or
misrepresentation was committed by any Person in connection therewith;

(xl) The transfer, assignment and conveyance of the Notes
and the Mortgages by Mego to the Depositor were not subject to the bulk
transfer laws or any similar statutory provisions in effect in any
applicable jurisdiction;

(xli) Any Loan originated in the State of Texas, was
originated pursuant to Chapter 6 of the Texas Consumer Credit Code;

(xlii) As of the applicable Cut-Off Date, no Mortgagor is
a debtor under proceedings under the Bankruptcy Code, and no such
Mortgagor has defaulted in payments on a Loan after the filing of such
bankruptcy case, whether under a plan or reorganization or otherwise;

(xliii) Mego has not advanced funds, or induced, solicited
or knowingly received any advance of loan payments from a party other
than the owner of the Property subject to the Mortgage;

(xliv) Mego originated the Loans through
its network of dealers and correspondents and the Loans were
underwritten in conformance with the underwriting standards of
the Seller;

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(xlv) Each Loan conforms, and all such Loans in the
aggregate conform, to the description thereof set forth in the
Prospective Supplement;

(xlvii) Each Loan either complies with the Home Ownership
and Equity Protection Act of 1994 or is not subject to such act;

(l) Not more than __% of the Loans (by aggregate Initial
Principal Balance) are secured by Mortgages on non-owner occupied
Properties.

(li) Substantially all of the proceeds of each Loan were
used to acquire, improve or protect an interest in real property. For
purposes of this representation, "interest in real property" shall have
the meaning set forth in Treasury Regulation Section1.856-3(c) and
Section1.856-3(d).

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<PAGE> 54

thereto): (i) shall survive delivery of the related Legal Files to the
Trustee and the delivery of and payment for the Certificates and shall
be continuing (but shall speak as of their respective dates) as long as
any Certificate is Outstanding or this Agreement has not been
terminated, and (ii) are made exclusively to the Master Servicer, the
Depositor, the Certificate Insurer and the Trustee for the benefit of
Certificateholders. No representation or warranty made in this Section
2.03 shall constitute a waiver of any right, claim or defense of the
obligee with respect to any Obligor, Note, Mortgage, or Property.

Section II.04. Defective Loans .

(a) Upon determination by the Master Servicer, the Certificate
Insurer, the Depositor, Mego or the Trustee that:

(i) any document constituting a part of any File was
not delivered to the Trustee or, with respect to any document
constituting the Credit File, to Mego, as custodian for the Trustee and
Certificateholders, by the time required hereby (which in the case of
(A) a failure to deliver a recorded mortgage or recorded assignment
pursuant to Section 2.01(b)(A)(ii) or (A)(iv) (only under the
circumstances in which a delay is caused by the public recording office
and an Officer's Certificate is required to be provided thereunder)
shall be the 20 month anniversary of the Closing Date, (B) failure to
deliver a completion certificate or inspection report pursuant to
Section 2.01(b)(A)(vi)(H) shall be the 14 month anniversary of the
Closing Date, (C) a failure to deliver each other document constituting
a part of any Legal File shall be the Closing Date and (D) a failure to
deliver each document (other than those described in clause (B) above)
specified in Section 2.01(b)(A)(vi) shall be 45 Business Days after the
Closing Date) to be so delivered or was defective in any material
respect when delivered to the Trustee; or

(b) Except with respect to a breach of the representations
made by Mego pursuant to Section 2.03(b)(xxxiii)

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and (xxxiv), in the event of a determination referred to in Section 2.04(a) and
a failure within sixty Business Days of discovery or receipt of notice of such
failure to effect a cure of the circumstances giving rise to such defect, Mego
shall be obligated, on the Monthly Cut-Off Date next succeeding the expiration
of such sixty-day period, to repurchase (or substitute for, to the extent
permitted by subsection (c) below) the affected Loan. The Certificate Insurer
and the Trustee on behalf of the Certificateholders agree that if a Loan is a
Defective Loan because a document is not included in the Credit File as of the
90th Business Day after the discovery or receipt of notice thereof, such defect
shall be deemed to be cured if the Trustee shall have received during the
ninety-day period after such date a written statement addressed to it from the
Director of HUD Title I Insurance Division that such document would not be
required in connection with a claim for FHA Insurance with respect to such Loan.
It is understood and agreed that the obligation of Mego to repurchase or
substitute any such Loan pursuant to this Section shall constitute the sole
remedy against it with respect to such breach of the foregoing representations
or warranties or the existence of the foregoing conditions. For purposes of
calculating 90 Business Days from the discovery of a Defective Loan because a
document is not included in the Credit File in this Section 2.04(b), a Business
Day shall not include any day on which the FHA is officially closed for reasons
other than as specified in the definition of Business Day. With respect to
representations and warranties made by Mego pursuant to Section 2.03(b) that are
made to Mego's best knowledge, if it is discovered by any of the Depositor,
Mego, the Trustee or the Certificate Insurer that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely affects the value of the related Loan, notwithstanding Mego's lack of
knowledge, such inaccuracy shall be deemed a breach of the applicable
representation and warranty.

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Closing Date and (ii) any Loan that has not been transferred to the FHA
Insurance Coverage Reserve Account on or before the 150th day after the Closing
Date. For purposes of calculating either 120 or 150 days from the Closing Date
in this Section 2.04(b), any day on which the FHA is officially closed for
reasons other than such day being a Saturday, Sunday or a day on which banking
institutions in Washington, D.C. are authorized or obligated by law, executive
order or governmental decree to be closed, shall not be counted in making such
calculation.

(d) Mego shall notify the Servicer, the Trustee and the
Certificate Insurer in writing not less than five Business Days before the
related Determination Date which is on or before the date on which Mego would
otherwise be required to repurchase such Loan pursuant to Section 2.04(b) of its
intention to effect a substitution under this Section. On such Determination
Date (the "Substitution Date"), Mego shall deliver to the Trustee and the
Certificate Insurer (1) a list of the Loans to be substituted for by such
Substitute Loans, and attaching as an exhibit a supplemental Loan Schedule (the
"Supplemental Loan Schedule") setting forth the same type of information
appearing on the Loan Schedule and representing as to the accuracy thereof and
(2) an Opinion of Counsel to the effect set forth below. In connection with any
substitution pursuant to this Section 2.04, to the extent that the aggregate
Principal Balance of any Substitute Loan or Loans is less than the aggregate
Principal Balance of the corresponding Loan or Loans as of the Determination
Date on which the substitution is being made, Mego shall deposit such difference
(a "Substitution Adjustment Amount") to the Distribution Account on such date.

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exclude all Loans being replaced by such Substitute Loans and to include the
information set forth on the Supplemental Loan Schedule with respect to such
Substitute Loans, and all references in this Agreement to Loans shall include
such Substitute Loans and be deemed to be made on or after the related
Substitution Date, as the case may be, as to such Substitute Loans.

Section 2.05. Representations and Warranties of the Depositor
. The Depositor hereby represents and warrants to Mego, the Master Servicer and
the Trustee for the benefit of the Certificateholders and the Certificate
Insurer, that, as of the Closing Date:

(i) The Depositor is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware with full power and authority

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to own its properties and conduct its business as such properties are
presently owned and such business is presently conducted;

(iv) As of the Closing Date, the Depositor has
transferred all right, title and interest in the Loans to the Trustee;

(v) The Depositor has not transferred the Loans to the
Trustee with any intent to hinder, delay or defraud any of its
creditors;

(vi) Neither the execution and delivery of this Agreement
or any of the other Transaction Documents to which the Depositor is a
party, the consummation of the transactions required of it herein or
under any other such Transaction Document, nor the fulfillment of or
compliance with the terms and conditions of this Agreement or any of
the other Transaction Documents to which the Depositor is a party, will
conflict with or result in a breach of any of the terms, conditions or
provisions of the Depositor's charter or by-laws or any legal
restriction or any material agreement or instrument to which the
Depositor is now a party or by which it is bound, or which would
adversely affect the creation and administration of the Trust as
contemplated hereby, or constitute a material default or result in an
acceleration

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<PAGE> 59

under any of the foregoing, or result in the violation of any law,
rule, regulation, order, judgment or decree to which the Depositor is
subject;

(viii) The Depositor received fair consideration and
reasonably equivalent value in exchange for the sale of the interest in
the Loans evidenced by the Certificates.

Section 2.06. Execution, Countersignature and Delivery of
Certificates . Concurrently with, and in consideration for, the sale, transfer,
assignment and conveyance by the Depositor of the Loans listed in the Loan
Schedule on the Closing Date, the delivery by the Depositor of the related Files
pursuant to Section 2.01(b), the delivery of the cash required by Section
2.01(c) to be deposited in the Distribution Account and the FHA Premium Account,
the Trustee has executed, authenticated and delivered to or upon the order of
the Depositor, Class A Certificates, the Class S Certificates and the Class R
Certificates specified in Section 5.01(a).

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ARTICLE III

Administration and Servicing of Loans;
Claims Administration

Section III.01. Servicing Standard.

(i) any relationship that the Master Servicer, the
Servicer or any affiliate of the Master Servicer or any Servicer may
have with the related Obligor:

(ii) Mego's obligations to repurchase or substitute for a
Defective Loan pursuant to Section 2.04(c) or Section 3.12(b);

(iii) the ownership of any Certificate by the Master
Servicer or any affiliate of the Master Servicer;

(iv) the Master Servicer's obligation to make Interest
Advances pursuant to Section 3.08(a), to make Foreclosure Advances
pursuant to Section 3.08(b), or repurchase Loans pursuant to Section
3.12; or

(v) the Master Servicer's right to receive compensation
for its services hereunder pursuant to Section 4.05.

The Master Servicer may take any action hereunder, including
exercising any remedy under any Loan, retaining counsel in connection with the
performance of any of its obligations hereunder and instigating litigation to
enforce any obligation of

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any Obligor, without the consent or approval of the Trustee or the Certificate
Insurer, unless any such consent or approval is expressly required hereunder or
under applicable law.

(e) The Servicer hereby incorporates by reference the
representations, warranties and covenants made by it in Section 2.02
of the Servicing Agreement.

Section III.02. Servicing Arrangements.

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<PAGE> 62

with a Person acceptable to the Certificate Insurer. So long as no Certificate
Insurer Default exists, the Master Servicer shall not consent to any material
amendment, modification or waiver of the provisions of a Servicing Agreement
without the consent of the Certificate Insurer.

(g) Mego, as Servicer, shall provide information to the Master
Servicer monthly in a mutually agreeable format in

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order to enable the Master Servicer to independently reconfirm the loan-by-loan
reconciliation of the outstanding Principal Balance of each Loan included in
such information. The Master Servicer shall prepare exception reports, if
necessary, showing all Principal Balance differences between the information
provided by the Servicer and the confirmations prepared by the Master Servicer
and shall furnish such reports to the Trustee for distribution to the
Certificate Insurer. If requested by the Certificate Insurer, the Servicer shall
provide to the Certificate Insurer all information provided to the Master
Servicer pursuant to this Section 3.02(g).

Section III.03. Servicing Record .

(i) promptly following direct receipt or direct
collection by the Master Servicer;

(ii) in the case of a Loan directly serviced by a
Servicer, promptly following deposit of the receipt or collection in
the related Collection Account; or

but in any event not later than the Determination Date next

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<PAGE> 64

following the date of receipt or collection by or on behalf of the Master
Servicer (through the Servicer or otherwise) or receipt by the Trustee. Amounts
received or collected by the Master Servicer in connection with the purchase or
repurchase of any Loan or any Foreclosed Property shall be so recorded on and as
of the date of receipt. The Servicing Record shall separately reflect amounts so
received or collected by the Master Servicer in each Due Period. All Obligor
Payments received from or on behalf of an Obligor shall be allocated in
accordance with Title I.

(i) all payments on account of principal;

(ii) all payments on account of interest;

(iii) all proceeds of the purchase or repurchase of any
Loan pursuant to Section 2.04(b) or Section 3.12(b) and all
Substitution Adjustment Amounts;

(iv) all amounts paid by or on behalf of the related
Obligor in respect of Foreclosure Advances previously advanced by the
Master Servicer or the Servicer;

(v) all revenues received or collected in respect of any
Foreclosed Property, including all proceeds of the sale of any
Foreclosed Property pursuant to Section 3.13;

(vi) all proceeds of the sale of the Loans and any
Foreclosed Properties pursuant to Section 9.01;

(vii) all FHA Insurance Payment Amounts; and

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(i) on or before each Determination
Date, the unpaid Master Servicer Fee due the Master Servicer
on the next Distribution Date;

(ii) on or before each Determination Date, all amounts
retained by the Servicer in respect of the preceding Due Period in
respect of amounts due Independent Contractors hired by the Master
Servicer to operate and manage a Foreclosed Property pursuant to
Section 3.14(c);

(iii) on or before each Determination Date, the amount of
unreimbursed Interest Advances in respect of prior Distribution Dates
and the amount which the Master Servicer or the Servicer is entitled to
be reimbursed therefor in accordance with Section 3.08;

(iv) on or before each Determination Date, all amounts
due as of the preceding Monthly Cut-Off Date in reimbursement of
Foreclosure Advances previously advanced by the Master Servicer or the
Servicer (separately identifying the type and amount of each then due);

(v) on or before each Determination Date and based on
information provided to the Master Servicer by the Trustee, all Other
Fees required to be distributed pursuant to Section 4.05(a)(xv) on the
next succeeding Distribution Date;

(vii) promptly following each Distribution Date, the
aggregate amount of Interest Advances and Foreclosure Advances
reimbursed to the Master Servicer or the Servicer on such Distribution
Date;

(viii) on or prior to each Determination Date, all unpaid
Trustee Fees due the Trustee as of the preceding Monthly Cut-Off Date
pursuant to Section 8.05;

(ix) on or prior to each Determination Date, the
Principal Balance of Loans that became Defaulted Loans during the prior
Due Period;

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(x) on or before each Determination Date, each Collateral
Performance Percentage,

(xi) on or before each Determination Date, the amount
deposited into the Collection Account representing payments by Obligors
on Invoiced Loans in respect of premium on FHA Insurance;

(xii) on or before each Determination Date, the amount
remaining in the FHA Insurance Coverage Reserve Account with respect to
the Loans and the Related Series Loans, if any;

(xiv) on or before each Determination Date, the Principal
Balance of each Loan with respect to which the Master Servicer has
determined under the circumstances described in the penultimate
sentence of Section 3.12(a) that in good faith in accordance with
customary mortgage loan servicing practices that all amounts which it
expects to receive with respect to such Loan have been received; and

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Insurance.

Section III.04. Annual Statement as to Compliance; Notice of
Master Servicer Termination Event .

(a) The Master Servicer will deliver to the Trustee, the
Depositor and the Certificate Insurer on or before May 31 of each year an
Officer's Certificate signed by two Responsible Officers of the Master Servicer
stating with respect to the Trust created hereunder, that:

Section III.05. Annual Independent Accountants' Report;
Servicer Review Report.

(a) The Master Servicer shall cause a firm of Independent
Accountants, who may also render other services to the Master Servicer, to
deliver to the Trustee, the Depositor and the Certificate Insurer on or before
May 31 (or 150 days after the end of the Master Servicer's fiscal year) of each
year, beginning on

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the first May 31 (or other applicable date) after the date that is six months
after the Closing Date, with respect to the twelve months ended the immediately
preceding December 31 (or other applicable date) (or such other period as shall
have elapsed from the Closing Date to the date of such certificate) a report,
conducted in accordance with generally accepted accounting principles (the
"Accountant's Report") including: (i) an opinion on the financial position of
the Master Servicer at the end of its most recent fiscal year, and the results
of operations and changes in financial position of the Master Servicer for such
year then ended on the basis of an examination conducted in accordance with
generally accepted auditing standards, and (ii) a statement to the effect that,
based on an examination of certain specified documents and records relating to
the servicing of the Master Servicer's mortgage loan portfolio or the affiliate
of the Master Servicer principally engaged in the servicing of mortgage loans
conducted in compliance with the audit program for mortgages serviced for FNMA,
the United States Department of Housing and Urban Development Mortgagee Audit
Standards or the Uniform Single Attestation Program for Mortgage Bankers (the
"Applicable Accounting Standards") such firm is of the opinion that such
servicing has been conducted in compliance with the Applicable Accounting
Standards except for such exceptions as such firm shall believe to be immaterial
and such other exceptions as shall be set forth in such statement.

(c) The Master Servicer shall mail a copy of the Servicer
Review Report and any report or statement of the Servicer prepared pursuant to
Section 6.04 of the Servicing Agreement to the Trustee.

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Servicer under the Servicing Agreement in order to confirm that the records of
the Servicer accurately reflect collections, delinquencies and other relevant
data with respect to the Loans reported to the Master Servicer for the purpose
of preparation of the Servicing Record, and that such data is accurately
reported to the Master Servicer for reflection in the Servicing Record. Any
exceptions or errors disclosed by such procedures shall be included in a report
delivered to the Master Servicer, the Trustee and the Certificate Insurer (the
"Servicer Review Report").

Section III.06. Access to Certain Documentation and
Information Regarding Loans . The Master Servicer shall provide to
representatives of the Trustee or the Certificate Insurer reasonable access to
(a) the documentation regarding the Loans and to those employees of the Master
Servicer who are responsible for the performance of the Master Servicer's duties
hereunder and (b) the books of account, records, reports and other papers of the
Master Servicer and to discuss its affairs, finances and accounts with its
employees and Independent accountants for the purpose of reviewing or evaluating
the financial condition of the Master Servicer. The Master Servicer shall
provide such access to any Certificateholder only in such cases where the Master
Servicer is required by applicable statutes or regulations (whether applicable
to the Master Servicer or to such Certificateholder) to permit such
Certificateholder to review such documentation. In each case, such access shall
be afforded without charge but only upon reasonable request and during normal
business hours. Nothing in this Section shall derogate from the obligation of
the Master Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors, and the failure of the Master Servicer to
provide access as provided in this Section as a result of such obligation shall
not constitute a breach of this Section. Any Certificateholder, by its
acceptance of a Certificate (or by

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acquisition of its beneficial interest therein), shall be deemed to have agreed
to keep confidential and not to use for its own benefit any information obtained
by it pursuant to this Section, except as may be required by applicable law or
by any applicable regulatory authority.

Section III.07. [Reserved] .

Section III.08. Advances .

(b) The Master Servicer shall advance from its own funds the
following amounts in respect of any Loan or Foreclosed Property, as applicable
(collectively, "Foreclosure Advances"):

(i) all third party costs and expenses (including legal
fees and costs and expenses relating to bankruptcy or insolvency
proceedings in respect of any Obligor) associated with the institution
of foreclosure or other similar proceedings in respect of any Loan
pursuant to Section 3.12;

(ii) all insurance premiums due and payable in respect of
each Foreclosed Property, prior to the date on which the related
Insurance Policy would otherwise be terminated;

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(iii) all real estate taxes and assessments in respect of
each Foreclosed Property that have resulted in the imposition of a lien
thereon, other than amounts that are due but not yet delinquent;

(iv) all costs and expenses necessary to maintain each
Foreclosed Property;

(v) all fees and expenses payable to any Independent
Contractor hired to operate and manage a Foreclosed Property pursuant
to Section 3.14(c); and

(vi) all fees and expenses of any Independent appraiser
or other real estate expert retained by the Trustee pursuant to Section
3.13(a).

Section III.09. Reimbursement of Interest Advances and
Foreclosure Advances .

(a) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii) for previously unreimbursed Interest Advances
made from its own funds or any such previously unreimbursed Interest Advance by
the Servicer with respect to a Loan on Distribution Dates subsequent to the
Distribution Date in respect of which such Interest Advance was made from
Payments with respect to such Loan. If a Loan shall become a Defaulted Loan and
the Master Servicer shall not have been fully reimbursed for any such Interest
Advances with respect to such Loan, the Master Servicer shall be entitled to be
reimbursed for the outstanding amount of such Interest Advances from unrelated
Loans pursuant to Section 4.05(a)(iii). No interest shall be due to the Master
Servicer in respect of any Interest Advance for any period prior to the
reimbursement thereof.

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(b) The Master Servicer shall be entitled to be reimbursed
pursuant to Section 4.05(a)(iii) from related Payments for Foreclosure Advances
advanced on or prior to the related Monthly Cut-Off Date but only to the extent
the Master Servicer has satisfied the requirements of Section 3.08. No interest
shall be due to the Master Servicer in respect of any Foreclosure Advance for
any period prior to the reimbursement thereof.

Section III.10. Modifications, Waivers, Amendments and
Consents .

(a) The Master Servicer shall not agree to any modification,
waiver or amendment of any provision of any Loan unless, in the Master
Servicer's good faith judgment, such modification, waiver or amendment (i) would
minimize the loss that might otherwise be experienced with respect to such Loan,
and (ii) complies with the requirements of Title I or is required by Title I and
such Loan has experienced a payment default or a payment default is reasonably
foreseeable by the Master Servicer. The Master Servicer shall agree to
subordinate the position of the security interest in the Property which secures
any Loan upon the Master Servicer's receipt of written approval of HUD to such
subordination or written certification by the Servicer that such proposed
subordination complies with current published HUD requirements and provided such
subordination (i) would permit the Obligor to refinance a senior lien to take
advantage of a lower interest rate or (ii) would permit the Obligor to extend
the term of the senior lien. Notwithstanding the foregoing, at no time shall the
Aggregate Principal Balance of Loans modified, waived or amended without the
prior or subsequent approval of the Certificate Insurer exceed 5% of the Initial
Principal Balance.

Section III.11. Due-On-Sale; Due-on-Encumbrance .

(a) If any Loan contains a provision, in the nature of a
"due-on-sale" clause, which by its terms:

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(i) provides that such Loan shall (or may at the
Obligee's option) become due and payable upon the sale or other
transfer of an interest in the related Property; or

(ii) provides that such Loan may not be assumed without
the consent of the related Obligee in connection with any such sale or
other transfer,

(b) If any Loan contains a provision, in the nature of a
"due-on-encumbrance" clause, which by its terms:

(i) provides that such Loan shall (or may at the
Obligee's option) become due and payable upon the creation of any lien
or other encumbrance on the related Property; or

(ii) requires the consent of the related Obligee to the
creation of any such lien or other encumbrance on the related Property,
then, for so long as such Loan is included in the Trust, the Master
Servicer, on behalf of the Trustee, shall exercise any right the
Trustee may have as the Obligee of record with respect to such Loan (x)
to accelerate the payments thereon, or (y) to withhold its consent to
the creation of any such lien or other encumbrance, in a manner
consistent with the servicing standard set forth in Section 3.01.

Section III.12. Claim for FHA Insurance and Foreclosure .

(a) If any Monthly Payment due under any Loan is not paid when
the same becomes due and payable, or if the Obligor

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fails to perform any other covenant or obligation under the Loan and such
failure continues beyond any applicable grace period, the Master Servicer shall
take such action (consistent with Title I, including efforts to cure the default
of such Loan pursuant to 24 C.F.R. Section 201.50) as it shall deem to be in the
best interest of the Trust. If the maturity of the related Note has been
accelerated pursuant to the requirements under Title I following the Master
Servicer's efforts to cure the default of the Loan (and such Loan is not
required to be purchased pursuant to Section 2.04(b)), and (i) if an FHA
Insurance Coverage Insufficiency does not exist at the time, the Claims
Administrator shall initiate, on behalf of the Trust and the Contract of
Insurance Holder, a claim under the Contract of Insurance for reimbursement for
loss on such Loan pursuant to Title I (see 24 C.F.R. Sections 201.54), or (ii)
if an FHA Insurance Coverage Insufficiency exists at the time, the Master
Servicer shall determine within 90 days in accordance with Section 3.12(c)
whether or not to proceed against the Property securing the Loan, and if
thereafter an FHA Insurance Coverage Insufficiency does not exist, the Claims
Administrator may submit a claim under the Contract of Insurance with respect to
such Loan if it has obtained the prior approval of the Secretary of HUD pursuant
to 24 C.F.R. Section 201.51.

(b) If the Claims Administrator initiates a claim for
reimbursement for loss on any Loan under this Section, the Claims Administrator
shall comply with applicable provisions of Title I and diligently pursue such
claim and, in any event, shall initiate such claim no later than the last day
permitted under Title I (see 24 C.F.R. Section 201.54(b)). For purposes of this
Agreement, the term "initiate a claim for reimbursement" shall mean the filing
of the claim application pursuant to the requirements set forth in 24 C.F.R.
Section 201.54, including the filing of all related assignments and documents
and materials required for file review. For the purposes of such filing, the
Claims Administrator shall request, and the Trustee within 5 calendar days of
request shall deliver to the Claims Administrator, the Note and the related
Mortgage for such Loan and each other item in the related File necessary to make
such claim. Each Certificateholder hereby consents to the assignment of such
Loan for the sole purpose of initiating a claim under the Contract of Insurance
for reimbursement with respect to such Loan. Pursuant to Section 3.12(i), the
Contract of Insurance Holder shall furnish the Claims

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Administrator a power of attorney to file claims under the Contract of
Insurance. The Trustee and Contract of Insurance Holder agree to execute and
deliver to the Claims Administrator, within 5 Business Days of receipt from the
Claims Administrator, all documents, if any, necessary to initiate and file a
claim under the Contract of Insurance for such Loan, which documents shall be
prepared by the Claims Administrator. If any claim to the FHA becomes a Rejected
Claim, upon receipt of the FHA's rejection notice by the Claims Administrator
directly from the FHA or from the Contract of Insurance Holder pursuant to
Section 3.12(e) and a determination by the Claims Administrator that the
rejection was not due to clerical error, then the Claims Administrator shall
promptly notify the Contract of Insurance Holder (if such notice has not already
been given), the Trustee and the Certificate Insurer of the notice of a Rejected
Claim.

If the FHA indicates in writing that the claim is a Rejected
Claim due to reasons other than a failure to service the related Loan in
accordance with Title I, Mego shall repurchase the Loan on or before the Monthly
Cut-Off Date next following the date of such notice from the Claims
Administrator to repurchase such Loan, either directly from FHA or from the
Trustee, for the Purchase Price. If FHA indicates in writing that the claim is a
Rejected Claim due to a failure to service such Loan in accordance with Title I,
the Claims Administrator shall notify Mego, the Contract of Insurance Holder,
the Trustee and the Certificate Insurer of such determination, and the Master
Servicer shall on or before the later to occur of (i) the next succeeding
Monthly Cut-Off Date and (ii) ten Business Days from the date on which such
rejection notice is received by the Master Servicer, purchase such Loan either
directly from FHA or from the Trustee, for the Purchase Price. In the event that
the FHA fails to indicate in writing why the claim is a Rejected Claim the
Claims Administrator shall determine why the claim is a Rejected Claim. If the
Claims Administrator determines that the claim is a Rejected Claim for reasons
other than a servicing failure that occurred after the Closing Date, Mego shall
be obligated to repurchase such Loan for the Purchase Price. If the Claims
Administrator determines that the claim is a Rejected Claim due to a servicing
failure that occurred after the Closing Date, the Master Servicer shall be
obligated to repurchase such Loan for the Purchase Price. Notwithstanding any
provisions herein to the contrary, neither Mego nor the Master Servicer shall be
required to repurchase or purchase, as applicable, any Loan subject to a
Rejected Claim as a result of the depletion of the amount of the FHA Insurance
Coverage Reserve Account as shown in the Insurance Record.

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Section 3.12(a), unless otherwise prohibited by applicable law or court or
administrative order, the Master Servicer, on behalf of the Trustee, may, at any
time, institute foreclosure proceedings, exercise any power of sale to the
extent permitted by law, obtain a deed in lieu of foreclosure, or otherwise
acquire possession of or title to any Property, by operation of law or
otherwise; provided, however, that the Master Servicer shall not acquire any
personal property pursuant to this Section 3.12 unless either:

(x) such personal property is incident to real
property (within the meaning of section 856(e)(1) of the Code)
so acquired by the Master Servicer; or

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In connection with any foreclosure proceeding on a Loan, the
Master Servicer shall comply with the requirements under Title I, shall follow
such practices and procedures in a manner which is consistent with the Master
Servicer's procedure for foreclosure with respect to similar FHA Title I loans
held in the Master Servicer's portfolio for its own account or, if there are no
such loans, FHA Title I loans serviced by the Master Servicer for others. To the
extent required by Section 3.08, the Master Servicer shall advance all necessary
and proper Foreclosure Advances until final disposition of the Foreclosed
Property and shall manage such Foreclosed Property pursuant to Section 3.14. If,
in following such foreclosure procedures, title to the Foreclosed Property is
acquired, the deed or certificate of sale shall be issued to the Trustee.

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other correspondence received from the FHA or sent to the FHA by the Trustee or
the Contract of Insurance Holder, as the case may be, including, but not limited
to, any correspondence regarding the balance of the FHA Insurance Coverage
Reserve Account, premiums due and claims rejected.

(f) If, prior to the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego, the Master Servicer or any other person is required
to repurchase such Loan under this Agreement, the Claims Administrator shall
notify the Contract of Insurance Holder of such fact and the Contract of
Insurance Holder in its capacity as Trustee shall repurchase such Loan from
funds available in the Distribution Account. The Claims Administrator shall, to
the extent possible, direct the Trustee to make all such repurchases of Loans
once a month and to repurchase any and all such Loans from the FHA in that
portion of the calendar month after each Distribution Date. If the Trustee
withdraws any amounts from the Trust for such purpose between the Determination
Date and Distribution Date of any month, the Master Servicer shall prepare the
Master Servicer Certificates provided under Section 4.01 for such Distribution
Date (or promptly revise the Master Servicer Certificate if already prepared for
such Distribution Date) to reflect such withdrawals as if made on such
Determination Date and the Trustee shall revise its determination pursuant to
Section 4.10 accordingly. To the extent allowed by FHA, Mego may repurchase
directly from FHA any Loan for which an insurance claim has been paid and later
rejected by FHA. If the FHA indicates in writing in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to
other than (i) a failure to service the Loan in accordance with Title I or (ii)
the FHA Insurance Coverage Reserve Account is insufficient to pay such claim, or
if the FHA does not indicate in writing the reason for its rejection or refusal,
Mego shall be liable to reimburse the Trust for any amounts paid by the Trustee
to the FHA in order to repurchase such Loan. Subject to Section 3.12(b), if the
FHA indicates in writing, or it is agreed by the Master Servicer, in connection
with its rejection or refusal to pay a claim that such rejection or refusal is
due to a failure to service such Loan in accordance with Title I, the Master
Servicer shall be liable to reimburse the Trust or Mego for any amounts paid by
the Trust or Mego, as the case may be, to FHA in order to repurchase Loans for
which the FHA has rejected an insurance claim as a result of a failure to
service such Loan in accordance with Title I.

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(g) If, after the Termination Date, the FHA rejects an
insurance claim, in whole or part, under the Contract of Insurance after
previously paying such insurance claim and the FHA demands that the Contract of
Insurance Holder repurchase such Loan, the Claims Administrator shall pursue
such appeals with the FHA as are reasonable. If the FHA continues to demand that
the Contract of Insurance Holder repurchase such Loan after the Claims
Administrator exhausts such administrative appeals as are reasonable, then
notwithstanding that Mego or any other person is required to repurchase such
Loan under this Agreement, the Claims Administrator shall notify the Contract of
Insurance Holder of such fact and the Contract of Insurance Holder shall
repurchase such Loan from the FHA. If the FHA indicates in writing in connection
with its rejection or refusal to pay a claim that such rejection or refusal is
due to other than (i) a failure to service the Loan in accordance with Title I
or (ii) the FHA Insurance Coverage Reserve Account is insufficient to pay such
claim, or if the FHA does not indicate in writing the reason for its rejection
or refusal, Mego shall be liable to reimburse the Contract of Insurance Holder
for any amounts paid by the Contract of Insurance Holder to the FHA in order to
repurchase such Loan. Subject to Section 3.12(b), if the FHA indicates in
writing, or it is agreed by the Claims Administrator, in connection with its
rejection or refusal to pay a claim that such rejection or refusal is due to a
failure to service such Loan in accordance with Title I, the Master Servicer
shall be liable to reimburse the Contract of Insurance Holder or Mego for any
amounts paid by the Contract of Insurance Holder or Mego to FHA in order to
repurchase Loans for which the FHA has rejected an insurance claim as a result
of a failure to service such Loan in accordance with Title I.

(h) The Claims Administrator shall be entitled to
reimbursement of expenses associated with the filing of any FHA Insurance claim
from and to the extent that such amounts are reimbursed by HUD.

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Section III.13. Sale of Foreclosed Properties

(ii) all unpaid interest accrued thereon at the related
Loan Rate through the date of sale.

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Trust's obligation to dispose of any Foreclosed Property within the time period
specified in Section 3.12(d).

Section III.14. Management of Real Estate Owned

(c) The Master Servicer may contract with any Independent
Contractor for the operation and management of any Foreclosed Property, provided
that:

(i) the terms and conditions of any such contract may
not be inconsistent herewith;

(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor remit all
related Payments to the Master Servicer as soon as practicable, but in
no event later than two Business Days following the receipt thereof by
such Independent Contractor;

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(iii) none of the provisions of this Section 3.14(c)
relating to any such contract or to actions taken through any such
Independent Contractor shall be deemed to relieve the Master Servicer
of any of its duties and obligations to the Trustee for the benefit of
Certificateholders with respect to the operation and management of any
such Foreclosed Property; and

(iv) the Master Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties
and obligations in connection with the operation and management of such
Foreclosed Property.

Section III.16. Maintenance of Insurance

(b) Any amounts collected by the Master Servicer under any
Insurance Policies, shall be paid over or applied by the Master Servicer as
follows:

(i) In the case of amounts received in respect of any
Loan:

(A) for the restoration or repair of the affected
Property, in which event such amounts shall be released to the Obligor
in accordance with the terms of the related Note, or to the extent not
so used, or

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(B) in reduction of the Principal Balance of the related
Loan, in which event such amounts shall be credited to the Servicing
Record,

unless the related instruments require a different application, in
which case such amounts shall be applied in the manner provided
therein; and

Section III.17. Release of Files.

(a) If with respect to any Loan:

(i) the outstanding Principal Balance of such Loan plus
all interest accrued thereon shall have been paid;

(ii) the Master Servicer, or the Servicer shall have
received, in escrow, payment in full of such Loan in a manner customary
for such purposes;

(iii) such Loan has become a Defective Loan;

(iv) such Loan or the related Foreclosed Property has
been sold in connection with the termination of the Trust pursuant to
Section 9.01;

(v) the FHA has paid a claim with respect to such Loan
under the Contract of Insurance; or

(vi) the related Foreclosed Property has been sold
pursuant to Section 3.13.

In each such case, the Servicer shall deliver a certificate to
the effect that the Servicer has complied with all of its obligations under the
Servicing Agreement with respect to such Loan and requesting that the Trustee
release to the Servicer the related File, then the Trustee shall, within three
Business Days or such shorter period as may be required by applicable law,
release, or cause the Custodian to release, the related File to the Servicer and
execute and deliver such instruments of transfer or assignment, in each case
without recourse, as shall be necessary to vest ownership of such Loan in the
Servicer or such

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other Person as may be specified in such certificate, the forms of any such
instrument to be appended to such certificate.

Section III.19. Filing of Continuation Statements. Filing of
Continuation Statements. On or before the fifth anniversary of the filing of any
financing statements by Mego and the Depositor, respectively, with respect to
the assets conveyed to the Trustee, Mego and the Depositor shall prepare, have
executed by the necessary parties and file in the proper jurisdictions all
financing and continuation statements necessary to maintain the liens, security
interests, and priorities of such liens and security interests that have been
granted by Mego and the Depositor, respectively, and Mego and the Depositor
shall continue to file on or before each fifth anniversary of the filing of any
financing and continuation statements such additional financing and continuation
statements until the Trust has terminated pursuant to Section 9.01. Subject to
Section 8.03, the Trustee agrees to cooperate with Mego and the Depositor in
preparing, executing and filing such statements. The Trustee agrees to notify
Mego and the Depositor on the third Distribution Date prior to each such fifth
anniversary of the requirement to file such financing and continuation
statements. The filing of any such statement with respect to Mego and the
Depositor shall not be construed as any indication of an intent of any party
contrary to the expressed intent set forth in Section 10.09. If Mego or the
Depositor has ceased to do business

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whenever any such financing and continuation statements must be filed or Mego or
the Depositor fails to file any such financing statements or continuation
statements at least one month prior to the expiration thereof, the Trustee shall
perform the services required under this Section 3.19.

Section III.21. Errors and Omissions Insurance. The Master
Servicer shall obtain and maintain at all times during the term of this
Agreement errors and omissions insurance coverage covering the Master Servicer
and its employees issued by a responsible insurance company. The issuer, policy
terms and forms and amounts of coverage, including applicable deductibles, shall
be reasonably satisfactory to the Certificate Insurer and shall be in such form
and amount as is customary for entities acting as master servicers. The Master
Servicer agrees to notify the Certificate Insurer in writing within five (5)
days of the Master Servicer's receipt of notice of the cancellation or
termination of any such errors and omissions insurance coverage. The Master
Servicer shall provide to the Certificate Insurer upon request written evidence
of such insurance coverage.

ARTICLE IV

Distributions to Certificateholders

Section IV.01. General Provisions Relating to Distributions to
Certificateholders.

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Certificates.

(c) On each Determination Date, the Master Servicer shall
deliver to the Trustee and the Certificate Insurer, a certificate containing the
items described in Exhibit E hereto (a "Master Servicer Certificate"), prepared
as of the related Determination Date and executed by a Master Servicing Officer.
The Master Servicer shall revise any Master Servicer Certificate to take into
account any payments of which the Master Servicer is notified made by the Trust
to FHA after the related Determination Date and before the related Distribution
Date as provided in Section 3.12(f). The Trustee may rely on the Master Servicer
Certificate with respect to the matters set forth therein.

Section IV.02. Distributions to Certificateholders.

(a) Distributions will be made by the Trustee to each
Certificateholder of record on the preceding Record Date by:

(i) check mailed, via first class mail, postage prepaid,
to the address of such Holder as it appears on the Certificate
Register; or

(ii) Fedwire transfer of immediately available funds, if
such Certificateholder holds at least a $1,000,000 Denomination, Class
S Certificates representing at least a 30% Percentage Interest or Class
R Certificates representing at least 25% of the Residual Interests, if
notice from such Certificateholder has been received by the Trustee at
least five Business Days prior to any Distribution Date (any such
notice being applicable to all subsequent Distribution Dates unless and
until rescinded in writing) designating a deposit account for receipt
of distributions at a bank which has Fedwire transfer capabilities, and
providing such other information as the Trustee may reasonably require
to effect an electronic credit entry to such account.

To the extent required by applicable law, the Trustee shall deduct and withhold
taxes due on amounts distributed to Certificateholders.

(i) the Trustee expects that the final distribution with
respect to such Class of Senior Certificates will be made on such
Distribution Date, and

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(ii) no interest shall accrue on such Class of Senior
Certificates after such Distribution Date provided that the final
distribution occurs on such Distribution Date.

Section IV.03. Collection Account and FHA Premium Account and
the Reserve Fund.

(a) The Trustee has heretofore established or caused to be
established and shall hereafter maintain or cause to be maintained a separate
account denominated a Collection Account, which in each case is and shall
continue to be an Eligible Account in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage FHA Title I Loan Trust Series 1996-2, Collection Account". The
Master Servicer shall cause all Payments to be deposited by the Servicer in the
Collection Account no later than the second Business Day following the date of
receipt thereof by the Servicer. The Trustee shall provide to the Master
Servicer and the Servicer a monthly statement of all activity in the Collection
Account.

(d) The Trustee has heretofore established or caused to be
established and shall hereafter maintain a cause to be maintained a separate
account denominated a Reserve Fund, in the name of the Trustee and shall be
designated "First Trust of New York, National Association, as Trustee of the
Mego Mortgage Trusts, Reserve Fund." The Trustee shall deposit all amounts
required to be deposited therein pursuant to Section 4.05(a)(xiv). Amounts on
deposit therein shall be withdrawn by the Trustee at the direction of the
Certificate Insurer and paid or deposited to either the Distribution Account,
the distribution account of a Related Series or the Class R Certificateholders.
Amounts on deposit in the Reserve Fund shall be invested by the Trustee pursuant
to the direction of the Certificate Insurer.

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Section IV.04. Distribution Account.

(a) The Trustee has heretofore established with itself in its
trust capacity at its corporate trust department for the benefit of all
Certificateholders and the Certificate Insurer an account referred to herein as
the "Distribution Account" for the Trust. The Trustee shall at all times
maintain the Distribution Account as an Eligible Account and shall cause such
account to be designated "First Trust of New York, National Association, as
Trustee of the Mego FHA Title I Loan Trust Series 1996-2, Distribution Account."
Eligible Investments of amounts on deposit in the Distribution Account shall
mature no later than the Business Day immediately preceding the Distribution
Date related to the Due Period to which such amounts relate.

(b) Except for amounts deposited into the FHA Premium Account,
any and all moneys or Eligible Investments that are received by the Trustee from
any Person with respect to the Trust Property, including pursuant to Sections
2.04(c), 3.12(b), 4.03(b), 4.10(c) or 9.01(d), together with any Eligible
Investments in which such moneys are invested or reinvested prior to the
termination of the Trust, shall be held by the Trustee in the Distribution
Account, subject to disbursement and withdrawal as herein provided.

Section IV.05. Distributions.

(i) from the Distribution Amount, for deposit in the FHA
Premium Account, the FHA Premium Account Deposit for such Distribution
Date;

(ii) from the Distribution Amount, concurrently, to (a)
the Master Servicer, the Master Servicer Fee and (b) the Servicer, the
Servicer Fee for such Distribution Date;

(iv) from the Distribution Amount, to the Trustee,

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the Trustee Fee for such Distribution Date;

(v) from the Distribution Amount, to the Certificate
Insurer, the Premium for such Distribution Date;

(vi) from the Amount Available, to the Class S
Certificateholders, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;

(vii) from the Amount Available, to the Class A
Certificateholders, an amount equal to the applicable Class Interest
Distribution for such Distribution Date;

(viii) from the Distribution Amount, to the Class A
Certificateholders, subject to the second proviso following this
paragraph, the Class A Principal Distribution (other than the portion
constituting Distributable Excess Spread) for such Distribution Date;

(ix) from the Distribution Amount, to the Certificate
Insurer, the Reimbursement Amount;

(x) from the Distribution Amount, to the Class A
Certificateholders, the Distributable Excess Spread for such
Distribution Date;

(xi) from the Amount Available, to the Class A
Certificateholders, an amount equal to the Class A Guaranteed Principal
Distribution Amount, if any, for such Distribution Date;

(xii) from the Distribution Amount, to the Certificate
Insurer, any other amounts owing to the Certificate Insurer under the
Insurance Agreement;

(xiv) from the Distribution Amount, to the Reserve Fund,
any unpaid Excess Claim Amount;

(xv) from the Distribution Amount to the Person entitled
thereto, payments in respect of Other Fees; and

(xvi) the balance of any Distribution Amount, to the
Class R Certificateholders;

provided, however, that any portion of the Amount Available that

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constitutes an Insured Payment for any Distribution Date shall be applied only
to payment of the amount referred to in clause (vi), clause (vii), and clause
(xi) above, and provided further, with respect to any Distribution Date as to
which (a) the Required OC Amount has been reduced below the
Overcollateralization Amount or (b) a full distribution of the amounts referred
to in clause 4.05(a)(viii) above would cause the Overcollateralization Amount to
exceed the Required OC Amount, the amounts to be distributed pursuant to clause
4.05(a)(viii) shall be reduced by the amount of such reduction in the case of
clause (a) above and the amount of such excess in the case of (b) above.

Section IV.06. FHA Premium Account.

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(c) All amounts deposited in the FHA Premium Account shall be
invested and reinvested by the Trustee pursuant to Section 4.07(a) in one or
more Eligible Investments.

(d) Amounts on deposit in the FHA Premium Account shall be
withdrawn by the Trustee from the FHA Premium Account, in the amounts required,
for application as follows:

(ii) on the Business Day preceding a Distribution Date
that is also the Termination Date, the Trustee shall withdraw from the
FHA Premium Account and deposit in the Distribution Account all amounts
then on deposit in the FHA Premium Account, whereupon the FHA Premium
Account shall terminate.

Section IV.07. General Provisions Regarding the Accounts;
Eligible Accounts

(b) Any investment of funds in an Account shall be

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made in the name of the Trustee (in its capacity as such) or in the name of a
nominee of the Trustee. The Trustee shall have sole control over each such
investment, the income thereon and the proceeds thereof. Any certificate or
other instrument evidencing any such investment shall be delivered directly to
the Trustee or its agent, together with any document of transfer necessary to
transfer title to such investment to the Trustee or its nominee. The Trustee or
its agent, as the case may be, shall take and maintain continuous physical
possession of any such certificate or other instrument and the proceeds thereof
in the State of Minnesota. The Trustee or its agent, as the case may be, shall
in the case of Eligible Investments deposited in all Accounts, act in connection
therewith solely as agent for the Trust and not as agent for Mego, the Depositor
or any other party. Any certificated security, when so delivered in registered
form, shall be issued or endorsed to the Trustee, its nominee or in blank. Any
uncertificated security shall either (i) be registered in the name of the
Trustee or its nominee on the books of the issuer thereof or (ii) be registered
in the name of a financial intermediary which is not a clearing corporation,
provided that such financial intermediary sends the Trustee written confirmation
of such purchase which also confirms that such financial intermediary has by
book-entry or otherwise identified such uncertificated securities as belonging
to the Trustee or its nominee. The proceeds of an investment at maturity or upon
demand shall be remitted by the issuer thereof or its agent directly to the
Trustee for deposit in the Account as to which such investment was made and all
earnings on investments shall be added to the corpus of the respective Account.

(c) The Trustee shall not be in any way liable by reason of
any insufficiency in the Accounts, except for losses on investments that are
liabilities of the Trustee in its commercial capacity.

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Section IV.08. Statements to Certificateholders.

(a) On or before the third Business Day following each
Distribution Date, the Trustee shall mail:

(i) to each Holder of a Senior Certificate (with a copy
to the Certificate Insurer and the Rating Agency) at its address shown
on the Certificate Register a statement, based on information set forth
in the Master Servicer Certificate for such Distribution Date,
substantially in the form of Trustee's Statement to Senior
Certificateholders attached hereto as Exhibit F together with a copy of
such related Master Servicer Certificate;

(ii) to each Holder of a Class R Certificate (with a copy
to the Certificate Insurer) at its address shown on the Certificate
Register a statement, based on information set forth in the Master
Servicer Certificate for such Distribution Date substantially in the
form of Trustee's Statement to Class R Certificateholders attached
hereto as Exhibit F.

(b) Promptly following preparation by Trustee of any returns
or reports described in Section 8.12(b)(i), the Trustee shall:

(i) sign such returns or reports as may be required
pursuant to the last paragraph of Section 8.12(b); and

(ii) mail such returns or reports as may be required by
applicable law to each Holder of a Senior Certificate and to each
Holder of a Class R Certificate, at their respective addresses shown on
the Certificate Register.

Section IV.09. [Reserved]

Section IV.10. Claims Under Policy.

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Senior Certificates, the Trustee shall promptly, but in no event later than
12:00 noon New York City time on the second Business Day preceding the related
Distribution Date, make a claim under the Policy for such Class in accordance
with its terms.

(c) The Trustee shall (i) receive as attorney-in-fact of each
Holder of a Senior Certificate with respect to which a Deficiency Amount has
been determined to exist, any Insured Payment from the Certificate Insurer under
the Policy and deposit such Insured Payment in the Distribution Account on the
date of receipt and (ii) immediately disburse such Insured Payments to such
Holders of such Class of Senior Certificates as set forth in Section 4.05(a).
Insured Payments for a Class of Senior Certificates disbursed by the Trustee
from the Policy shall not be considered payment by the Trust with respect to
such Class of Senior Certificates, nor shall such payments discharge the
obligation of the Trust, with respect to such Class of Senior Certificates, and
the Certificate Insurer shall become the owner of such unpaid amounts due from
the Trust in respect of Insured Payments for such Class and the deemed assignee
of such Holders of such Class of Senior Certificates. The Trustee hereby agrees
on behalf of each Holder of a Class of Senior Certificates for the benefit of
the Certificate Insurer that it recognizes that to the extent the Certificate
Insurer makes Insured Payments for such Class, either directly or indirectly (as
by paying through the Trustee), to the Holders of such Class of Senior
Certificates, the Certificate Insurer will be entitled to receive the related
Reimbursement Amount pursuant to Section 4.05(a)(ix).

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ARTICLE V

The Certificates

Section V.01. The Certificates.

(a) Each Class A Certificate shall be substantially in the
form of Exhibit C-1 hereto, each Class S Certificate shall be substantially in
the form of Exhibit C-2 hereto and each Class R Certificate shall be
substantially in the form of Exhibit D hereto, in each case with such
appropriate insertions and substitutions as are required or permitted hereunder,
and shall, on original issue, be executed on behalf of the Trust by manual or
facsimile signature of a Responsible Officer of the Trustee having such
authority under the Trustee's seal imprinted or otherwise affixed therein and
attested on behalf of the Trustee by the manual or facsimile signature of any
other Responsible Officer of the Trustee. The maximum and initial Class A
Certificate Balance of the Class A Certificates authorized to be issued
hereunder shall be equal to the Initial Class A Certificate Balance, and each
Class of Senior Certificates shall bear interest at the applicable Certificate
Rate. The Class A Certificates shall be issued in minimum denominations of
$1,000 and integral multiples of $1,000 in excess thereof (except that one
Certificate may be issued in an amount that is not an integral multiple of
$1,000). The Class S Certificates shall be issued in minimum denominations of a
Percentage Interest equal to 10% and integral multiples of a Percentage Interest
equal to 10% in excess thereof. One Class of residual Certificates is authorized
to be issued hereunder, designated as the "Class R Certificates." The Class R
Certificates shall be issued in minimum denominations representing a one
twentieth (i.e., 5%) Residual Interest. No Certificate shall be entitled to any
benefit under this Agreement, or be valid for any purpose, unless there appears
on such Certificate a execution by the Trustee by manual or facsimile signature,
and such signature upon any Certificate shall be conclusive evidence, and the
only evidence, that such Certificate has been duly executed and delivered
hereunder. Each Certificate shall be dated the date of its signature.
Certificates of each Class shall be numbered consecutively beginning with 0001
and each number shall be preceded by an "A" for Class A Certificates, an "S" for
Class S Certificates and an "R" for Class R Certificates. The Trustee shall
cause to be executed and delivered to or upon the order of the Depositor, in
exchange for the Loans and the other Trust Property, simultaneously with the
sale, assignment and transfer to the Trustee of Loans, Files and the other Trust
Property, Certificates duly executed by the Trustee evidencing the entire
ownership of the Trust.

(b) Any Certificate as to which the Trustee has made the final
distribution thereon shall be deemed cancelled and shall

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no longer be Outstanding for any purpose of this Agreement, whether or not such
Certificate is ever returned to the Trustee.

Section V.02. Registration of Transfer and Exchange of
Certificates.

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Trustee and the Depositor against any liability that may result if the transfer
is not so exempt or is not made in accordance with such federal and state laws.

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system through the Depository is no longer in the best interests of the
Certificate Owners, the Trustee shall notify all Certificate Owners, through the
Depository, of the occurrence of any such event and of the availability of
definitive, fully-registered Class A Certificates (the "Definitive
Certificates") to Certificate Owners requesting the same. Upon surrender to the
Trustee of such Book-Entry Certificates by the Depository, accompanied by the
instructions from the Depository for registration, the Trustee shall issue the
Definitive Certificates. None of the Seller, the Master Servicer, the Depositor,
the Certificate Insurer or the Trustee shall be liable for any delay in delivery
of such instruction and each may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Certificates all
references herein to obligations imposed upon or to be performed by the
Depository shall be deemed to be imposed upon and performed by the Trustee, to
the extent applicable with respect to such Definitive Certificates and the
Trustee shall recognize the Holders of the Definitive Certificates as
Certificateholders hereunder; provided that the Trustee shall not by virtue of
its assumption of such obligations become liable to any party for any act or
failure to act of the Depository.

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Trustee, to the effect that the purchase or holding of such Class S or Class R
Certificate will not result in the assets of the Trust being deemed to be "plan
assets" and subject to the prohibited transaction provisions of ERISA and the
Code and will not subject the Trustee to any obligation in addition to those
expressly undertaken in this Agreement or to any liability. Notwithstanding the
foregoing, the Trustee shall waive the transfer restrictions imposed by this
Section 5.02(b)(2) with respect to the Class S Certificates, if the initial
transferee of the Class S Certificates certifies in writing to the Trustee that
such transferee has a valid Exemption and all requirements for transfer of the
Class S Certificates pursuant to such Exemption are satisfied.

(f) All Certificates surrendered for transfer, exchange or
payment shall be disposed of by the Certificate Registrar in accordance with its
standard procedures.

(g) Transfers of Class R Certificates shall be subject to the
provisions of Article XI.

Section V.03. Mutilated, Destroyed, Lost or Stolen
Certificates. If (a) any mutilated Certificate is surrendered to

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the Certificate Registrar or the Trustee, or the Certificate Registrar and the
Trustee, the Depositor and the Certificate Insurer receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate, and (b) there
is delivered to the Certificate Registrar, the Certificate Insurer and the
Trustee, the Depositor and the Certificate Insurer such security or indemnity as
may be required by them to save each of them harmless (which in the case of a
Certificateholder that is an institutional investor with a minimum net worth of
$250,000,000, will be deemed to be satisfied by a written agreement of indemnity
from such Certificateholder, then, in the absence of notice to the Certificate
Registrar or the Trustee that such Certificate has been acquired by a bona fide
purchaser, the Trustee shall execute on behalf of the Trust and the Trustee
shall countersign and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of the same Class and
Percentage Interest, as such mutilated, destroyed, lost or stolen Certificate,
in each case bearing a number not borne by any then Outstanding Certificate of
any Class. Upon the issuance of any new Certificate under this Section 5.03, the
Trustee may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Certificate Registrar)
connected therewith. Any Certificate issued pursuant to this Section 5.03 shall
constitute complete and indefeasible evidence of the same interest in the Trust,
and shall be entitled to the same benefits under this Agreement, as if
originally issued, whether or not the lost, stolen or destroyed Certificate
shall be found at any time.

Section V.04. Persons Deemed Owners
Prior to due presentation of a Certificate for registration of transfer, the
Trustee, the Certificate Insurer, the Certificate Registrar and any agent of the
Trustee, the Certificate Insurer or the Certificate Registrar may treat the
Person in whose name any Certificate is registered (i) on any Record Date for
purposes of making distributions on the following Distribution Date, whether or
not any distribution required to be made on such Certificate shall have been
made when scheduled, and (ii) on any date for any other purpose, as the owner of
such Certificate, and neither the Trustee, the Certificate Insurer, the
Certificate Registrar nor any agent of the Trustee, the Certificate Insurer or
the Certificate Registrar shall be affected by notice to the contrary, except,
with respect to a Class R Certificate, for notice by the Master Servicer
pursuant to Section 11.02 that the record holder is not a Permitted Transferee,
and in such case the provisions of Section 11.02 shall apply.

Section V.05. Trustee to Make Payments From Trust Only. All
distributions to be made by the Trustee in respect of the Certificates or under
this Agreement shall be made only from

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the Trust Property. Each Certificateholder, by its acceptance of a Certificate,
agrees that it will look solely to the Trust Property to the extent available
for distribution to it as herein provided and that the Trustee is not personally
liable to it for any amount distributable in respect of any Certificate or for
any other liability in respect of any Certificate. This Section is intended
solely to limit the liability of the Trustee and shall have no effect on the
obligations of the Depositor, Mego or the Master Servicer under this Agreement.
This Section 5.05 does not limit the liability of the Trustee set forth
elsewhere in this Agreement for violations of its representations, warranties
and covenants contained herein.

ARTICLE VI

The Master Servicer

Section VI.01. Liability of the Master Servicer.

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term debt rating which is BBB and Baa2 by Standard & Poor's and Moody's
respectively. Any corporation (i) into which the Master Servicer may be merged
or consolidated, (ii) resulting from any merger or consolidation to which the
Master Servicer shall be a party, (iii) which acquires by conveyance, transfer
or lease substantially all of the assets of the Master Servicer, or (iv)
succeeding to the business of the Master Servicer, in any of the foregoing cases
shall execute an agreement of assumption to perform every obligation of the
Master Servicer under this Agreement and, whether or not such assumption
agreement is executed, shall be the successor to the Master Servicer under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties to this Agreement, anything in this Agreement to the
contrary notwithstanding; provided, however, that nothing contained herein shall
be deemed to release the Master Servicer from any obligation. The Master
Servicer shall provide notice of any merger, consolidation or succession
pursuant to this Section 6.02 to the Trustee, the Certificate Insurer and each
Rating Agency. Notwithstanding the foregoing, as a condition to the consummation
of the transactions referred to in clauses (i) through (iv) above, (x)
immediately after giving effect to such transaction, no representation or
warranty made pursuant to Section 6.06 shall have been breached (for purposes
hereof, such representations and warranties shall speak as of the date of the
consummation of such transaction), (y) the Master Servicer shall have delivered
to the Trustee and the Certificate Insurer an Officer's Certificate and an
Opinion of Counsel each stating that such consolidation, merger or succession
and such agreement of assumption comply with this Section 6.02 and that all
conditions precedent, if any, provided for in this Agreement relating to such
transaction have been complied with, and (z) the Master Servicer shall have
delivered to the Trustee and the Certificate Insurer an Opinion of Counsel,
stating, in the opinion of such counsel, either (A) all financing statements and
continuation statements and amendments thereto have been executed and filed that
are necessary to preserve and protect the interest of the Trustee in the Trust
Property and reciting the details of the filings or (B) no such action shall be
necessary to preserve and protect such interest.

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perform duties hereunder or by reason of reckless disregard of obligations and
duties hereunder. The Master Servicer and any of its directors, officers,
employees or agents may rely in good faith on any document of any kind prima
facie properly executed and submitted by any Person respecting any matters
arising hereunder.

Section VI.04. Master Servicer Not to Resign; Expenses;
Assignment.

(a) The Master Servicer shall not resign from the obligations
and duties hereby imposed on it except (i) with the consent of the Certificate
Insurer and the Rating Agencies or (ii) upon determination that by reason of a
change in legal requirements the performance of its duties under this Agreement
would cause it to be in violation of such legal requirements in a manner which
would result in a material adverse effect on the Master Servicer and the
Certificate Insurer (so long as an Certificate Insurer Default shall not have
occurred and be continuing) does not elect to waive the obligations of the
Master Servicer to perform the duties which render it legally unable to act or
to delegate those duties to another Person. Any such determination permitting
the resignation of the Master Servicer shall be evidenced by an Opinion of
Counsel to such effect delivered and acceptable to the Trustee and the
Certificate Insurer (unless a Certificate Insurer Default shall have occurred
and be continuing). No resignation of the Master Servicer shall become effective
until the Trustee or a successor servicer acceptable to the Certificate Insurer
shall have assumed the Master Servicer's servicing responsibilities and
obligations in accordance with Section 7.02.

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to this Agreement. In addition, the Master Servicer, at its sole cost and
expense, shall prepare, execute and deliver any and all documents and
instruments, deliver to the successor Master Servicer all Files and do or
accomplish all other acts necessary or appropriate to effect such termination
and transfer of servicing responsibilities, including, without limitation,
assisting in obtaining any necessary approval under Title I from the FHA.

(a) The Master Servicer is a national banking association duly
organized and validly existing under the laws of the United States of America,
with full power and authority to own its properties and conduct its business as
such properties are presently owned and such business is presently conducted;

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(c) Neither the execution and delivery of this Agreement or
any other Transaction Document to which the Master Servicer is a party, the
consummation of the transactions required of the Master Servicer herein or
therein, nor the fulfillment of or compliance with the terms and conditions of
this Agreement or any other Transaction Document to which the Master Servicer is
a party will conflict with or result in a breach of any of the terms, conditions
or provisions of the Master Servicer's charter or bylaws or any legal
restriction or any material agreement or instrument to which the Master Servicer
is now a party or by which it is bound, or which would adversely affect the
creation or administration of the Trust as contemplated hereby, or constitute a
material default or result in an acceleration under any of the foregoing, or
result in the violation of any law, rule, regulation, order, judgment or decree
to which the Master Servicer or its property is subject;

(g) Neither this Agreement nor any other Transaction

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Document to which the Master Servicer is a party nor any statement, report or
other document furnished or to be furnished by the Master Servicer pursuant to
this Agreement or any other Transaction Document to which the Master Servicer is
a party or in connection with the transactions contemplated hereby and thereby
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained herein or therein not misleading;

(j) The Servicing Agreement conforms to the requirements for a
Servicing Agreement contained in this Agreement;

(k) Each Loan will be serviced by the Master Servicer and the
Servicer in compliance with Title I and all other applicable laws;

(l) The Servicer is an Eligible Servicer, and the Master
Servicer possesses all state and federal licenses necessary for servicing the
Loans in accordance with this Agreement;

(m) The Master Servicer has not waived any default, breach,
violation or event of acceleration existing under any Note or the related
Mortgage; and

It is understood and agreed that the representations and
warranties set forth in this Section 6.06 shall survive the

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issuance and delivery of the Certificates and shall be continuing as long as any
Certificate shall be outstanding or this Agreement has not been terminated.

ARTICLE VII

Master Servicer Termination Events

Section VII.01. Master Servicer Termination Events; Waiver.
For purposes of this Agreement, each of the following shall constitute a "Master
Servicer Termination Event":

(a) (i) failure by the Master Servicer to deposit or cause the
Servicer to deposit all Payments in the related Collection Account no later than
the second Business Day following receipt thereof by the Master Servicer or
Servicer, which failure continues unremedied for two Business Days; (ii) failure
by the Master Servicer to make any required Interest Advance pursuant to Section
3.08; (iii) failure of the Master Servicer to pay when due any amount payable by
it under the Insurance Agreement, which failure continues unremedied for two
Business Days; or (iv) failure of the Master Servicer to pay when due any amount
payable by it under this Agreement and such failure results in a drawing

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under the Policy; or

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(f) any representation, warranty or statement of the Master
Servicer made in this Agreement or any certificate, report or other writing
delivered pursuant hereto shall prove to be incorrect in any material respect as
of the time when the same shall have been made, and the incorrectness of such
representation, warranty or statement has a material adverse effect on the Trust
and, within 30 days of the earlier of (x) the date on which the Master Servicer
gives notice of such failure to the Trustee or the Certificate Insurer pursuant
to Section 3.04(b) and (y) the date on which written notice thereof shall have
been given to the Master Servicer by the Trustee or the Certificate Insurer (or,
if a Certificate Insurer Default shall have occurred and be continuing, written
notice thereof shall have been given by a Class Vote), the circumstances or
condition in respect of which such representation, warranty or statement was
incorrect shall not have been eliminated or otherwise cured; or

(j) the long-term debt rating of the Master Servicer shall be
reduced below BBB and Baa2 by Standard & Poor's and Moody's, respectively; or

(k) the Annual Default Percentage (Three Month Average)
exceeds 6.5% or the 60+ Delinquency Percentage (Rolling Three Month) exceeds
6.0%.

Section VII.02. Consequences of a Master Servicer Termination
Event. If a Master Servicer Termination Event shall

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occur and be continuing, the Certificate Insurer (or, if a Certificate Insurer
Default shall have occurred and be continuing, the Trustee at the direction of
the Holders pursuant to a Class Vote), by notice given in writing to the Master
Servicer (and to the Trustee if given by the Certificate Insurer or the
Certificateholders) may terminate all of the rights and obligations of the
Master Servicer under this Agreement. On or after the receipt by the Master
Servicer of such written notice, and the appointment of and acceptance by a
successor Master Servicer, all authority, power, obligations and
responsibilities of the Master Servicer under this Agreement, whether with
respect to the Certificates or the Trust or otherwise, shall pass to, be vested
in and become obligations and responsibilities of the successor Master Servicer;
provided, however, that the successor Master Servicer shall have no liability
with respect to any obligation which was required to be performed by the prior
Master Servicer prior to the date that the successor Master Servicer becomes the
Master Servicer or any claim of a third party based on any alleged action or
inaction of the prior Master Servicer. The successor Master Servicer is
authorized and empowered by this Agreement to execute and deliver, on behalf of
the prior Master Servicer, as attorney-in-fact or otherwise, any and all
documents and other instruments and to do or accomplish all other acts or things
necessary or appropriate to effect the purposes of such notice of termination.
The prior Master Servicer agrees to cooperate with the successor Master Servicer
in effecting the termination of the responsibilities and rights of the prior
Master Servicer under this Agreement, including, without limitation, the
transfer to the successor Master Servicer for administration by it of all cash
amounts that shall at the time be held by the prior Master Servicer for deposit,
or have been deposited by the prior Master Servicer, in the Collection Accounts
or thereafter received with respect to the Loans and the delivery to the
successor Master Servicer of all Files and a computer tape in readable form
containing the Servicing Record and any other information necessary to enable
the successor Master Servicer to service the Loans and the other Trust Property.
If requested by the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), the successor Master Servicer shall
direct the Obligors to make all payments under the Loans directly to the
successor Master Servicer, or to a lockbox established by the Master Servicer at
the direction of the Certificate Insurer (unless a Certificate Insurer Default
shall have occurred and be continuing), at the prior Master Servicer's expense.
In addition to any other amounts that are then payable to the terminated Master
Servicer under this Agreement, the terminated Master Servicer shall then be
entitled to receive (to the extent provided by Section 3.08) out of the
Distribution Amount, reimbursements for any outstanding Interest Advances made
during the period prior to the notice pursuant to this Section 7.02 which
terminates the obligation and rights of the terminated

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Master Servicer under this Agreement. The Trustee and the successor Master
Servicer may set off and deduct any amounts owed by the terminated Master
Servicer from any amounts payable to the terminated Master Servicer. The
terminated Master Servicer shall grant the Trustee, the successor Master
Servicer and the Certificate Insurer reasonable access to the terminated Master
Servicer's premises at the terminated Master Servicer's expense.

Section VII.03. Appointment of Successor.

Section VII.04. Notification to Certificateholders. Upon any
termination of the Master Servicer or appointment of a successor to the Master
Servicer, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective

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addresses appearing in the Certificate Register.

ARTICLE VIII

Concerning the Trustee

Section VIII.01. Duties of the Trustee and Contract of
Insurance Holder.

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

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

(iv) The Trustee shall not be personally liable for any
failure to ascertain whether a Certificateholder is an affiliate of the
Master Servicer or the Depositor for purposes of obtaining
Certificateholder consent pursuant to the terms of this Agreement;

(v) For all purposes of this Agreement, the Trustee
shall not be deemed to have knowledge of any Master Servicer
Termination Event unless a Responsible Officer of the Trustee assigned
to and working in the Trustee's Corporate Trustee Administration
Department shall have actual knowledge thereof or if written notice
thereof is received by

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the Trustee in accordance herewith, and in the absence of such
knowledge no provision hereof requiring the taking of any action or the
assumption of any duties or responsibility by the Trustee following the
occurrence of any Master Servicer Termination Event shall be effective
as to the Trustee; and

(vi) None of the provisions contained in this Agreement
shall in any event require the Trustee to perform, or to be responsible
for the manner of performance of, any of the obligations of the Master
Servicer or the Servicer under this Agreement or to supervise or
monitor the performance of such obligations (other than to determine
that any notices, reports or statements required to be delivered to it
by the Master Servicer hereunder comply with the provisions of this
Agreement), except during such time, if any, as the Trustee shall be
the successor to, and be vested with the rights, duties, powers and
privileges of the Master Servicer in accordance with the provisions of
this Agreement.

(d) If the Trustee receives any funds from the FHA or any
other Person with respect to the Loans or any other assets of the Trust, the
provisions of Section 3.12(e) shall apply.

(e) In the event that any conservator or receiver shall be
appointed for Mego, the Trustee shall cause the Master Servicer to notify the
Obligors of the sale of the Loans to the Trust.

Section VIII.02. Certain Matters Affecting the Trustee. Except
as otherwise provided in Section 8.01:

(ii) The Trustee shall be under no obligation to exercise
any of the trusts or powers vested in it by this Agreement or to
institute, conduct or defend any litigation hereunder or in relation
hereto at the request, order or direction of the Certificate Insurer or
any of the Certificateholders, pursuant to the provisions of this
Agreement, expend or use its own funds or otherwise incur any financial
liability in the performance of any of its duties as Trustee hereunder,
or in the exercise of any of its rights or powers as such, unless
either (A) payment within a reasonable time to the Trustee of the
costs, expenses or

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liabilities likely to be incurred by it in taking such action is, in
the opinion of the Trustee, reasonably assured to the Trustee by the
security afforded to it by the terms of this Agreement, or (B) the
Certificate Insurer or such Certificateholders as the case may be shall
have offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which may be incurred therein or
thereby (which, in the case of a Certificateholder which is an
institutional investor, will be deemed satisfied by a written agreement
of indemnity from such Certificateholder); the right of the Trustee to
perform any discretionary act enumerated in this Agreement shall not be
construed as a duty, and the Trustee shall not be answerable for other
than its negligence, bad faith or willful misconduct in the performance
of any such act; nothing contained herein shall, however, relieve the
Trustee of the obligation, upon the occurrence of a Master Servicer
Termination Event which has not been cured, to exercise such of the
rights and powers vested in it by this Agreement, and to use the same
degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own
affairs;

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

(iv) The Trustee may consult with counsel and any Opinion
of Counsel or written advice of counsel shall be full and complete
authorization and protection in respect of any action taken or suffered
or omitted by it hereunder in good faith and in accordance with such
Opinion of Counsel or written advice;

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such direction against such expense or liability as a condition to so
proceeding (which, in the case of a Certificateholder which is an
institutional investor, will be deemed satisfied by a written agreement
of indemnity from such Certificateholder), except that, if a Master
Servicer Termination Event has occurred and is continuing, the expenses
of any such investigation shall be paid by the Master Servicer or, if
paid by the Trustee, shall be repaid by the Master Servicer upon
demand, and the Trustee shall not have any lien, claim or demand upon
the Trust for the payment thereof;

(vi) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or through
agents or attorneys; and

(vii) The Trustee shall not be required to give any bond
or surety in respect of the trust created hereby or the powers created
hereunder.

Section VIII.04. Trustee May Own Certificates. The

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Trustee in its individual or any other capacity may become the owner or pledgee
of Certificates of any Class with the same rights as it would have if it were
not Trustee, except that no determination, vote or request as Holder of such
Certificates shall be included in the determination of a Class Vote. The
Trustee, in its individual capacity, may deal with either the Depositor, the
Certificate Insurer and the Master Servicer, each in their individual
capacities, with the same rights it would have if it were not Trustee.

Section VIII.05. Trustee's Fees and Expenses; Indemnification.

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Section VIII.06. Eligibility Requirements for Trustee. The
Trustee hereunder shall at all times be a corporation or national banking
association organized and doing business under the laws of the United States or
of any state, authorized under such laws to exercise corporate trust powers,
subject to supervision or examination by federal or state authority and either
(i) having a combined capital and surplus of at least $50,000,000 or (ii) being
the wholly-owned subsidiary of a bank holding company having such a capital and
surplus. If such corporation or national banking association publishes reports
of condition at least annually, pursuant to law or the requirements of the
aforesaid supervising or examining authority, then for the purpose of this
Section 8.06 the combined capital and surplus of such corporation or national
banking association shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. By executing and
delivering this Agreement, the Trustee represents and warrants that it meets
such requirements as of the date hereof. In case at any time the Trustee shall
cease to be eligible in accordance with the provisions of this Section 8.06, the
Trustee shall resign immediately in the manner and with the effect specified in
Section 8.07. Neither the Master Servicer nor any affiliate thereof shall be
eligible to serve as Trustee at any time, except that the Trustee may serve as
successor master servicer pursuant to Section 7.02.

Section VIII.07. Resignation and Removal of the Trustee.

(a) The Trustee may resign and be discharged from the trust
hereby created by giving not less than 60 days' written notice thereof to the
Master Servicer and the Certificate Insurer. Upon receiving such notice of
resignation, the Depositor with the prior written consent of the Certificate
Insurer or, if a Certificate Insurer Default is then occurring and continuing,
the Depositor shall promptly appoint a successor trustee by written instrument,
in duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor trustee. If no successor trustee shall
have been so appointed and have accepted appointment within sixty days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor trustee.

(b) If at any time the Trustee shall cease to be eligible in
accordance with the provisions of Section 8.06, or if the Trustee has failed to
perform any obligation hereunder and such failure materially and adversely
affects Certificateholders of any Class or the Certificate Insurer, and, in
either such case, the Trustee shall fail to resign after written request
therefor by

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the Depositor, with the consent of the Certificate Insurer, if a Certificate
Insurer Default is not then occurring and continuing, or the Certificate
Insurer, if a Certificate Insurer Default is not then occurring and continuing
or if at any time the Trustee shall become incapable of acting, or shall be
adjudged as bankrupt or insolvent, or a receiver or other conservator of the
Trustee or of its property shall be appointed, or any public officer shall take
charge or control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then, in any such case the
Depositor may with the prior written consent of the Certificate Insurer or at
the written request of the Certificate Insurer shall remove the Trustee and
appoint a successor trustee acceptable to the Certificate Insurer by written
instrument, in duplicate, one copy of which instrument shall be delivered to the
Trustee so removed and one copy to the successor trustee.

Section VIII.08. Successor Trustee.

(b) No successor trustee shall accept appointment as provided
in this Section 8.08 unless at the time of such acceptance such successor
trustee shall be eligible under the provisions of Section 8.06. In addition, no
appointment of a

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successor trustee shall be effective until such entity holds a contract of
insurance that covers the Loans or First Trust of New York, National
Association, as Contract of Insurance Holder is appointed co-trustee under this
Pooling and Servicing Agreement.

Section VIII.10. Appointment of Co-Trustee or Separate
Trustee.

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required to meet the terms of eligibility as a successor trustee under Section
8.06, and no notice to Certificateholders of the appointment of co-trustee(s) or
separate trustee(s) shall be required under Section 8.08.

(e) No trustee hereunder shall be held personally liable by
reason of any act or omission of any other trustee hereunder.

(f) The Trustee may at any time accept the resignation

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of or remove any separate trustee or co-trustee.

Section VIII.11. Appointment of Custodians.

(b) The Custodian in its individual or any other capacity may
become the owner or pledgee of Certificates of any Class with the same rights it
would have if it were not Custodian.

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Section VIII.12. Certain Tax Matters.

(b) The Trustee as agent for Mego, so long as it shall be a
Holder of a Class R Certificate, and otherwise the Residual Holder appointed in
accordance with the provisions of the Code, shall:

(i) in a timely manner, prepare, file with the Internal
Revenue Service or other appropriate authorities, and cause the Trustee
to mail to Certificateholders, as required, any Tax Returns, and any
other federal, state or local tax or information returns or reports
that are required to be so filed, or provided to Certificateholders,
with respect to the REMIC Pool;

(ii) in the first Tax Return, elect to treat the REMIC
Pool, as a REMIC;

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(iv) maintain or instruct the Trustee to maintain
records as to investments and other assets of the REMIC Pool sufficient
to show compliance with the REMIC Provisions during each taxable year
of the REMIC Pool; and

(d) The Trustee is hereby authorized and directed to make
information available to the Internal Revenue Service and to any Holder or
transferor of a Class R Certificate necessary for

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compliance with Section 860E(e) of the Code. The Master Servicer shall maintain
records and information related to the Loans and Monthly Payments sufficient to
make any calculations that may be required pursuant to such section and shall
provide such information to the Trustee; provided, however, that any
calculations necessary to provide such information to any Holder or the Internal
Revenue Service shall be performed by the accountants for the REMIC Pool. The
provisions of Section 11.02(vi) shall also apply.

Section VIII.13. Representations and Warranties of the
Trustee.

The Trustee represents and warrants to, and agrees with, the
parties hereto, the Certificate Insurer and Certificateholders that:

(a) The Trustee is duly organized as a national banking
association under the laws of the United States of America, is validly existing
and in good standing in such state and has the corporate power and authority
under United States law to conduct its corporate trust business as now
conducted.

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(b) The Trustee has full corporate power and authority under
United States law to enter into and perform all transactions contemplated herein
and no consent, approval, authorization or order of any federal court or
governmental agency or body governing or having jurisdiction with respect to the
Trustee's trust powers is required for the Trustee to enter into this Agreement
and to perform its obligations hereunder.

(c) The Certificates when countersigned by the Trustee shall
have been duly and validly countersigned in accordance with this Agreement.

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received by the Trustee in accordance herewith.

(g) The Trustee has taken actual possession of the Notes,
Mortgages and other items in the Files in the ordinary course of its business.

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Certificateholder) or (in the case of directions provided by a Class Vote) be
unduly prejudicial to the rights of Certificateholders not parties to such
direction; and provided further that nothing in this Agreement shall impair the
right of the Trustee to take any action deemed proper by the Trustee and which
is not inconsistent with such direction by the Certificate Insurer or the
Certificateholders.

ARTICLE IX

Termination

Section IX.01. Termination.

(b) The REMIC Pool shall be terminated with the consent of the
Certificate Insurer, and the assets of the REMIC

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Pool shall be sold or otherwise disposed of in connection therewith, only
pursuant to a Plan of Complete Liquidation adopted by the Trustee at the
direction of the Depositor and having the terms set forth in Section 9.01(c).
Each Holder of a Certificate hereby irrevocably approves and appoints the
Trustee, acting at the direction of the Depositor as its attorney-in-fact for
the purposes of the adoption of the Plan of Complete Liquidation. The Trustee,
acting at the direction of the Depositor, shall adopt a Plan of Complete
Liquidation promptly following the Trustee's receipt of a Notice of Termination.

(i) for the actions contemplated by the provisions
hereof pursuant to which the applicable Notice of Termination is given;

(ii) that the REMIC Pool shall terminate as a REMIC as
required by Section 860F(a)(4) of the Code on a Distribution Date
occurring not more than 90 days following the date of adoption of the
Plan of Complete Liquidation; and

(iii) that all assets of the REMIC Pool required to be
sold pursuant to the Plan of Complete Liquidation shall be sold after
the date of adoption thereof, such sale to be conducted by the Master
Servicer on behalf of the Trustee;

(d) Subject to the provisions of the following sentence, Mego
or, if such option is not exercised by Mego, the Master Servicer may, at its
option (with the prior written consent of the Certificate Insurer if such
purchase would result in a claim under the Policy), upon not less than thirty
days' prior

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notice given to the Trustee at any time on or after the applicable
Early Termination Notice Date, purchase on the Monthly Cut-Off Date specified in
such notice, all, but not less than all, the Loans, all claims made under the
Contract of Insurance with respect to Loans that are pending with FHA ("FHA
Pending Claims") and Foreclosed Properties then included in the Trust, at a
purchase price, payable in cash, equal to the sum of:

(i) the Principal Balance of each Loan included in the
Trust as of such Monthly Cut-Off Date;

(ii) all unpaid interest accrued on the Principal
Balance of each such Loan at the related Net Loan Rate to such Monthly
Cut-Off Date;

(iii) the aggregate fair market value of the FHA Pending
Claims for which a claim has been filed with the FHA included in the
Trust on such Monthly Cut-Off Date, as determined by an Independent
appraiser acceptable to the Trustee as of a date not more than thirty
days prior to such Monthly Cut-Off Date;

(iv) the aggregate fair market value of each Foreclosed
Property included in the Trust on such Monthly Cut-Off Date, as
determined by an Independent appraiser acceptable to the Trustee as of
a date not more than thirty days prior to such Monthly Cut-Off Date;
and

(v) any unreimbursed amounts due to the Certificate
Insurer under this Agreement or the Insurance Agreement.

(e) If the Trust has not been previously terminated pursuant
to subsection (d) of this Section 9.01 the Master Servicer shall give the
Trustee and the Certificate Insurer notice as soon as practicable (at least 45
days before the Distribution Date) of the Distribution Date which is the earlier
of (i) the Final Scheduled Distribution Date and (ii) the Distribution Date on
which the Master Servicer anticipates the latest of the maturity or other
liquidation of the last Loan.

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(f) Notice of any termination of the Trust pursuant to this
Section 9.01 shall be mailed, via first class mail, postage prepaid, by the
Trustee to affected Certificateholders at their addresses shown in the
Certificate Register as soon as practicable after the Trustee shall have
received a Notice of Termination, but in any event, not more than thirty days,
and not less than five days, prior to the Anticipated Termination Date except
that notice to Holders of Class R Certificates shall be made within two Business
Days after the Trustee shall have received a Notice of Termination. The notice
mailed by the Trustee to affected Certificateholders shall:

(i) specify the Anticipated Termination Date on which
the final distribution is anticipated to be made to Holders of
Certificates of the Classes specified therein; and

(ii) specify the amount of any such final distribution,
if known.

(g) On the Termination Date, amounts on deposit in the
Distribution Account will be withdrawn and applied in the manner set forth in
Section 4.05.

ARTICLE X

Miscellaneous Provisions

Section X.01. Amendment.

(b) If the purpose of the amendment (as detailed therein) is
to correct any mistake, eliminate any inconsistency, cure any ambiguity or deal
with any matter not covered (i.e., to give effect to the intent of the parties
and, if applicable, to the expectations of the Certificateholders), it shall not
be necessary to obtain the consent of any Certificateholder, but the

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Trustee shall be furnished with a letter from the Rating Agency that the
amendment will not result in the downgrading or withdrawal of the rating then
assigned to any Certificate.

(e) In the event that federal legislation creates a new type
of entity for federal income tax purposes, the "financial asset securitization
investment trust" (a "FASIT"), the Trustee or the Depositor may amend this
Agreement to effect a FASIT election for all or a portion of the Trust;
provided, that the Trustee and the Certificate Insurer shall be furnished with
an Opinion of Counsel to the effect that such election will not adversely affect
the Federal or applicable state income tax characterization of any outstanding
Certificates or the taxability of the Trust under Federal or applicable state
income tax laws.

(f) Promptly after the execution of any amendment hereof, the
Trustee shall furnish written notification of the substance of such amendment to
each Holder of the affected Certificates.

(g) It shall not be necessary for the consent of
Certificateholders under this Section 10.01 to approve the particular form of
any proposed amendment, but it shall be sufficient if such consent shall approve
the substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders and of any
other consents, directions, waivers or other acts of Certificateholders
hereunder shall be subject to such reasonable regulations as to the Trustee may
prescribe.

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(h) The Trustee may, but shall not be obligated to, enter into
any amendment hereto which affects the Trustee's own rights, duties, liabilities
and immunities under this Agreement or otherwise, except to the extent necessary
to maintain the qualification of the REMIC Pool as a REMIC.

Section X.02. Recordation of Agreement.

(a) To the extent permitted by applicable law, this Agreement
or a memorandum hereof (in a form mutually agreed upon by the Master Servicer,
the Depositor, Mego, the Certificate Insurer and the Trustee) may be recorded in
all appropriate public offices for real property records in all the counties or
other comparable jurisdictions in which any or all of the Properties are
situated, and in any other appropriate public recording office or elsewhere,
such recordation to be effected by the Master Servicer at the expense of the
Trust, if the Master Servicer determines that such recordation materially and
beneficially affects the interests of the affected Certificateholders.

Section X.03. Rights of Certificateholders.

(a) The death, incapacity or bankruptcy of any
Certificateholder shall not operate to terminate this Agreement or the Trust,
nor entitle such Certificateholder's legal representatives, heirs or successors
to claim an accounting or to take any action or proceeding in any court for a
partition or winding-up of the Trust, nor otherwise affect the rights,
obligations and liabilities of the parties hereto or any of them.

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

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any right by virtue of any provision of this Agreement to institute any suit,
action or proceeding in equity or at law upon or under or with respect to this
Agreement, unless, with the prior written consent of the Certificate Insurer, if
a Certificate Insurer Default is not then occurring and continuing the Holders
shall have made written request pursuant to a Class Vote (wherein such request
is only made by each such affected Class of Certificates) upon the Trustee to
institute such action, suit or proceeding in its own name as Trustee hereunder
and shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein or
thereby (which, in the case of a Certificateholder which is an institutional
investor, will be deemed satisfied by a written agreement of indemnity from such
Certificateholder), and the Trustee, for sixty days after its receipt of such
notice, request and offer of indemnity, shall have neglected or refused to
institute any such action, suit or proceeding; it being understood and intended,
and being expressly covenanted by each Certificateholder with every other
Certificateholder and the Trustee, that no one or more Holders of Certificates
of any Class shall have any right in any manner whatever by virtue of any
provision of this Agreement to affect, disturb or prejudice the rights of any
other Holders of such Certificates, or to obtain or seek to obtain priority over
or preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the equal, ratable and
common benefit of all Certificateholders of such Class. For the protection and
enforcement of the provisions of this Section 10.03, each and every
Certificateholder and the Trustee shall be entitled to such relief as can be
given either at law or in equity. Nothing in this Agreement shall be construed
as giving the Certificateholders any right to make a claim under the Policy.

SECTION X.04. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS THEREOF AND THE PROVISIONS OF THE CERTIFICATES,
RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE
WITH SUCH LAWS.

Section X.05. Notices.

(a) All demands, notices, statements and reports hereunder
shall be in writing (unless otherwise specified) and shall be deemed to have
been duly given, if personally delivered, mailed by registered mail postage
prepaid, or delivered by overnight courier or if telecopied (with confirmation
by another prior specified method):

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(i) in the case of the Master Servicer, to:

Norwest Bank Minnesota, N.A.
11000 Broken Land Parkway
Columbia, Maryland 21044-3562
Attention: Master Servicing Department
FHA Title I Loan
Mego Trust 1996-2

or such other address as may hereafter be furnished to the other
parties hereto in writing by the Master Servicer;

(ii) in the case of Depositor to:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Charles A. Forbes

or such other address as may hereafter be furnished to the other
parties hereto in writing by the Depositor;

(iii) in the case of Mego
Prior to September 15, 1996, to:

Mego Mortgage Corporation
210 Interstate North Parkway
Suite 250
Atlanta, Georgia 30339
Attention: Jeff S. Moore, President

After September 15, 1996
Mego Mortgage Corporation
1000 Park Wood Circule
Atlanta, Georgia
Attention: Jeff S. Moore, President

(iv) in the case of the Trustee, to:

First Trust of New York, N.A.
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

or such other address as may hereafter be furnished to the other
parties hereto in writing by the Trustee;

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(v) in the case of the FHA, to:

Office of the Assistant Secretary
for Housing-Federal Housing
Commissioner
U.S. Department of Housing and Urban
Development
Washington, D.C. 20410-8000
Attention: Jeanette Smith
Acting Director, Title I
Accounting and Servicing Division
470 L'Enfant Plaza East
Suite 3100
Washington, D.C. 20024

(vi) in the case of Standard & Poor's, to:

Standard & Poor's Rating Services
25 Broadway, 15th Floor
New York, New York 10004
Attention: Loan Surveillance

(vii) in the case of Moody's, to:

Moody's Investors Service, Inc.
99 Church Street
New York, New York 10007
Attention: Home Equity Monitoring Department

(viii) in the case of the Certificate Insurer, to:

MBIA Insurance Corporation
113 King Street
Armonk, NY 10504
Attention: Insured Portfolio Management
Structured Finance (IPM -SF)
(Mego FHA Title I Loan Asset-Backed
Certificates, Series 1996-2)
Confirmation: (914) 273-4545
Telecopy No.: (914) 765-3164

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designated by such Holder in a written notice provided by such Holder to the
Trustee. Any notice required or permitted to be given to a Holder of any Senior
Certificate in connection with a Class Vote shall specify the consent sought and
the circumstances relating thereto and shall state that if the Class Vote does
not occur within 30 days after the date of such notice, such Class Vote shall be
determined by the Certificate Insurer, which notice shall be delivered by
overnight courier to the address of such Holder appearing in the Certificate
Register, with a copy thereof to each Person designated by such Holder in a
written notice provided by such Holder to the Trustee. Any notice or information
so mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not such notice is received.

Section X.06. Severability of Provisions. If any one or more
of the covenants, agreements, provisions or terms of this Agreement shall be for
any reason whatsoever held invalid, illegal or unenforceable, then such
covenants, agreements, provisions or terms shall be deemed to be modified to the
extent necessary to render them valid, legal and enforceable, and if no such
modification shall render them valid, legal and enforceable, then such
covenants, agreements, provisions or terms shall be severable from the remaining
covenants, agreements, provisions or terms of this Agreement and shall in no way
affect the validity or enforceability of the other provisions of this Agreement
or of any Class of Certificates or the rights of the Holders thereof.

Section X.07. Waiver of Notice. Notwithstanding anything to
the contrary contained herein, any Holder of a Class R Certificate shall be
entitled to:

(i) waive any provision hereof that requires the Trustee
to give any notice, or mail any report, statement or request for
consent, to such Holder; and

(ii) appoint the Master Servicer (with notice to the
Trustee) as its attorney-in-fact for the purposes of providing any
consent or giving any instruction required to be provided or given by
such Holder hereunder.

Section X.08. Access to List of Holders. Upon the written
applications of Holders of Certificates representing greater than $2,000,000 in
aggregate Denomination (hereinafter

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referred to as "applicants") to the Trustee, which application states that the
applicants desire to communicate with other Holders with respect to their rights
under this Agreement or under the Certificates, the Trustee shall, within five
Business Days after the receipt of such application, afford such applicants
access during normal business hours to the most recent Certificate Register.
Every Holder agrees with the Trustee that neither the Trustee nor the
Certificate Registrar shall be held accountable by reason of disclosure pursuant
hereto of any information included in the Certificate Registrar, regardless of
the source from which such information was derived.

Section X.09. Third-Party Beneficiaries. This Agreement shall
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Except as otherwise provided in
this Article X, no other Person shall have the right or obligation hereunder.
Upon issuance of the Policy, this Agreement shall also inure to the benefit of
the Certificate Insurer. Without limiting the generality of the foregoing, all
covenants and agreements in this Agreement which expressly confer rights upon
the Certificate Insurer shall be for the benefit of and run directly to the
Certificate Insurer, and the Certificate Insurer shall be entitled to rely on
and enforce such covenants to the same extent as if it were a party to this
Agreement. The Certificate Insurer may disclaim any of its rights and powers
under this Agreement (but not its duties and obligations under the Policy) upon
delivery of a written notice to the Trustee.

Section 10.10. The Certificate Insurer.
(a) Except as set forth in Section 10.01, any right conferred to the Certificate
Insurer shall be suspended and shall run to the benefit of the
Certificateholders during any period in which an Certificate Insurer Default
shall have occurred and be continuing and shall be exercisable by Class Vote.

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(b) For so long as no Certificate Insure Default shall have
occurred and be continuing, the Trustee shall agree to accept any moneys due
hereunder from the Certificate Insurer.

Section 10.11. Consent to Jurisdiction. TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, THE PARTIES THERETO HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT
OF NEW YORK AND ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND
COUNTY OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION,
SUIT OR PROCEEDING BROUGHT AGAINST IT AND TO OR IN CONNECTION WITH ANY OF THE
TRANSACTION DOCUMENTS OR THE TRANSACTION OR FOR RECOGNITION OR ENFORCEMENT OF
ANY JUDGMENT, AND THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
AGREE THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD
OR DETERMINED IN SUCH NEW YORK STATE COURT OR IN SUCH FEDERAL COURT. THE PARTIES
HERETO AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION, SUIT OR PROCEEDING SHALL
BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT
OR IN ANY OTHER MANNER PROVIDED BY LAW. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO ASSERT BY WAY OF MOTION,
AS A DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURTS, THAT THE SUIT,
ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM, THAT THE VENUE OF THE
SUIT, ACTION OR PROCEEDING IS IMPROPER OR THAT THE TRANSACTION DOCUMENTS OR THE
SUBJECT MATTER THEREOF MAY NOT BE LITIGATED IN OR BY SUCH COURTS.

Section 10.12. Trial by Jury Waived. EACH PARTY HERETO HEREBY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION ARISING DIRECTLY OR INDIRECTLY OUT OF, UNDER OR IN
CONNECTION WITH ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTION. EACH PARTY
HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY PARTY
HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT IT WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THE TRANSACTION DOCUMENTS TO WHICH IT IS A PARTY
BY, AMONG OTHER THINGS, THIS WAIVER.

ARTICLE XI

Class R Certificate Transfer Restrictions

Section XI.01. Restrictions on Transfer. Each Person who has
or who acquires any Ownership Interest in a Class R Certificate shall be deemed
by the acceptance or acquisition of such Ownership Interest to have agreed to be
bound by the

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following provisions and to have irrevocably appointed the Trustee or its
designee as its attorney-in-fact to direct under clause (iv) below the delivery
of payments to a Person other than such Person and to negotiate the terms of any
mandatory sale under clause (v) below and to execute all instruments of transfer
and to do all other things necessary in connection with any such sale, and the
rights of each Person acquiring any Ownership Interest in a Class R Certificate
are expressly subject to the following provisions:

(i) Only a Permitted Transferee may hold or acquire any
Ownership Interest in a Class R Certificate. Each Person holding or
acquiring any Ownership Interest in a Class R Certificate shall
promptly notify the Trustee, the Certificate Insurer and the Master
Servicer of any change or impending change in its status as a Permitted
Transferee.

(ii) In connection with any proposed Transfer of any
Ownership Interest in a Class R Certificate, the Trustee shall, as a
condition to such consent, require delivery to the Trustee of a
properly completed, sworn, executed and acknowledged affidavit from the
Transferee (the "Transfer Affidavit") in the form attached hereto as
Exhibit L and from the transferor (the "Transferor Representation"), in
the form attached hereto as Exhibit K.

(iii) Notwithstanding the delivery of a Transfer Affidavit
by a proposed Transferee under clause (ii) above, if the Responsible
Officer or Responsible Officers of the Trustee has or have actual
knowledge that the proposed Transferee is not a Permitted Transferee,
the Trustee shall not register and, if the Trustee is not the
Certificate Registrar, shall direct to the Certificate Registrar not to
register a Class R Certificate in the name of the proposed Transferee,
no Transfer of an Ownership Interest in the Residual Interest to such
proposed Transferee shall be effected and the Trustee, and Certificate
Registrar, shall have no liability for failing to effect the proposed
registration.

(iv) Any attempted or purported Transfer of any Ownership
Interest in a Class R Certificate in violation of the provisions of
this Section 11.01 shall be absolutely null and void and shall vest no
rights in the purported Transferee. If any purported Transferee shall,
in violation of the provisions of this Section 11.01, become a Holder
of a Class R Certificate, then the prior Holder of such Class R
Certificate shall, upon discovery that the registration of Transfer of
such Class R Certificate was not in fact permitted by this Section
11.01, notify the Trustee and the Trustee, upon receipt of such notice
and upon verification of

135
<PAGE> 141
the facts set forth in such notice or upon discovery by other means
that the registration of Transfer of such Class R Certificate was not
in fact permitted by this Section 11.01, shall notify the Master
Servicer and the Certificate Registrar of such improper Transfer (such
notice to be accompanied by an Opinion of Counsel to the effect that
such Transfer was improper and the retroactive restoration of the
rights of the last preceding Permitted Transferee as described in this
clause (iv) shall not be invalid, illegal or unenforceable) and,
subject to clause (v) below, shall make payments due on such Class R
Certificate to the last preceding Holder that is a Permitted Transferee
(as described in such written notice) and the last Holder that is a
Permitted Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such Class R
Certificate. The Trustee shall be entitled, but shall not be obligated,
to recover from any Holder of a Class R Certificate that was in fact
not a Permitted Transferee at the time it became a Holder all payments
made on such Class R Certificate. Any such payments so recovered by the
Trustee shall be paid and delivered by the Trustee to the last
preceding Holder that is a Permitted Transferee who was a Holder of
such Class R Certificate.

(v) If any Person that is not a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation
of the restrictions in this Section 11.02, and (A) to the extent that
the retroactive restoration of the rights of the last preceding Holder
that is a Permitted Transferee as described in clause (iv) above shall
be invalid, illegal or unenforceable or (B) if the Trustee is unable
within a reasonable period to obtain the Opinion of Counsel required by
clause (iv) above then the Trustee shall have the right, without notice
to the Holder of such Class R Certificate or any other Person having an
Ownership Interest therein, to sell such Class R Certificate to a
purchaser selected by the Trustee on such terms as the Trustee may
choose. The proceeds of such sale, net of commissions, expenses and
taxes due, if any, will be remitted to the Holder of such Class R
Certificate by the Trustee, except that in the event that the Trustee
determines that the Holder of such Class R Certificate may be liable
for any amount due under this Section 11.01 or any other provisions of
this Agreement, the Trustee may withhold a corresponding amount from
such remittance as security for such claim. The terms and conditions of
any sale under this clause (v) shall be determined in the sole
discretion of the Trustee, and it shall not be liable to any Person
having an Ownership Interest in a Class R Certificate as a result of
its exercise of such discretion.

136
<PAGE> 142
(vi) The Trustee shall make available, upon receipt of
written requests, all information necessary to compute any tax imposed
(A) as a result of the Transfer of an Ownership Interest in Class R
Certificates to any Person who is not a Permitted Transferee, and (B)
as a result of any regulated investment company, real estate investment
trust, common trust fund, partnership, trust, estate or organizations
described in Code section 1381 that holds an Ownership Interest in a
Class R Certificate and having as among its record holders at any time
any Person who is not a Permitted Transferee. Reasonable compensation
for providing such information may be charged by the Trustee. The
information furnished must be sufficient to compute the present value
of the anticipated excess inclusions as required by Treasury Department
regulations. The information must be furnished to the requesting party
or such later time period as allowed by Treasury Department regulations
or the Internal Revenue Service.

(vii) No undivided interest of the Residual Interest may
be transferred to any Person unless the entire interest and rights
relating to such undivided interest in the Residual Interest under this
Agreement are transferred to such Person.

(viii) The provisions of this Section 11.01 set forth prior
to this clause (viii) may be eliminated upon execution by the Trustee
of a certificate stating that the Trustee has received an Opinion of
Counsel, in form and substance satisfactory to the Trustee, to the
effect that the absence of such provisions will not cause the REMIC
Pool to cease to qualify as a REMIC and will not create a risk that (A)
the Trust or the REMIC Pool may be subject to an entity-level tax
caused by the Transfer of any Ownership Interest in a Class R
Certificate to a Person which is not a Permitted Transferee or (B) a
Holder of a Senior Certificate or another Person will be subject to a
REMIC-related tax caused by the Transfer of any Ownership Interest in a
Class R Certificate to a Person which is not a Permitted Transferee.

137
<PAGE> 143
ARTICLE XII

Concerning the Contract of Insurance Holder

Section XII.01. Compliance with Title I and Filing of FHA
Claims.

(a) The Contract of Insurance Holder shall at all times while
any Senior Certificates are outstanding have a valid Contract of Insurance with
the FHA covering the Loans. To the extent applicable to the duties of the
Contract of Insurance Holder hereunder, the Contract of Insurance Holder shall
comply with the requirements of Title I and shall take or refrain from taking
such actions as are necessary or appropriate to maintain a valid Contract of
Insurance for the Trust with the FHA covering the Loans.

(b) If and for so long as the Contract of Insurance covers any
loans other than the Loans, and if HUD shall not have earmarked the coverage of
the Contract of Insurance with respect to the Loans, the Contract of Insurance
Holder covenants and agrees not to submit any claim to FHA with respect to a
Loan if the effect of approval of such claim would result in the amount of
claims paid by the FHA in respect of the Loans to exceed the Trust Designated
Insurance Amount. Notwithstanding the foregoing, the Claims Administrator shall
promptly notify the Trustee, the Master Servicer and the Certificate Insurer if
the amount of claims submitted to FHA in respect of the Loans under the Contract
of Insurance exceeds the Trust Designated Insurance Amount. As of the Closing
Date and at all times thereafter until the Termination Date, the Contract of
Insurance Holder covenants and agrees that the Contract of Insurance will only
apply to the Loans and Related Series Loans, exclusively, or HUD shall have
agreed pursuant to 24 C.F.R. Section 201.32(d)(1) to "earmark" the FHA insurance
relating to the Loans and Related Series Loans, in a manner satisfactory to the
Certificate Insurer, in its sole and absolute discretion. Mego, as Claims
Administrator and Servicer, covenants and agrees that it shall not take any
action that would result in the Contract of Insurance applying to loans other
than the Loans and the Related Series Loans, exclusively, unless HUD shall have
agreed pursuant to 24 C.F.R. Section201.32(d)(1) to "earmark" the FHA insurance
relating to the Loans and Related Series Loans in a manner satisfactory to the
Certificate Insurer, in its sole and absolute discretion.

138
<PAGE> 144
Contract of Insurance Holder (in which case the Contract of Insurance Holder
shall only sign such documents at the direction of the Claims Administrator) and
shall not, in its capacity as Claims Administrator, take any action or omit to
take any action that would cause the Contract of Insurance Holder to violate
this Section 12.01 or otherwise fail to maintain a valid Contract of Insurance
or cause any denial by FHA of an insurance claim under Title I.

(d) The Contract of Insurance Holder shall not be deemed to
have violated this Section 12.01 and shall otherwise incur no liability
hereunder if any failure to maintain a valid Contract of Insurance or to comply
with the requirements of Title I or any denial by FHA of an insurance claim
under Title I shall have been caused by any act or omission of the Master
Servicer or Claims Administrator in the performance of its duties hereunder. The
Contract of Insurance Holder shall be permitted to, or, if directed by the
Certificate Insurer, so long as no Certificate Insurer Default exists, shall
replace the Claims Administrator for any failure of the Claims Administrator to
perform its duties hereunder. Any successor Claims Administrator shall be
subject to the prior approval of the Certificate Insurer, provided no
Certificate Insurer Default is then occurring.

(e) The Contract of Insurance Holder hereby represents and
warrants to the Depositor, the Master Servicer, the Seller, the Trustee for the
benefit of the Certificateholders and the Certificate Insurer that First Trust
of New York, National Association is an investing lender in good standing with
HUD having authority to purchase, hold, and sell loans insured under 24 CFR Part
201, pursuant to a valid Contract of Insurance, Number 71400 0000 6.

(f) The Seller shall forward to the Trustee a fully executed
Transfer of Note Report for each Loan within 20 days of the receipt by the
Seller of such Loan's case number under the Contract of Insurance. The Trustee
shall execute each Transfer of Note Report, as buying lender, and submit such
Transfer of Note Report to HUD within 31 days of the transfer of the Loans to
the Trust.

139
<PAGE> 145
Section XII.02. Regarding the Contract of Insurance Holder.

(a) The Contract of Insurance Holder shall not resign from the
obligations and duties imposed on it by this Agreement as Contract of Insurance
Holder except (i) upon a determination that by reason of a change in legal
requirements or requirements imposed by the FHA the performance of its duties
under this Agreement would cause it to be in violation of such legal
requirements or FHA imposed requirements in a manner which would result in a
material adverse effect on the Contract of Insurance Holder or cause it to
become ineligible to hold the Contract of Insurance and (ii) the Certificate
Insurer (so long as a Certificate Insurer Default shall not have occurred and be
continuing) or the Certificateholders by Class Vote (if a Certificate Insurer
Default shall have occurred and be continuing) does not elect to waive the
obligations of the Contract of Insurance Holder to perform the duties which
render it legally unable to act or to delegate those duties to another Person or
if the circumstances giving rise to such illegality cannot be waived or
delegated. Any such determination permitting the resignation of the Contract of
Insurance Holder shall be evidenced by an Opinion of Counsel to such effect
delivered and acceptable to the Trustee and the Certificate Insurer. Upon
receiving such notice of resignation, the Contract of Insurance shall be
transferred to a qualified successor with the consent of the Certificate Insurer
by written instrument, in duplicate, one copy of which instrument shall be
delivered to the resigning Contract of Insurance Holder and one copy to the
successor contract of insurance holder. Notwithstanding the foregoing, the
Contract of Insurance Holder may resign, with the prior written consent of the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificateholders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing), which may be
withheld in its sole and absolute discretion, upon transfer of the FHA insurance
and related reserves with respect to the Loans and any Related Series Loans to a
contract of insurance held by a successor Contract of Insurance Holder provided,
however, that any Contract of Insurance held by such successor Contract of
Insurance Holder shall satisfy the criteria set forth in Section 12.01(b), and,
at the time of succession, shall have a FHA insurance coverage reserve account
balance not less than that of the FHA Insurance Coverage Reserve Account at the
time of succession.

(b) If at any time (i) the Contract of Insurance shall be
revoked, suspended or otherwise terminated, or (ii) the Contract of Insurance
Holder shall become incapable of acting, or shall be adjudged as bankrupt or
insolvent, or a receiver of the Contract of Insurance Holder or of its property
shall be appointed, or any public officer shall take charge or control of

140
<PAGE> 146
the Contract of Insurance Holder or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation, then, in any such case the
Certificate Insurer (so long as a Certificate Insurer Default shall not have
occurred and be continuing) or the Certificate-holders by Class Vote (if a
Certificate Insurer Default shall have occurred and be continuing) may remove
the Contract of Insurance Holder and appoint a successor contract of insurance
holder by written instrument, in duplicate, one copy of which instrument shall
be delivered to the Contract of Insurance Holder so removed and one copy to the
successor contract of insurance holder. Upon removal of the Contract of
Insurance Holder, the outgoing Contract of Insurance Holder shall take any
action required to transfer the benefits of the FHA Insurance Coverage Reserve
Account to the successor contract of insurance holder.

(c) Any resignation or removal of the Contract of Insurance
Holder and appointment of a successor contract of insurance holder pursuant to
any of the provisions of this Section 12.02 shall become effective upon
acceptance of appointment by the successor contract of insurance holder.

(d) On or prior to the Closing Date, the Contract of Insurance
Holder shall have instructed FHA to forward all payments in respect of claims
under the Contract of Insurance made to the Contract of Insurance Holder to
First Trust of New York, National Association, as Trustee. The Contact of
Insurance Holder shall provide no further notification with respect to which
such payments shall be directed unless directed by First Trust of New York,
National Association, as Trustee.

141
<PAGE> 147
IN WITNESS WHEREOF, the Depositor, Mego, the Master Servicer,
the Claims Administrator, the Trustee and the Contract of Insurance Holder have
caused their names to be signed to this Pooling and Servicing Agreement by their
respective officers thereunto duly authorized as of the date first written
above.

MEGO MORTGAGE CORPORATION,
as Seller, Servicer and Claims
Administrator

By: _____________________________________
Name:
Title:

FINANCIAL ASSET SECURITIES CORP.,
as Depositor

By: _____________________________________
Name:
Title:

NORWEST BANK MINNESOTA, N.A.,
as Master Servicer

By: _____________________________________
Name:
Title:

FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION,
as Trustee and Contract of
Insurance Holder

By: _____________________________________
Name:
Title:

<PAGE> 148
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)

On the 15th day of August, 1996 before me, a notary public in
and for said State, personally appeared James L. Belter, known to me to be the
Executive Vice President of MEGO MORTGAGE CORPORATION, one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

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

------------------------------
Notary Public

[Notarial Seal]

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

On the 15th day of August, 1996 before me, a notary public in
and for said State, personally appeared Kari Skilbred, known to me to be the
Vice President of FINANCIAL ASSET SECURITIES CORP., one of the parties that
executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

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

------------------------------
Notary Public

[Notarial Seal]

<PAGE> 149
STATE OF ______________ )
) ss.:
COUNTY OF _____________ )

On the 15th day of August, 1996 before me, a notary public in
and for said State, personally appeared Michael Mayer, known to me to be the
Vice President of NORWEST BANK MINNESOTA, N.A., one of the parties that executed
the within instrument, and also known to me to be the person who executed it on
behalf of said party, and acknowledged to me that such party executed the within
instrument.

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

------------------------------
Notary Public

[Notarial Seal]

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

On the 15th day of August, 1996 before me, a notary public in
and for said State, personally appeared Lynn Steiner, known to me to be the Vice
President of FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION, one of the parties
that executed the within instrument, and also known to me to be the person who
executed it on behalf of said party, and acknowledged to me that such party
executed the within instrument.

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

------------------------------
Notary Public

[Notarial Seal]

<PAGE> 150

EXHIBIT A

FORM OF SERVICING AGREEMENT

A-1-1
<PAGE> 151

EXHIBIT B

LOAN SCHEDULE

B-1-1
<PAGE> 152

EXHIBIT C-1

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"), AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.

THE PRINCIPAL OF THIS CERTIFICATE IS PAYABLE IN INSTALLMENTS. THEREFORE, THE
ACTUAL OUTSTANDING PRINCIPAL AMOUNT OF THIS CERTIFICATE MAY ON ANY DATE
SUBSEQUENT TO SEPTEMBER 25, 1996 (THE FIRST DISTRIBUTION DATE) BE LESS THAN ITS
INITIAL CLASS A CERTIFICATE BALANCE. THIS SECURITY IS NOT A SAVINGS ACCOUNT OR
DEPOSIT AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY,
EXCEPT THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING
ADMINISTRATION.

C-1-1
<PAGE> 153

MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-2
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-2,
CLASS A

evidencing an undivided beneficial ownership interest in the Trust, as defined
below, the property of which includes a pool of fixed-rate residential first
and junior lien home improvement loans and retail installment sale contracts
partially insured by the Federal Housing Administration (the "FHA") of the
United States Department of Housing and Urban Development under Title I of the
National Housing Act of 1934, and caused to be sold to the Trust by Mego
Mortgage Corporation.

FINANCIAL ASSET SECURITIES CORP., as Depositor

<TABLE>
<S> <C> <C>
Class : A

Certificate No. : A-0001

Cut-Off Date : August 1, 1996 or the
date of origination of
any Loan originated
after August 1, 1996

First Distribution Date : September 25, 1996

Initial Class A
Certificate
Balance of this Certificate
("Denomination") : $ 48,537,000

Initial Certificate Balance of all
Class A
Certificates : $ 48,537,000

Certificate Rate : 7.275%
</TABLE>

C-1-2
<PAGE> 154

THIS CERTIFIES THAT [NAME OF CERTIFICATE OWNER] is the owner of an
undivided beneficial ownership interest in the Mego Mortgage FHA Title I Loan
Trust 1996-2 (the "Trust") in the principal amount set forth above. The Trust
was created pursuant to a Pooling and Servicing Agreement (the "Agreement")
dated as of August 1, 1996 (the "Agreement") among Mego Mortgage Corporation
(the "Seller", "Servicer" and "Claims Administrator"), Financial Asset
Securities Corp. (the "Depositor"), Norwest Bank Minnesota, N.A., as master
servicer (the "Master Servicer"), and First Trust of New York, National
Association, as trustee and contract of insurance holder (the "Trustee" and
"Contract of Insurance Holder" as applicable), a summary of certain of the
pertinent provisions of which is set forth below. To the extent not otherwise
defined herein, the capitalized terms used herein have the meanings assigned to
them in the Agreement. This Certificate is a duly authorized Certificate
designated as: "FHA Title I Loan Asset-Backed Certificates, Class A" (herein
called the "Class A Certificates"). Also issued under the Agreement are the
Class S Certificates designated as: "FHA Title I Loan Asset-Backed
Certificates, Class S" (the "Class S Certificates") and the Residual
Certificates designated as: "FHA Title I Loan Asset-Backed Certificates, Class
R" (the "Class R Certificates"). The Class S Certificates, the Class R
Certificates and the Class A Certificates are hereinafter collectively called
the "Certificates". This Certificate is issued under and is subject to the
terms, provisions, and conditions of the Agreement, to which Agreement the
holder of this Class A Certificate by virtue of the acceptance hereof assents
and by which such holder is bound. The property of the Trust includes (i) a
pool of fixed rate residential first and junior lien home improvement loans and
retail installment sales contracts all of which are partially insured by the
FHA (the "Loans"), all monies received thereunder on or after the Cut-Off Date,
the FHA insurance reserves attributable to those Loans partially insured by the
FHA as of the Cut-Off Date, the Files, the Insurance Policies and any proceeds
from any Insurance Policies, security interests in the Properties which secure
the Loans and any and all documents of the Depositor and the Seller relating to
the Loans and any and all proceeds from the foregoing; and (ii) an insurance
policy issued by MBIA Insurance Corporation (the "Policy").

Under the Agreement, there will be distributed on the 25th day of each
month or, if such 25th day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing in September, 1996, to the person in whose
name this Certificate is registered at the close of business on the last day of
the previous calendar month (the "Record Date"), of an amount equal to the pro
rata share evidenced by this Certificate of the aggregate amount required to be
distributed to Holders of Class A Certificates specified above pursuant to the
Agreement.

Full and complete payment of the Class Interest Distribution for

C-1-3
<PAGE> 155

the Class A Certificates and the Class A Guaranteed Principal Distributable
Amount on each Distribution Date is unconditionally and irrevocably guaranteed
pursuant to the Policy.

Distributions on this Certificate will be made by the Trustee by (i)
check mailed, via first class mail, postage prepaid, to the address of such
Holder as it appears on the Certificate Register, or (ii) Fedwire transfer of
immediately available funds, if such Class A Certificateholder holds at least a
$500,000 Denomination, and if notice from such Certificateholder has been
received by the Trustee at least five Business Days prior to any Distribution
Date (any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account for
receipt of distributions at a bank which has Fedwire transfer capabilities, and
providing such other information as the Trustee may reasonably require to
effect an electronic credit entry to such account, without the presentation or
surrender of this Certificate or the making of any notation hereon. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Class A Certificate will be made after due notice by the
Trustee of the pendency of such distribution.

The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, the Servicer and the Claims Administrator, the
Master Servicer, the Trustee, the Certificate Insurer, the Contract of
Insurance Holder or any affiliate thereof. The Certificates are limited in
right of payment to certain collections and recoveries respecting the Loans and
claims made under the Policy, all as more specifically set forth in the
Agreement.

The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
parties to the Agreement at any time by the parties to the Agreement with the
written consent of the Certificate Insurer and with the consent of certain of
the Holders of the Certificates as provided therein. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
on all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not

C-1-4
<PAGE> 156

notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain circumstances, without the consent of
the Holders of any of the Certificates.

As provided in the Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in its capacity
as Certificate Registrar, or by any successor Certificate Registrar, in the
city where the Corporate Trust Office is located, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be
issued to the designated transferee.

The Class A Certificates are issuable only as registered Certificates
without coupons in minimum denominations of $1,000 and integral multiples
thereof. As provided in the Agreement and subject to certain limitations set
forth therein, Certificates are exchangeable for new Certificates of authorized
denominations evidencing the same aggregate denomination, as requested by the
holder surrendering the same. No service charge will be made for any such
registration of transfer or exchange, but the Trustee may require payment of a
sum sufficient to cover any tax or governmental charges payable in connection
therewith.

The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders
and to the Certificate Insurer of all amounts required to be paid to them
pursuant to the Agreement, and the disposition of all property held as part of
the Trust. The Master Servicer and Seller may at their respective options with
the consent of the Certificate Insurer purchase from the Trust all (but not
fewer than all) remaining Loans and other property acquired by foreclosure,
deed in lieu of foreclosure, or otherwise then constituting the corpus of the
Trust at a price specified in the Agreement, and such purchase of the Loans and
other property of the Trust will effect early retirement of the Certificates;
however, such right of purchase is exercisable only on a Distribution Date when
the sum of the Aggregate Principal Balances of the Loans is less than 10% of
the initial

C-1-5
<PAGE> 157

Aggregate Principal Balance.

C-1-6
<PAGE> 158

IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: August 15, 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity
as Trustee

By:
--------------------------------

Dated:
-----------------------------

This is one of the Class A Certificates
referenced in the within-mentioned Agreement

By:
--------------------------------
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

C-1-7
<PAGE> 159

EXHIBIT C-2

THE CERTIFICATES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES AUTHORITY. NO SALE, TRANSFER OR ASSIGNMENT
OF THE CERTIFICATES OR ANY INTEREST THEREIN MAY BE MADE UNLESS SUCH SALE,
TRANSFER OR ASSIGNMENT IS MADE (1) PURSUANT TO RULE 144A UNDER THE SECURITIES
ACT ("RULE 144A"), TO A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE HAS BEEN GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A OR (2) TO AN INSTITUTION
THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(A)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT THAT IS ACQUIRING THIS CERTIFICATE FOR INVESTMENT
PURPOSES AND NOT FOR DISTRIBUTION. INVESTORS SHOULD CONSULT WITH THEIR COUNSEL
AS TO THE APPLICABLE REQUIREMENTS FOR A PURCHASER TO AVAIL ITSELF OF ANY
EXEMPTION UNDER THE SECURITIES ACT.

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"REGULAR INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"), AS
THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE.

THIS CLASS S CERTIFICATE MAY NOT BE ACQUIRED BY OR FOR THE ACCOUNT OF (i) AN
"EMPLOYEE BENEFIT PLAN" (AS DEFINED IN SECTION 3(3) OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED, ("ERISA")), THAT IS SUBJECT TO THE
PROVISIONS OF TITLE 1 OF ERISA, (ii) A PLAN DESCRIBED IN SECTION 4975(e)(1) OF
THE INTERNAL REVENUE CODE OD 1986, AS AMENDED (THE "CODE") OR (iii) ANY ENTITY
WHOSE UNDERLYING ASSETS INCLUDE PLAN ASSETS BY REASON OF A PLAN'S INVESTMENT IN
THE ENTITY, UNLESS THE BENEFIT PLAN ACQUIRING THIS CERTIFICATE HAS AVAILABLE TO
IT AN EXEMPTION AND SECTION 4975 OF THE CODE AND SUCH EXEMPTION IS APPLICABLE
TO THE PURCHASE AND HOLDING OF THIS CERTIFICATE. UNLESS SUCH AN EXEMPTION IS
AVAILABLE, BY ACCEPTING AND HOLDING THIS CLASS S CERTIFICATE, THE HOLDER HEREOF
AND THE CERTIFICATE OWNER SHALL EACH BE DEEMED TO HAVE REPRESENTED AND
WARRANTED THAT IT IS NOT A BENEFIT PLAN.

THIS CERTIFICATE HAS NO PRINCIPAL BALANCE AND IS NOT ENTITLED TO ANY
DISTRIBUTIONS IN RESPECT OF PRINCIPAL. THIS SECURITY IS NOT A SAVINGS ACCOUNT
OR DEPOSIT AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE INSURED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY,
EXCEPT THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING
ADMINISTRATION.

C-2-1
<PAGE> 160

MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-2
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-2,
CLASS S

evidencing an undivided beneficial ownership interest in the Trust, as defined
below, the property of which includes a pool of fixed-rate residential first
and junior lien home improvement loans and retail installment sale contracts
partially insured by the Federal Housing Administration (the "FHA") of the
United States Department of Housing and Urban Development under Title I of the
National Housing Act of 1934, and caused to be sold to the Trust by Mego
Mortgage Corporation.

FINANCIAL ASSET SECURITIES CORP., as Depositor

<TABLE>
<S> <C> <C>
Class : S

Certificate No. : S-0001

Cut-Off Date : August 1, 1996 or the
date of origination of
any Loan originated
after August 1, 1996

First Distribution Date : September 25, 1996

Initial Notional Amount
of this Certificate
("Denomination") : $ 48,781,405.44

Initial Notional Amount of all
Class S Certificates : $ 48,781,405.44

Certificate Rate : 1.00%
</TABLE>

C-2-2
<PAGE> 161

THIS CERTIFIES THAT [NAME OF CERTIFICATE OWNER] is the owner of
nonassessable, fully-paid, undivided beneficial ownership interest in the Mego
Mortgage FHA Title I Loan Trust 1996-2 (the "Trust") Percentage Interest
evidenced by this Certificate (obtained by dividing the Denomination of this
Certificate by the Initial Notional Amount of all Certificates of this Class)
in certain monthly distributions of interest. The Trust was created pursuant
to a Pooling and Servicing Agreement (the "Agreement") dated as of August 1,
1996 (the "Agreement") among Mego Mortgage Corporation (the "Seller",
"Servicer" and "Claims Administrator"), Financial Asset Securities Corp. (the
"Depositor"), Norwest Bank Minnesota, N.A., as master servicer (the "Master
Servicer"), and First Trust of New York, National Association, as trustee and
contract of insurance holder (the "Trustee" and "Contract of Insurance Holder"
as applicable), a summary of certain of the pertinent provisions of which is
set forth below. To the extent not otherwise defined herein, the capitalized
terms used herein have the meanings assigned to them in the Agreement. This
Certificate is a duly authorized Certificate designated as: "FHA Title I Loan
Asset-Backed Certificates, Class S" (herein called the "Class S Certificates").
Also issued under the Agreement are the Class A Certificates designated as:
"FHA Title I Loan Asset-Backed Certificates, Class A and the Residual
Certificates designated as: "Mego FHA Title I Loan Asset-Backed Certificates,
Class R" (the "Class R Certificates"). The Class S Certificates, the Class R
Certificates and the Class A Certificates are hereinafter collectively called
the "Certificates". This Certificate is issued under and is subject to the
terms, provisions, and conditions of the Agreement, to which Agreement the
holder of this Class S Certificate by virtue of the acceptance hereof assents
and by which such holder is bound. The property of the Trust includes (i) a
pool of fixed rate residential first and junior lien home improvement loans and
retail installment sales contracts all of which are partially insured by the
FHA (the "Loans"), all monies received thereunder on or after the Cut-Off Date,
the FHA insurance reserves attributable to those Loans partially insured by the
FHA as of the Cut-Off Date, the Files, the Insurance Policies and any proceeds
from any Insurance Policies, security interests in the Properties which secure
the Loans and any and all documents of the Depositor and the Seller relating to
the Loans and any and all proceeds from the foregoing and (ii) an insurance
policy issued by MBIA Insurance Corporation (the "Policy").

Under the Agreement, there will be distributed on the 25th day of each
month or, if such 25th day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing on September 25, 1996, to the person in whose
name this Certificate is registered at the close of business on the last day of
the previous calendar month (the "Record Date"), of an amount equal to the pro
rata share evidenced by this Certificate of the aggregate amount required to be
distributed to Holders of Class S Certificates specified above pursuant to the
Agreement.

C-2-3
<PAGE> 162

Full and complete payment of the Class Interest Distribution for the
Class S Certificates on each Distribution Date is unconditionally and
irrevocably guaranteed pursuant to the Policy.

Distributions on this Certificate will be made by the Trustee by (i)
check mailed, via first class mail, postage prepaid, to the address of such
Holder as it appears on the Certificate Register, or (ii) Fedwire transfer of
immediately available funds, if such Class S Certificateholder holds at least a
30% Percentage Interest, and if notice from such Certificateholder has been
received by the Trustee at least five Business Days prior to any Distribution
Date (any such notice being applicable to all subsequent Distribution Dates
unless and until rescinded in writing) designating a deposit account for
receipt of distributions at a bank which has Fedwire transfer capabilities, and
providing such other information as the Trustee may reasonably require to
effect an electronic credit entry to such account, without the presentation or
surrender of this Certificate or the making of any notation hereon. Except as
otherwise provided in the Agreement and notwithstanding the above, the final
distribution on this Class S Certificate will be made after due notice by the
Trustee of the pendency of such distribution.

C-2-4
<PAGE> 163

transfer hereof or in exchange hereof or in lieu hereof whether or not notation
of such consent is made upon this Certificate. The Agreement also permits the
amendment thereof, in certain circumstances, without the consent of the Holders
of any of the Certificates.

As provided in the Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in its capacity
as Certificate Registrar, or by any successor Certificate Registrar, in the
city where the Corporate Trust Office is located, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the Trust will be
issued to the designated transferee.

No transfer of this Certificate shall be made unless (i) such transfer
is made pursuant to an effective registration statement under the Securities
Act and any applicable state securities laws or is exempt from the registration
requirements under the Securities Act and such state securities laws. Each
prospective transferor or transferee of a Certificate not previously registered
under the Securities Act shall deliver a transferor's certificate and a
transferee's certificate, respectively, to the Trustee in such form as provided
by the Agreement.

The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Agreement, and the
disposition of all property held as part of the Trust. The Master Servicer and
the Seller may at their respective options with the consent of the Certificate
Insurer purchase from the Trust all (but not fewer than all) remaining Loans
and other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then constituting the corpus of the Trust at a price specified in the
Agreement, and such purchase of the Loans and other property of the Trust will
effect early retirement of the Certificates; however, such right of purchase is
exercisable only on a Distribution Date when the sum of the Aggregate Principal
Balances of the Loans is less than 10% of the initial Aggregate Principal
Balance.

C-2-5
<PAGE> 164

IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: August 15, 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity
as Trustee

By:
--------------------------------

Dated:
-----------------------------

This is one of the Class S Certificates
referenced in the within-mentioned Agreement

By:
-----------------------------------------
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

C-2-6
<PAGE> 165

EXHIBIT D

THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(1) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER
WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT, PURCHASING FOR ITS
OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR (3) IN RELIANCE ON ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS AND SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A
CERTIFICATION OF THE TRANSFEROR AND THE TRANSFEREE TO THE EFFECT THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.

SOLELY FOR U.S. FEDERAL INCOME TAX PURPOSES, THIS CERTIFICATE REPRESENTS A
"RESIDUAL INTEREST" IN A "REAL ESTATE MORTGAGE INVESTMENT CONDUIT" ("REMIC"),
AS THOSE TERMS ARE DEFINED, RESPECTIVELY, IN SECTIONS 860G AND 860D OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED ("CODE"), ASSUMING COMPLIANCE WITH
THE REMIC PROVISIONS OF THE CODE. TRANSFER OF THIS CLASS R CERTIFICATE IS
RESTRICTED AS SET FORTH IN THE POOLING AND SERVICING AGREEMENT. NO TRANSFER OF
THIS CLASS R CERTIFICATE MAY BE MADE TO A "DISQUALIFIED ORGANIZATION" AS
DEFINED IN SECTION 860E(e)(5) OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
(THE "CODE"). SUCH TERM INCLUDES THE UNITED STATES, ANY STATE OR POLITICAL
SUBDIVISION THEREOF, ANY FOREIGN GOVERNMENT, ANY INTERNATIONAL ORGANIZATION,
ANY AGENCY OR INSTRUMENTALITY OF ANY OF THE FOREGOING (OTHER THAN CERTAIN
TAXABLE INSTRUMENTALITIES), ANY COOPERATIVE ORGANIZATION FURNISHING ELECTRIC
ENERGY OR PROVIDING TELEPHONE SERVICE TO PERSONS IN RURAL AREAS, OR ANY
ORGANIZATION (OTHER THAN A FARMER'S COOPERATIVE) THAT IS EXEMPT FROM FEDERAL
INCOME TAX UNLESS SUCH ORGANIZATION IS SUBJECT TO THE TAX ON UNRELATED BUSINESS
INCOME. NO TRANSFER OF THIS CLASS R CERTIFICATE WILL BE REGISTERED BY THE
CERTIFICATE REGISTRAR UNLESS THE PROPOSED TRANSFEREE HAS DELIVERED AN AFFIDAVIT
AFFIRMING, AMONG OTHER THINGS, THAT THE PROPOSED TRANSFEREE IS NOT A
DISQUALIFIED ORGANIZATION AND IS NOT ACQUIRING THE CLASS R CERTIFICATE FOR THE
ACCOUNT OF A DISQUALIFIED ORGANIZATION. A COPY OF THE FORM OF AFFIDAVIT
REQUIRED OF EACH PROPOSED TRANSFEREE IS ON FILE AND AVAILABLE FROM THE TRUSTEE.
A TRANSFER IN VIOLATION OF THE APPLICABLE RESTRICTIONS MAY GIVE RISE TO A
SUBSTANTIAL TAX UPON THE TRANSFEROR OR, IN CERTAIN CASES, UPON AN AGENT ACTING
FOR THE TRANSFEREE. A PASS-THRU ENTITY THAT HOLDS THIS CLASS R CERTIFICATE AND
THAT HAS A DISQUALIFIED ORGANIZATION AS A

D-1
<PAGE> 166

RECORD OWNER IN ANY TAXABLE YEAR GENERALLY WILL BE SUBJECT TO A TAX FOR EACH
SUCH YEAR EQUAL TO THE PRODUCT OF (A) THE AMOUNT OF EXCESS INCLUSIONS WITH
RESPECT TO THE PORTION OF THIS CERTIFICATE OWNED THROUGH SUCH PASS-THRU ENTITY
BY SUCH DISQUALIFIED ORGANIZATION, AND (B) THE HIGHEST MARGINAL FEDERAL TAX
RATE ON CORPORATIONS. FOR PURPOSES OF THE PRECEDING SENTENCE, THE TERM
"PASS-THRU" ENTITY INCLUDES REGULATED INVESTMENT COMPANIES, REAL ESTATE
INVESTMENT TRUSTS, COMMON TRUST FUNDS, PARTNERSHIPS, TRUSTS, ESTATES,
COOPERATIVES TO WHICH PART I OF SUBCHAPTER 1T OF THE CODE APPLIES AND, EXCEPT
AS PROVIDED IN REGULATIONS, NOMINEES.

NEITHER THIS CERTIFICATE NOR ANY INTEREST HEREIN MAY BE TRANSFERRED UNLESS SUCH
TRANSFER IS MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 5.02(b)(2) OF THE
AGREEMENT REFERRED TO HEREIN. THIS SECURITY IS NOT A SAVINGS ACCOUNT OR
DEPOSIT AND NEITHER THIS SECURITY NOR THE UNDERLYING LOANS WILL BE INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY,
EXCEPT THAT THE LOANS ARE PARTIALLY INSURED BY THE FEDERAL HOUSING
ADMINISTRATION.

D-2
<PAGE> 167

MEGO MORTGAGE FHA TITLE I LOAN TRUST 1996-2
FHA TITLE I LOAN
ASSET-BACKED CERTIFICATE, SERIES 1996-2,
CLASS R

evidencing an undivided beneficial ownership interest in the Trust, as defined
below, the property of which includes a pool of fixed-rate residential first
and junior lien home improvement loans and retail installment sales contracts
partially insured by the Federal Housing Administration (the "FHA") of the
United States Department of Housing and Urban Development under Title I of the
National Housing Act of 1934, and caused to be sold to the Trust by Mego
Mortgage Corporation.

FINANCIAL ASSET SECURITIES CORP., as Depositor

<TABLE>
<S> <C> <C>
Class R Certificate

Certificate No. : R-0001

Percentage Interest Evidenced
by this Certificate 100%
</TABLE>

D-3
<PAGE> 168

THIS CERTIFIES THAT MEGO MORTGAGE CORPORATION is the owner of
nonassessable, fully-paid, undivided beneficial ownership interest in the Mego
Mortgage FHA Title I Loan Trust 1996-2 (the "Trust") to the extent set forth
herein. The Trust was created pursuant to a Pooling and Servicing Agreement
dated as of August 1, 1996 (the "Agreement") among Financial Asset Securities
Corp. (the "Depositor"), Mego Mortgage Corporation (the "Seller", "Servicer"
and "Claims Administrator"), Norwest Bank Minnesota, N.A., as master servicer
(the "Master Servicer") and First Trust of New York, National Association, as
trustee and contract of insurance holder (the "Trustee" and the "Contract of
Insurance Holder"), a summary of certain of the pertinent provisions of which
is set forth below. To the extent not otherwise defined herein, the
capitalized terms used herein have the meanings assigned to them in the
Agreement. This Certificate is one duly authorized Class R Certificate
designated as: "FHA Title I Loan Asset-Backed Certificates, Class R" (the
"Class R Certificates"). Also issued under the Agreement are Class A
Certificates designated each as: "FHA Title I Loan Asset-Backed Certificates,
Class A" and the "FHA Title I Loan Asset-Backed Certificates, Class S" (the
"Class S Certificates"). The Class R Certificates, the Class S Certificates
and the Class A Certificates are hereinafter collectively called the
"Certificates". This Certificate is issued under and is subject to the terms,
provisions, and conditions of the Agreement, to which Agreement the holder of
this Certificate by virtue of the acceptance hereof assents and by which such
holder is bound. The property of the Trust includes (i) a pool of fixed rate
residential first and junior lien home improvement loans and retail installment
sale contracts, substantially all of which are partially insured by the FHA
(the "Loans"), all monies received thereunder on or after the Cut-Off Date, the
FHA insurance reserves attributable to those Loans partially insured by the FHA
as of the Cut-Off Date, the Files, the Insurance Policies and any proceeds from
any Insurance Policies, security interests in the Properties which secure the
Loans and any and all documents of the Depositor and the Seller relating to the
Loans and any and all proceeds from the foregoing; and (ii) an insurance policy
issued by MBIA Insurance Corporation (the "Policy").

Under the Agreement, there will be distributed on the 25th day of each
month or, if such 25th day is not a Business Day, the next Business Day (the
"Distribution Date"), commencing on September 25, 1996, to the person in whose
name this Certificate is registered at the close of business on the last day of
the previous calendar month (the "Record Date"), of an amount equal to the
Percentage Interest evidenced by this Certificate of the aggregate amount
required to be distributed to the Holder of Class R Certificates specified
above pursuant to the Agreement.

D-4
<PAGE> 169

A Certificates and the Class S Certificates to receive distributions, the
rights of the Master Servicer to receive the Master Servicing Fee (and any
unpaid Master Servicing Fees) and the right of the Certificate Insurer to
receive reimbursement of amounts paid under the Policy and to receive amounts
due under the Insurance Agreement, to the extent described in the Agreement.

As more fully described in the Agreement, no transfer of this
Certificate shall be made unless such transfer is exempt from the registration
requirements of the Securities Act of 1933, as amended, and any applicable
State Securities Laws as is made in accordance with said Act and Laws.

No transfer of this Certificate shall be made unless the Trustee shall
have received a representation letter from the transferee of such Certificate
and each Prospective Owner of a beneficial interest in this Certificate
acquiring such beneficial interest, which certificate shall be for the benefit
of the Trustee, the Depositor, the Certificate Insurer and the Master Servicer,
stating that either (A) the Prospective Owner (1) is not an "employee benefit
plan" within the meaning of Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") or a plan within the meaning of
Section 4975(e)(1) of the Code (each a "Plan") and (2) is not acquiring (or
considered to be acquiring) the Certificate with the assets of any entity whose
underlying assets include the assets of a Plan by reason of such a Plan's
investment in such entity, or (B) the Prospective Owner is an insurance company
that is acquiring this Certificate for its own account, with assets from an
"insurance company general account" (as such term is defined in Section V(e) of
Prohibited Transaction Class Exemption 95-60 ("PTCE 95-60"), 60 Fed. Reg. 35925
(July 12, 1995) and there exists no Plan with respect to which the amount of
such general account's reserves and liabilities for the contract(s) held by or
on behalf of such Plan and all other Plans maintained by the same employer (or
affiliate thereof, as defined in Section (V)(a)(1) of PTCE 95-60) or by the
same employee organization, exceeds 10% of the total of all reserves and
liabilities of such general account (as such amounts are determined under
Section I(a) of PTCE 95-60) at the date of acquisition.

D-5
<PAGE> 170

reasonably require to effect an electronic credit entry to such account,
without the presentation or surrender of this Certificate or the making of any
notation hereon. Except as otherwise provided in the Agreement and
notwithstanding the above, the final distribution on this Class R Certificate
will be made after due notice by the Trustee of the pendency of such
distribution.

The Certificates do not represent an obligation of, or an interest in,
the Depositor, the Seller, Servicer and Claims Administrator, the Master
Servicer, the Trustee, the Certificate Insurer, the Contract of Insurance
Holder or any affiliate of any of them. The Certificates are limited in right
of payment to certain collections and recoveries respecting the Loans and
claims made under the Policy, all as more specifically set forth in the
Agreement.

The Agreement permits, with certain exceptions therein provided, the
amendment thereof and the modification of the rights and obligations of the
parties to the Agreement at any time by the parties to the Agreement with the
written consent of the Certificate Insurer and with the consent of certain of
the Holders of the Certificates as provided therein. Any such consent by the
Holder of this Certificate shall be conclusive and binding on such Holder and
on all future Holders of this Certificate and of any Certificate issued upon
the transfer hereof or in exchange hereof or in lieu hereof whether or not
notation of such consent is made upon this Certificate. The Agreement also
permits the amendment thereof, in certain circumstances, without the consent of
the Holders of any of the Certificates.

As provided in the Agreement and subject to certain limitations set
forth therein, the transfer of this Certificate is registrable in the
Certificate Register upon surrender of this Certificate for registration of
transfer at the offices or agencies maintained by the Trustee in its capacity
as Certificate Registrar, or by any successor Certificate Registrar, in the
city where the Corporate Trust Office is located, accompanied by a written
instrument of transfer in form satisfactory to the Trustee and the Certificate
Registrar duly executed by the holder hereof or such holder's attorney duly
authorized in writing, and thereupon one or more new Certificates of authorized
denominations evidencing the same aggregate interest in the

D-6
<PAGE> 171

Trust will be issued to the designated transferee.

The obligations and responsibilities created by the Agreement and the
Trust created thereby shall terminate upon the payment to Certificateholders of
all amounts required to be paid to them pursuant to the Agreement, and the
disposition of all property held as part of the Trust. The Master Servicer and
the Seller may at their respective options with the consent of the Certificate
Insurer purchase from the Trust all (but not fewer than all) remaining Loans
and other property acquired by foreclosure, deed in lieu of foreclosure, or
otherwise then constituting the corpus of the Trust at a price specified in the
Agreement, and such purchase of the Loans and other property of the Trust will
effect early retirement of the Certificates; however, such right of purchase is
exercisable only on a Distribution Date when the sum of the Aggregate Principal
Balances of the Loans is less than 10% of the initial Aggregate Principal
Balance.

D-7
<PAGE> 172

IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly
executed.

Dated: August 15, 1996

FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, not in its individual
capacity but solely in its capacity
as Trustee

By:
--------------------------------

Dated:
-----------------------------

This is one of the Class R Certificates
referenced in the within-mentioned Agreement

By:
--------------------------------
Authorized Signatory of

FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION,
not in its individual capacity
but solely in its capacity as Trustee

D-8
<PAGE> 173

EXHIBIT E

FORM OF MASTER SERVICER CERTIFICATE

E-1-1
<PAGE> 174

EXHIBIT F

FORM OF MONTHLY STATEMENT TO CERTIFICATEHOLDERS

F-1-1
<PAGE> 175

EXHIBIT G

[RESERVED]

G-1
<PAGE> 176

EXHIBIT H

[RESERVED]

H-1
<PAGE> 177

EXHIBIT I

[FORM OF "QUALIFIED INSTITUTIONAL BUYER" TRANSFEREE'S CERTIFICATE]
Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-2

Dear Sirs:

I-1
<PAGE> 178

In connection with our purchase of Certificates (the "Certificates")
issued pursuant to the Pooling and Servicing Agreement dated as of August 1,
1996 (the "Agreement") by and among Mego Mortgage Corporation, Financial Asset
Securities Corp., as Depositor, First Trust of New York, National Association,
as Trustee and Contract of Insurance Holder, and Norwest Bank Minnesota, N.A.,
as Master Servicer, we advise you as follows: (i) we are a "qualified
institutional buyer" as that term is defined in Rule 144A under the Securities
Act of 1933 and we are acquiring beneficial ownership of the Certificates for
our own account or for the account of not more than __ persons, each of which
is a "qualified institutional buyer"; and [(ii) either (a) we are not an
employee benefit plan or an arrangement subject to Section 406 of ERISA or a
plan subject to Section 4975 of the Code, nor a person acting on behalf of any
such plan or arrangement to effect such transfer or (b) the source of funds to
be used to pay the purchase price of the Certificates are funds held in our
general account which we reasonably believe do not constitute "plan assets" of
an employee benefit plan subject to the fiduciary responsibility provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or
a governmental plan as defined in Section 3(32) of ERISA subject to any
federal, state or local law which is to a material extent similar to the
foregoing provisions of ERISA or the Code, or (c) we are an insurance company
general account and, at the time of the purchase of the Certificates, the
amount of reserves and liabilities for the general account contracts held by or
for any plan (and any other plan of the same employer or affiliate) does not
exceed 10% of the total reserves and liabilities of the general account plus
surplus (such determination to be made in accordance with Prohibited
Transaction Class Exemption 95-60).] Capitalized terms used but not otherwise
defined herein shall have the meanings ascribed thereto in the Agreement. In
addition to the foregoing, you may rely on the information provided in Annex [1
or 2, as applicable] attached hereto and incorporated herein.

Very truly yours,

[PURCHASER]

By:
--------------------------------
Name:
Title:

I-2
<PAGE> 179

ANNEX 1 TO EXHIBIT I

QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

[For Buyers Other Than Registered Investment Companies]

1. As indicated below, the undersigned is the President, Chief
Financial Officer, Senior Vice President or other executive officer of the
Buyer.

2. In connection with purchases by the Buyer, the Buyer is a
"qualified institutional buyer" as that term is defined in Rule 144A under the
Securities Act of 1933 ("Rule 144A") because (i) the Buyer owned and/or
invested on a discretionary basis $_____________ 1 in securities (except for
the excluded securities referred to below) as of the end of the Buyer's most
recent fiscal year (such amount being calculated in accordance with Rule 144A)
and (ii) the Buyer satisfies the criteria in the category marked below.

___ Corporation, etc. The Buyer is a corporation (other than
a bank, savings and loan association or similar
institution), Massachusetts or similar business trust,
partnership, or charitable organization described in
Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended.

___ Bank. The Buyer (a) is a national bank or banking
institution organized under the laws of any State,
territory or the District of Columbia, the business of
which is substantially confined to banking and is
supervised by the State or territorial banking commission
or similar official or is a foreign bank or equivalent
institution, and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.

___ Savings and Loan. The Buyer (a) is a savings and loan

__________________________________

1 Buyer must own and/or invest on a discretionary basis at least
$100,000,000 in securities unless Buyer is a dealer, and, in that
case, Buyer must own and/or invest on a discretionary basis at
least $10,000,000 in securities.

I-1-1
<PAGE> 180

association, building and loan association, cooperative
bank, homestead association or similar institution, which
is supervised and examined by a State or Federal authority
having supervision over any such institutions or is a
foreign savings and loan association or equivalent
institution and (b) has an audited net worth of at least
$25,000,000 as demonstrated in its latest annual financial
statements, a copy of which is attached hereto.

___ Broker-dealer. The Buyer is a dealer registered pursuant
to Section 15 of the Securities Exchange Act of 1934.

__ Insurance Company. The Buyer is an insurance company
whose primary and predominant business activity is the
writing of insurance or the reinsuring of risks
underwritten by insurance companies and which is subject
to supervision by the insurance commissioner or a similar
official or agency of a State, territory or the District
of Columbia.

___ State or Local Plan. The Buyer is a plan established and
maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political
subdivisions, for the benefit of its employees.

__ ERISA Plan. The Buyer is an employee benefit plan within
the meaning of Title I of the Employee Retirement Income
Security Act of 1974.

__ Investment Advisor. The Buyer is an investment advisor
registered under the Investment Advisers Act of 1940.

__ Small Business Investment Company. Buyer is a small
business investment company licensed by the U.S. Small
Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958.

__ Business Development Company. Buyer is a business
development company as defined in Section 202(a)(22) of
the Investment Advisors Act of 1940.

__ Trust Fund. The Buyer is a trust fund whose trustee is a
bank or trust company and whose participants are
exclusively State or Local Plans or ERISA Plans as defined
above, and no participant of the Buyer is an individual
retirement account or an H.R. 10 (Keogh) plan.

3. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer, (ii)

I-1-2
<PAGE> 181

securities that are part of an unsold allotment to or subscription by the
Buyer, if the Buyer is a dealer, (iii) bank deposit notes and certificates of
deposit, (iv) loan participations, (v) repurchase agreements, (vi) securities
owned but subject to a repurchase agreement and (vii) currency, interest rate
and commodity swaps.

4. For purposes of determining the aggregate amount of securities
owned and/or invested on a discretionary basis by the Buyer, the Buyer used the
cost of such securities to the Buyer and did not include any of the securities
referred to in the preceding paragraph, except (i) where the Buyer reports its
securities holdings in its financial statements on the basis of their market
value, and (ii) no current information with respect to the cost of those
securities has been published. If clause (ii) in the preceding sentence
applies, the securities may be valued at market. Further, in determining such
aggregate amount, the Buyer may have included securities owned by subsidiaries
of the Buyer, but only if such subsidiaries are consolidated with the Buyer in
its financial statements prepared in accordance with generally accepted
accounting principles and if the investments of such subsidiaries are managed
under the Buyer's direction. However, such securities were not included if the
Buyer is a majority-owned, consolidated subsidiary of another enterprise and
the Buyer is not itself a reporting company under the Securities Exchange Act
of 1934.

6. Until the date of purchase of the Rule 144A Securities, the
Buyer will notify each of the parties to

which this certification is made of any changes in the information and
conclusions herein. Until such notice is given, the Buyer's purchase of Rule
144A Securities will constitute a reaffirmation of this certification as of the
date of such purchase. In addition, if the Buyer is a Bank or Savings and Loan
as provided above, the Buyer agrees that it will furnish to such parties
updated annual financial statements promptly after they become available.

-----------------------------------
Print Name of Buyer

By:
--------------------------------
Name:
Title:

Date:
------------------------------

I-1-3
<PAGE> 182

ANNEX 2 TO EXHIBIT I

QUALIFIED INSTITUTIONAL BUYER STATUS UNDER SEC RULE 144A

[For Buyers that are Registered Investment Companies]

2. In connection with purchases by Buyer, the Buyer is a
"qualified institutional buyer" as defined in SEC Rule 144A because (i) the
Buyer is an investment company registered under the Investment Company Act of
1940, and (ii) as marked below, the Buyer alone, or the Buyer's Family of
Investment Companies, owned at least $100,000,000 in securities (other than the
excluded securities referred to below) as of the end of the Buyer's most recent
fiscal year. For purposes of determining the amount of securities owned by the
Buyer or the Buyer's Family of Investment Companies, the cost of such
securities was used, except (i) where the Buyer or the Buyer's Family of
Investment Companies reports its securities holdings in its financial
statements on the basis of their market value, and (ii) no current information
with respect to the cost of those securities has been published. If clause
(ii) in the preceding sentence applies, the securities may be valued at market.

___ The Buyer owned $________________ in securities (other
than the excluded securities referred to below) as of the
end of the Buyer's most recent fiscal year (such amount
being calculated in accordance with Rule 144A).

___ The Buyer is part of a Family of Investment Companies
which owned in the aggregate $__________ in securities
(other than the excluded securities referred to below) as
of the end of the Buyer's most recent fiscal year (such
amount being calculated in accordance with Rule 144A).

I-2-1
<PAGE> 183

3. The term "Family of Investment Companies" as used herein means
two or more registered investment companies (or series thereof) that have the
same investment adviser or investment advisers that are affiliated (by virtue
of being majority owned subsidiaries of the same parent or because one
investment adviser is a majority owned subsidiary of the other).

4. The term "securities" as used herein does not include (i)
securities of issuers that are affiliated with the Buyer or are part of the
Buyer's Family of Investment Companies, (ii) bank deposit notes and
certificates of deposit, (iii) loan participations, (iv) repurchase agreements,
(v) securities owned but subject to a repurchase agreement and (vi) currency,
interest rate and commodity swaps.

-----------------------------------
Print Name of Buyer or Adviser

By:
--------------------------------
Name:
Title:

IF AN ADVISER:

------------------------------------
Print Name of Buyer

Date:
-------------------------------

I-2-2
<PAGE> 184

EXHIBIT J

[FORM OF "ACCREDITED INVESTOR" TRANSFEREE'S CERTIFICATE]

Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-2

Dear Sirs:

In connection with our proposed purchase of Certificates (the
"Certificates") issued pursuant to the Pooling and Servicing Agreement dated as
of August 1, 1996 (the "Agreement") by and among Mego Mortgage Corporation, as
Seller, Servicer and Claims Administrator, Financial Asset Securities Corp., as
Depositor, First Trust of New York, National Association, as Trustee and
Contract of Insurance Holder, and Norwest Bank Minnesota, N.A., as Master
Servicer, we confirm that:

1. We understand that the Certificates have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and
may not be sold except as permitted in the following sentence. We agree,
on our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that such Certificates may be resold, pledged or
transferred only: (i) so long as such Certificates are eligible for resale
pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a person
whom we reasonably believe is a "qualified institutional buyer" as defined
in Rule 144A (a "QIB") that purchases for its own account or for the
account of a QIB, to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (ii) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
(if applicable) under the Securities Act or (iii) to an institution that is
an "Accredited Investor" as defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act (an "Accredited Investor") that is acquiring the

J-1
<PAGE> 185

Certificates for investment purposes and not for distribution, in each case
in accordance with any applicable securities laws of any state of the
United States, and we will notify any purchaser of the Certificates from us
of the above resale restrictions. We further understand that in connection
with any transfer of the Certificates to an Accredited Investor by us that
the Depositor or Trustee may request, and if so requested we will furnish,
such certificates and other information as they may reasonably require to
confirm that any such transfer with the foregoing restrictions.

2. We are an institutional investor which is an Accredited
Investor or, if the Certificates are to be purchased for one or more
institutional accounts ("investor accounts") for which it is acting as
fiduciary or agent (except if it is a bank as defined in Section 3(a)(2) of
the Securities Act, or a savings and loan association or other institution
as described in Section 3(a)(5)(A) of the Securities Act, whether acting in
its individual or in a fiduciary capacity), each such investor account is
an institutional investor and an Accredited Investor on a like basis. In
the normal course of its business, it invests in or purchases securities
similar to the Certificates, and it has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits
and risks of purchasing any of the Certificates. It is aware that it (or
any investor account) may be required to bear the economic risk of an
investment in the Certificates for an indefinite period of time, and it (or
such account) is able to bear such risk for an indefinite period.

Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed hereto in the Agreement.

Very truly yours,

[PURCHASER]

By:
--------------------------------
Name:
Title:

J-2
<PAGE> 186

EXHIBIT K

[FORM OF TRANSFEROR'S CERTIFICATE]

Date:

Financial Asset Securities Corp.
600 Steamboat Road
Greenwich, Connecticut 06830

First Trust of New York, National Association
c/o First Bank National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
Attention: Structured Finance

Re: Mego Mortgage FHA Title I Loan Trust Series 1996-2

Ladies and Gentlemen:

In connection with our disposition of Certificates (the "Certificates")
issued pursuant to the Pooling and Servicing Agreement dated as of August 1,
1996 (the "Agreement") by and among Mego Mortgage Corporation ("Mego"),
Financial Asset Securities Corp., as Depositor, First Trust of New York,
National Association, as Trustee and Contract of Insurance Holder, and Norwest
Bank Minnesota, N.A., as Master Servicer, we certify that:

[(b) we have not offered or sold any Certificates to, or
solicited offers to buy any Certificates from, any person, or
otherwise approached or negotiated with any person with respect
thereto, in a manner that would be deemed, or taken any other
action which would result in, a violation of Section 5 of the Act]
[; and]

[(c) to the extent we are disposing of a Class R Certificate, we
have no actual knowledge that the transferee is not a Permitted
Transferee.]

Very truly yours,

----------------------------------
Name of Transferor

By:
--------------------------------

Name:
-----------------------------

Title:
-----------------------------

K-1
<PAGE> 187

EXHIBIT L

[FORM OF TRANSFER AFFIDAVIT FOR THE CLASS R CERTIFICATE]

STATE OF )
) ss.:
COUNTY OF )

The undersigned, being first duly sworn, deposes and says as follows:

I The undersigned is an officer of _______________, the proposed
Transferee of an Ownership Interest in a Class R Certificate (the
"Certificate") issued pursuant to the Pooling and Servicing Agreement dated as
of August 1, 1996 (the "Agreement") by and among Mego Mortgage Corporation, as
Seller, Servicer and Claims Administrator, Financial Asset Securities Corp., as
Depositor, First Trust of New York, National Association, as Trustee and
Contract of Insurance Holder, and Norwest Bank Minnesota, N.A., as Master
Servicer. Capitalized terms used, but not defined herein or in Exhibit 1 which
is attached hereto, shall have the meanings ascribed to such terms in the
Agreement. The Transferee has authorized the undersigned to make this
affidavit on behalf of the Transferee.

II The Transferee is, as of the date hereof, and will be, as of the
date of the Transfer, a Permitted Transferee. The Transferee is acquiring its
Ownership Interest in the Certificate either (i) for its own account or (ii) as
nominee, trustee or agent for another Person and has attached hereto an
affidavit from such Person in substantially the same form as this affidavit.
The Transferee has no knowledge that any such affidavit is false.

III The Transferee has been advised of, and understands that (i) a tax
will be imposed on Transfers of the Certificate to Persons that are not
Permitted Transferees; (ii) such tax will be imposed on the transferor, or, if
such Transfer is through an agent (which includes a broker, nominee or
middleman) for a Person that is not a Permitted Transferee, on the agent; and
(iii) the Person otherwise liable for the tax shall be relieved of liability
for the tax if the subsequent Transferee furnished to such Person an affidavit
that such subsequent Transferee is a Permitted Transferee and, at the time of
Transfer, such Person does not have actual knowledge that the affidavit is
false.

L-1
<PAGE> 188

IV The Transferee has been advised of, and understands that a tax
will be imposed on a "pass-through entity" holding the Certificate if at any
time during the taxable year of the pass-through entity a Person that is not a
Permitted Transferee is the record holder of an interest in such entity. The
Transferee understands that such tax will not be imposed for any period with
respect to which the record holder furnishes to the pass-through entity an
affidavit that such record holder is a Permitted Transferee and the
pass-through entity does not have actual knowledge that such affidavit is
false. (For this purpose, a "pass-through entity" includes but is not limited
to a regulated investment company, a real estate investment trust or common
trust fund, a partnership, trust or estate, and certain cooperatives and,
except as may be provided in Treasury Regulations, persons holding interests in
pass-through entities as a nominee for another Person.)

V The Transferee has reviewed the provisions of Article XI of the
Agreement (which is attached hereto as Exhibit 2 and incorporated herein by
reference) and understands the legal consequences of the acquisition of an
Ownership Interest in the Certificate including, without limitation, the
restrictions on subsequent Transfers and the provisions regarding voiding the
Transfer and mandatory sales. The Transferee expressly agrees to be bound by
and to abide by the provisions of Article XI of the Agreement and the
restrictions noted on the face of the Certificate. The Transferee understands
and agrees that any breach of any of the representations included herein shall
render the Transfer to the Transferee contemplated hereby null and void.

VI The Transferee agrees to require a Transfer Affidavit from any
Person to whom the Transferee attempts to Transfer its Ownership Interest in
the Certificate, and in connection with any Transfer by a Person for whom the
Transferee is acting as nominee, trustee or agent, and the Transferee will not
Transfer its Ownership Interest or cause any Ownership Interest to be
Transferred to any Person that the Transferee knows is not a Permitted
Transferee. In connection with any such Transfer by the Transferee, the
Transferee agrees to deliver to the Trustee a certificate (a "Transfer
Certificate") to the effect that such Transferee has no actual knowledge that
the Person to which the Transfer is to be made is not a Permitted Transferee.

VII The Transferee's taxpayer identification number is _____.

L-2
<PAGE> 189

IN WITNESS WHEREOF, the Transferee has caused this instrument to be
executed on its behalf, pursuant to authority of its Board of Directors, by its
duly authorized officer and its corporate seal to be hereunto affixed, duly
attested, this ____ day of _____________, 19__.

NAME OF TRANSFEREE]

By:
--------------------------------
Name:
Title:

Subscribed and sworn before me this ____ day of _______, 19__.

-----------------------------
NOTARY PUBLIC

My Commission expires the ___
day of _______________, 19__.

L-3
<PAGE> 190

Exhibit 1
to EXHIBIT L

Certain Definitions

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

"Permitted Transferee": Any Person other than (i) the United States, any
state or any political subdivision thereof, any possession of the United
States, or any agency or instrumentality of any of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (ii) a foreign government, international organization or
any agency or instrumentality of either of the foregoing (other than an
instrumentality that is a corporation if all of its activities are subject to
tax and a majority of its board of directors is not selected by any such
governmental unit), (iii) an organization (except certain farmers' cooperatives
described in Code Section 521) exempt from tax imposed by Chapter 1 of the Code
(including the tax imposed by Section 511 of the Code on unrelated business
taxable income) on any excess inclusions (as defined in Code Section
860E(c)(1)) with respect to any Class R Certificate, (iv) rural electric and
telephone cooperatives described in Code Section 1381(a)(2)(c), (v) any other
Person so designated by the Trustee based upon an Opinion of Counsel that the
holding of an ownership interest in a Class R Certificate by such Person may
cause the Trust or any Person having an ownership interest in any Class R
Certificate, other than such Person, to incur a liability for any tax imposed
under the Code that would not otherwise be imposed but for the transfer of an
ownership interest in a Class R Certificate to such Person and (vi) a Person
that is not a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source unless such person provides the Trustee with a duly completed
Internal Revenue Service Form 4224. The terms "United States," "state" and
"international organization" shall have the meanings set forth in Code Section
7701 or successor provisions.

"Transfer": Any direct or indirect transfer or sale of any

L-1-1
<PAGE> 191

Ownership Interest in a Certificate.

"Transferee": Any Person who is acquiring by Transfer any Ownership
Interest in a Certificate.

L-1-2
<PAGE> 192

Exhibit 2
to EXHIBIT L

Section 11.01 of the Agreement

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

(1) Only a Permitted Transferee may hold or acquire
any Ownership Interest in a Class R Certificate. Each Person holding or
acquiring any Ownership Interest in a Class R Certificate shall promptly
notify the Trustee, the Certificate Insurer and the Master Servicer of any
change or impending change in its status as a Permitted Transferee.

(3) Notwithstanding the delivery of a Transfer
Affidavit by a proposed Transferee under clause (ii) above, if the
Responsible Officer or Responsible Officers of the Trustee has or have
actual knowledge that the proposed Transferee is not a Permitted
Transferee, the Trustee shall not register and, if the Trustee is not the
Certificate Registrar, shall direct to the Certificate Registrar not to
register a Class R Certificate in the name of the proposed Transferee, no
Transfer of an Ownership Interest in the Residual Interest to such proposed
Transferee shall be effected and the Trustee, and Certificate Registrar,
shall have no liability for failing to effect the proposed registration.

(4) Any attempted or purported Transfer of any
Ownership Interest in a Class R Certificate in violation of the provisions
of this Section 11.01 of the Agreement shall be absolutely null and void
and shall vest no rights in the purported Transferee. If any purported
Transferee shall, in violation of the provisions of this Section 11.01 of
the Agreement, become a Holder of a Class R Certificate, then the prior
Holder of such Class R Certificate

L-2-1
<PAGE> 193

shall, upon discovery that the registration of Transfer of such Class R
Certificate was not in fact permitted by this Section 11.01 of the
Agreement, notify the Trustee and the Trustee, upon receipt of such notice
and upon verification of the facts set forth in such notice or upon
discovery by other means that the registration of Transfer of such Class R
Certificate was not in fact permitted by this Section 11.01 of the
Agreement, shall notify the Master Servicer and the Certificate Registrar
of such improper Transfer (such notice to be accompanied by an Opinion of
Counsel to the effect that such Transfer was improper and the retroactive
restoration of the rights of the last preceding Permitted Transferee as
described in this clause (iv) shall not be invalid, illegal or
unenforceable) and, subject to clause (v) below, shall make payments due on
such Class R Certificate to the last preceding Holder that is a Permitted
Transferee (as described in such written notice) and the last Holder that
is a Permitted Transferee shall be restored to all rights as Holder thereof
retroactive to the date of registration of Transfer of such Class R
Certificate. The Trustee shall be entitled, but shall not be obligated, to
recover from any Holder of a Class R Certificate that was in fact not a
Permitted Transferee at the time it became a Holder all payments made on
such Class R Certificate. Any such payments so recovered by the Trustee
shall be paid and delivered by the Trustee to the last preceding Holder
that is a Permitted Transferee who was a Holder of such Class R
Certificate.

(5) If any Person that is not a Permitted Transferee
acquires any Ownership Interest in a Class R Certificate in violation of
the restrictions in this Section 11.01 of the Agreement, and (A) to the
extent that the retroactive restoration of the rights of the last preceding
Holder that is a Permitted Transferee as described in clause (iv) above
shall be invalid, illegal or unenforceable or (B) if the Trustee is unable
within a reasonable period to obtain the Opinion of Counsel required by
clause (iv) above then the Trustee shall have the right, without notice to
the Holder of such Class R Certificate or any other Person having an
Ownership Interest therein, to sell such Class R Certificate to a purchaser
selected by the Trustee on such terms as the Trustee may choose. The
proceeds of such sale, net of commissions, expenses and taxes due, if any,
will be remitted to the Holder of such Class R Certificate by the Trustee,
except that in the event that the Trustee determines that the Holder of
such Class R Certificate may be liable for any amount due under Section
11.02 or any other provisions of the Agreement, the Trustee may withhold a
corresponding amount from such remittance as security for such claim. The
terms and conditions of any sale under this clause (v) shall be determined
in the sole discretion of the Trustee, and it shall not be liable to any
Person having an Ownership Interest in a Class R Certificate as a result of
its exercise of such discretion.

L-2-2
<PAGE> 194

(6) The Trustee shall make available, upon receipt of
written requests, all information necessary to compute any tax imposed (A)
as a result of the Transfer of an Ownership Interest in Class R
Certificates to any Person who is not a Permitted Transferee, and (B) as a
result of any regulated investment company, real estate investment trust,
common trust fund, partnership, trust, estate or organizations described in
Code section 1381 that holds an Ownership Interest in a Class R Certificate
and having as among its record holders at any time any Person who is not a
Permitted Transferee. Reasonable compensation for providing such
information may be charged by the Trustee. The information furnished must
be sufficient to compute the present value of the anticipated excess
inclusions as required by Treasury Department regulations. The information
must be furnished to the requesting party or such later time period as
allowed by Treasury Department regulations or the Internal Revenue Service.

(7) No undivided interest of the Residual Interest
may be transferred to any Person unless the entire interest and rights
relating to such undivided interest in the Residual Interest under this
Agreement are transferred to such Person.

(8) The provisions of Section 11.02 of the Agreement
set forth prior to this clause (viii) may be eliminated upon execution by
the Trustee of a certificate stating that the Trustee has received an
Opinion of Counsel, in form and substance satisfactory to the Trustee, to
the effect that the absence of such provisions will not cause the REMIC
Pool to cease to qualify as a REMIC and will not create a risk that (A) the
Trust or the REMIC Pool may be subject to an entity-level tax caused by the
Transfer of any Ownership Interest in a Class R Certificate to a Person
which is not a Permitted Transferee or (B) a Holder of a Senior Certificate
or another Person will be subject to a REMIC-related tax caused by the
Transfer of any Ownership Interest in a Class R Certificate to a Person
which is not a Permitted Transferee.

L-2-3
<PAGE> 195

EXHIBIT M

DEPOSITORY AGREEMENT

L-2-1

<PAGE> 1

EXHIBIT 12.1

COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE NINE
FOR THE YEARS MONTHS ENDED MAY
ENDED AUGUST 31, 31,
------------------ -----------------
1994 1995 1995 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
Income (loss) before provision for income taxes per
income statement................................. $(1,511) $5,919 $1,854 $7,463
Add
Portion of rents representative of the interest
factor(1)..................................... 31 82 54 80
Interest on indebtedness(2)...................... 129 655 380 701
------- ------ ------ ------
Income as adjusted....................... $(1,351) $6,656 $2,288 $8,244
======= ====== ====== ======
Fixed charges
Interest on indebtedness(2)...................... $ 129 $ 655 $ 380 $ 701
Prepaid commitment fees.......................... 50 129 -- 25
Portion of rents representative of the interest
factor(1)..................................... 31 82 54 80
------- ------ ------ ------
Fixed charges................................. $ 210 $ 866 $ 434 $ 806
------- ------ ------ ------
Ratio of earnings to fixed charges................. NM 7.69 5.27 10.23
======= ====== ====== ======
(1) Total rents.................................... $ 93 $ 249 $ 164 $ 243
Multiplied by 1/3............................. 0.33 0.33 0.33 0.33
------- ------ ------ ------
Portion of rents representative of the interest
factor........................................... $ 31 $ 82 $ 54 $ 80
======= ====== ====== ======
(2) Based on total interest expense.
</TABLE>

NM = NOT MEANINGFUL

<PAGE> 1

EXHIBIT 21.1

SUBSIDIARIES OF THE REGISTRANT

None.

<PAGE> 1

EXHIBIT 23.2

INDEPENDENT AUDITORS' CONSENT

We consent to the use in this Registration Statement of Mego Mortgage
Corporation on Form S-1 of our report dated February 29, 1996 (September ,
1996 as to the last paragraph of Note 2), appearing in the Prospectus, which is
part of this Registration Statement, and to the references to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.

Las Vegas, Nevada
September , 1996

The financial statements of Mego Mortgage Corporation referred to in this
consent retroactively reflect the effect of a sixteen-hundred-for-one stock
split of common stock which is to be effected before the effective date of this
Registration Statement. The above consent is in the form which will be signed by
Deloitte & Touche LLP upon consummation of such stock split, which is described
in Note 2 of Notes to Financial Statements, and assuming that, from February 29,
1996 to the date of such stock split, no other events shall have occurred that
would affect the financial statements and notes thereto.

DELOITTE & TOUCHE LLP

Las Vegas, Nevada
September 20, 1996

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MEGO MORTGAGE CORPORATION FOR THE YEAR ENDED AUGUST 31,
1995 AND FOR THE NINE MONTHS ENDED MAY 31, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> AUG-31-1995 AUG-31-1995
<PERIOD-START> SEP-1-1994 SEP-1-1995
<PERIOD-END> AUG-31-1995 MAY-31-1996
<CASH> 752 841
<SECURITIES> 0 15,144
<RECEIVABLES> 3,750 4,766
<ALLOWANCES> 74 95
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 537 1,025
<DEPRECIATION> 108 225
<TOTAL-ASSETS> 24,081 40,499
<CURRENT-LIABILITIES> 0 0
<BONDS> 1,458 8,872
0 0
0 0
<COMMON> 5,000 5,000
<OTHER-SE> 5,781 10,411
<TOTAL-LIABILITY-AND-EQUITY> 24,081 40,499
<SALES> 0 0
<TOTAL-REVENUES> 13,579 17,390
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 7,660 9,927
<LOSS-PROVISION> 864 815
<INTEREST-EXPENSE> 187 120
<INCOME-PRETAX> 5,919 7,463
<INCOME-TAX> 2,277 2,833
<INCOME-CONTINUING> 3,642 4,630
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,642 4,630
<EPS-PRIMARY> 0.36 0.46
<EPS-DILUTED> 0.36 0.46

</TABLE>